Chicago members of the National Association of Realtors say they’re prepared for the changes that some housing experts describe as the industry’s largest shift in how homes are bought and sold.
NAR, a professional organization of real estate agents whose members are known as Realtors, will be implementing two major changes starting Saturday as part of a $418 million antitrust settlement.
The changes upend more than a decade of industry procedures and could affect how buyer agents have traditionally been paid. It could also open up more opportunities for homebuyers and sellers.
“What we’re really going through is a seismic shift,” said Matt Silver, a partner and senior broker in Corcoran Urban Real Estate.
The NAR doesn’t expect home prices or sales to fall but says the changes could make it harder for first-time homebuyers in a frenzied real estate market.
What’s the biggest change?
Offers of broker compensation no longer will be displayed on the Multiple Listing Service, a database used by licensed brokers and agents to share information about properties for sale as well as commissions.
Historically, broker commissions have been paid by sellers. Seller’s agents usually agree to split their commission with the buyer’s agent. That means homebuyers often don’t incur an extra cost when working with a real estate agent — a big relief for first-time buyers — as their agent’s commission is covered by the seller.
Commissions typically range from 5% to 6%.
Compensation offers will still be an option consumers can pursue off MLS through negotiation and consultation with real estate professionals, according to NAR, which says broker commissions have always been negotiable.
How agents are compensated is “the biggest change our industry has had to deal with in easily 100 years,” according to Laura Ellis, Baird & Warner’s chief strategy officer, executive vice president and president of residential sales, who has been with the firm since 1998.
Ellis said the change will create more conversations between real estate agents and clients, requiring agents to use different skills than they might be used to.
Laura Ellis of Baird & Warner at the company’s Gold Coast office.
“We did a big push on educating our agents about the fact that most buyers thought that the process or the service to them was free because … the seller technically paid the commission,” Ellis said. “Transparency in that alone is a big difference.”
Many real estate agents have been letting clients know in advance about the changes. And trade groups have been sharing updates for months with their members ahead of Saturday’s deadline.
Why is this happening now?
The changes stem from a series of class-action lawsuits filed by homeowners, who accused the NAR of fixing broker commissions at high rates and discouraging sellers from seeking better terms. The association has 1.5 million members and broad control over access to the MLS system.
The NAR agreed to settle the lawsuit in March., ending litigation that could have resulted in a $1.8 billion verdict against the association and tripled under antitrust law.
In April, a federal judge in Missouri granted preliminary approval to the settlement. A final approval hearing is scheduled in November.
The NAR has denied any wrongdoing.
Are other changes coming?
The settlement also requires all real estate agents working with a buyer to enter a written agreement outlining compensation before touring homes.
Some Chicago real estate agents say the written agreement requires less of an adjustment for them because they already use buyer-broker agreements.
Erika Villegas, a real estate agent for more than 20 years, said she’s always used buyer-broker agreements even though her firm, Oak Park’s RE/MAX In the Village, never required them. Villegas said requiring the document industrywide will be beneficial.
“I think it’s a great opportunity for us to make sure that we are providing the best tools, best services and we [are] making it very clear and transparent of the work that we do for buyers,” Villegas said.
Illinois real estate laws will change in 2025, including the requirement for written brokerage agreements.
What this means for you and the industry
While broker compensation no longer will be displayed on the MLS, Ellis doesn’t expect a change in how brokers are compensated. She predicts buyers will ask sellers for a “closing cost credit,” which buyers then use to pay their agent. Homebuyers also can ask the seller to pay their broker — reverting to the traditional model.
Both those scenarios emphasize that the buyer commission comes from the home transaction, Ellis said.
“It doesn’t mean that [buyers] are going to have to come out of pocket with money that they never did before,” she said.
Buyers and sellers also could elect to separately pay their own broker, raising concern among some real estate agents about how the rules could affect first-time buyers.
How will first-time buyers be affected?
First-time buyers, including those from underrepresented groups, can have trouble with financing their first home and having to pay a broker’s commission could act as an extra hurdle, according to Brian Kwilosz of EXIT Realty. Kwilosz said EXIT is watching the impact the changes will have on first-time buyers.
Lutalo McGee, owner of the real estate firm Ani World, plans to stress that cooperative compensation remains an option for new buyers even if it’s negotiated differently. Ani Real Estate, under the umbrella of McGee’s Ani World, has the bulk of its sales on the South Side.
“A lot of clients, at least that I service and my brokers [service], are those that have struggled with down payments and closing costs in the past,” McGee said. “We’re going to be actively monitoring to see what the impact of these changes are going to be.”
Several real estate agents said they don’t think the changes will affect home prices. The housing market is driven by supply and demand, Silver said, and with a dearth of housing across the region, he doesn’t think home prices will go down “anytime soon.”
It’s possible buyer commission rates could drop as agents and their clients have more conversations about compensation. But Ellis predicts agents will complete more transactions after Saturday’s changes take effect.
“I think that good real estate agents will actually increase their income,” Ellis said. “We’ve got to do what’s right for the consumer and what they want and bring real, tangible value to them.”
