‘Gut punch’: Local realtors react to settlement that could change commission structure

Confusion, chaos and misinformation are spreading like wildfire throughout the real estate world as the industry grapples with the potential fallout of a settlement concerning the National Association of Realtors and agent commissions.

The $418 million agreement settles lawsuits filed across the country, including two in Nevada, that alleged the powerful trade association conspired to keep agents’ commissions high. The changes, expected to go into effect this summer, could lower how much most agents get paid and put some out of business.

Changing the commission structure could mean real estate agents who get listings will have more power and buyers’ agents will have to show their worth much more, said Nicholas Irwin, a UNLV assistant professor of economics and researcher at the Lied Center for Real Estate.

In the current structure, an agent who represents a homebuyer would be paid a commission by the seller as part of the total home sale price.

“I think a lot of buyers’ agents haven’t had to demonstrate their value to clients as much as sellers’ agents,” he said. “Just because of the nature of how they’re paid, if you’re just going to pay someone and they’re just kind of along for the ride, there’s no skin in the game. But now, there is skin in the game for buyers’ agents.”

The settlement includes several rule changes for NAR, but the association does not admit any wrongdoing as part of the agreement. The Las Vegas Realtors, the largest association in the valley, deferred to NAR for comment on the settlement.

NAR issued a statement reiterating that it “does not set commissions” and that “the rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation. That offer can be any amount, including zero.”

The Las Vegas Review-Journal reached out to multiple local agents regarding how the changes could impact the market and their careers, but most didn’t know or declined to comment.

The biggest repercussion of the settlement could be the decreased power of the Multiple Listing Service, which NAR controls through local associations across the country and factors into most real estate deals done in the U.S. Part of the allegations against NAR and its accompanying associations and brokerages was its control of the MLS as a way to allegedly set commissions somewhere between 5 and 6 percent using monopolistic tactics. The settlement forbids agents from setting their commissions via the MLS. It also gets rid of the ban on the requirement for real estate agents to join to the MLS in the first place.

Tim Kelly Kiernan, branch manager of Realty ONE Group’s Summerlin office, said at the end of the day, the biggest change could be the negotiating dynamic between sellers’ agents and buyers’ agents.

“If there is no offer of compensation allowed via the MLS system, the buyer’s agent will have to reach out to the listing agent not only to ask questions about the property condition and other typical buyer agent questions on behalf of their buyer, but ask questions on how the buyer’s brokerage will be compensated,” he said. “The buyer’s agent will ask the listing agent how much, if any, the seller is willing to compensate the buyer brokerage firm. This will be problematic to me. But this practice is common on most all commercial transactions.”

Michael Vestuto, a real estate agent with Vestuto Realty Group, called the settlement a “gut punch” to NAR members and a “major win” for people looking to sell their homes and said that these changes will hurt homebuyers.

“Unfortunately, this is going to create chaos, dishonesty, greed. When times get tough, people try to get creative with earning money by preying on others. There is so much uncertainty about the terms of the settlement, and I believe NAR settled too quickly, possibly because they were unable to come up with the funds to satisfy the bond for appeal.”

Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.