How Realtors work with home sellers and buyers will change as the result of a recent $418 million national settlement with a large real estate group — but rapidly rising housing prices may not ease much or at all because of the deal, multiple Iowa Realtors say.

In class-action lawsuits against the National Association of Realtors, home sellers argued that agents had been charging them excessive fees that drive up the cost of homes — and helping steer buyers to more expensive homes that offer larger commission payouts.

“Home sellers have been compelled to set a high buyer broker commission to induce buyer brokers to show their homes to the buyer brokers’ clients,” according to one of the plaintiffs’ lawsuits.

As part of the settlement, the powerful national trade group said in March it would eliminate its rules on commissions and make other changes. One Iowa expert believes the deal will have substantial effects on the real estate industry — including the possible proliferation of brokers offering their services to sellers at discounted commission rates.

While Eastern Iowa Realtors say that commissions rates have always been negotiable, the nationwide standard has been 5 or 6 percent — a fee charged to sellers that typically is split with a buyer’s representative if there is one in the transaction.

And that can be a substantial amount. According to the U.S. Census Bureau, the median price of a home in the nation was $485,000 in February. At a 6 percent commission, that’s over $29,000.

The trade association agreed to require its Realtors to enter into an agreement upfront that includes what services the agent will provide, and for how much. The association also agreed to no longer require a Realtor to make a compensation proposal to buyers and their agent to list the property on a Multiple Listing Service, or a database showing homes for sale. Compensation for that will now be up to the buyer — not the seller.

The settlement is subject to court approval. If it is approved, it is expected to go into effect in July.

Eastern Iowa Realtors react

Shaner Magalhães, a Coralville Realtor and president of the Iowa Association of Realtors, said since the settlement was announced, he has been attempting to calm other Realtors to ensure them that — in his words — the sky is not falling and that the changes outlined in the settlement could be good for their profession.

“What a lot of members are looking at is, ‘Oh my God, change. Change is horrible.’ And it’s this negative thing. And, yes, we’re going to have to do business a little differently in various aspects. But, you know, these are probably things that should have been done proactively anyway in the real estate industry,” Magalhães said.

Magalhães said having a signed agreement between a Realtor and a homebuyer is one example of an added level of transparency that could help improve the homebuying experience.

He said he has experienced homebuyers, especially first-timers, who are unaware of some of the basic elements of homebuying and working with Realtors, and that a signed agreement upfront should help eliminate confusion or surprises.

As an example, Magalhães recalled working with a young couple who near the end of the process of buying a home suddenly became panicked about paying Magalhães’ commission — not realizing that fee was already worked into the purchase price.

“I think that’s a great example of how that scenario should never occur. And without this requirement in place, there is the possibility that that does happen,” Magalhães said. “And likewise on the seller side, even though we’ve had listing agreements in place, this really emphasizes to all Realtors that you need to have that conversation with sellers about, ‘OK, here’s how much I charge for commission.’ And there are various options.”

Gavin Blair, chief executive officer of the Iowa Association of Realtors, said the settlement terms could be an uncomfortable change for some Realtors. But he also said he feels that additional communication and transparency could help the process.

“It could be an awkward thing for some of our members to have that conversation up front because (the Realtor is saying), ‘OK, here’s how I’m going to get paid. Here’s what my fee is,’” Blair said.

Multiple Iowa Realtors who spoke to The Gazette expressed frustration with the notion that there is a standard commission. Commissions typically are 5 or 6 percent of the purchase price. However, those fees are negotiable. And they always have been — the settlement does not change that, Eastern Iowa Realtors said.

“I think the narrative has been misinformed — it’s been harmful — that there’s this set commission. Commissions have always been negotiable. Compensation has always been negotiable,” said Kevin Platz, CEO of the Cedar Rapids Area Association of Realtors.

How the settlement will impact buying and selling

Whether the settlement will have a broader impact on Realtors, the process of buying and selling homes, or home prices remains to be seen, Realtors said.

“That’s the million-dollar question,” said Annie Kaestner, president of the Cedar Rapids Area Association of Realtors.

William Boal, an economics professor in Drake University’s Zimpleman College of Business, said he expects the settlement to have a “substantial” impact on the real estate industry, saying the effects could be similar to the deregulation of stock trading commissions at the New York Stock Exchange a half-century ago.

Boal said one impact could be the emergence of Realtors who offer their services at discount but who play a more limited role.

“Some full-service brokers will remain in the market, but homeowners will be able to choose between full-service and discount brokers,” Boal said.

Blair agreed that buyers may feel more empowered to negotiate or shop for lower commissions. “Some people might shop around and say, ‘You know what, I’m going to try to go to a discount brokerage, or go to a flat fee brokerage,’ or whatever it might be,” Blair said.

Boal also said he expects commissions to lower, on average, because of increased competition.

“Commissions will probably fall more at the high end since the true cost of selling a house is probably not strictly proportional to the value of the house,” he said.

Boal also predicted that, as a result of lower commissions, home sales will increase in frequency, especially among people moving within the same city.

How the settlement will impact home prices

Magalhães said he is skeptical the settlement would have a measurable impact on home prices. He said he expects the same factors that have always driven home prices to continue.

“I’m not an economist. I’m just going by my own personal experience. But the thing that drives prices more than anything, and it’s just basic economics, is supply and demand,” Magalhães said.

“I never — and I don’t think any Realtors, when they’re pricing a home to list — give any consideration at all, zero consideration, to what the commission was for that house when it sold last, what it’s going to be. That is not a factor in deciding what a home should be priced at. It’s based on comparable homes that have sold in the last few months, etc.”

Between January 2023 and January 2024, home prices grew nationally by 5.8 percent, according to an analysis by Core Logic, a property information company. The average price in Iowa grew between 5 and 7 percent — roughly the national average, but more than in Minnesota and Nebraska but less than in Illinois, Missouri, Wisconsin and South Dakota.

Forecasting the future of home selling and buying

Despite all the ways the settlement will impact home buying and selling, Blair said he does not foresee major changes coming to the real estate market or for Realtors. He agreed with Magalhães and others who say a more transparency can be a good thing.

“I don’t think it will (significantly change that process). I think there’ll be a better understanding of it,” Blair said. “I think ultimately the buyer and the seller will fully understand better going into the transaction how this all works. …

“I think at the end of the day, all this did was codify much more clearly, the settlement piece, how real estate in practicality has worked,” Blair added. “But I think it’s a better understanding for sellers and buyers to understand how everybody’s getting paid in this deal. And I think it doesn’t hurt to have that understanding be there from the very get go.”

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