Will There be a Change in How Real Estate Commissions are Paid? 

Part 3 in our Series "Understanding Real Estate Commissions"

Here we are - the final part in our series on a deep dive into real estate commissions. In Part 1, we explored the historical context of how commissions came to be and learned it was by public demand. In Part 2, we outlined all the details about the current lawsuits and how commissions are typically set and paid.  Today, we'll explore where we go from here.  

• How the current lawsuits might affect the process
• Potential impact to affordability
• The affect on you as a home buyer or home seller in Denver 

If Sellers No Longer Pay Commission to Buyer's Agents

Imagine a world where sellers no longer offer commissions to buyer's agents—what would this mean for the real estate landscape? 

If you're a home seller, you may be thinking "perfect - I'll pay my listing agent and the buyer can pay their agent".  Let's play this out.  If a seller stops offering a co-op commission (as explained in Part 1), the buyer will need to pay their own agent. Sounds fine on the surface.  But when you couple that burden onto a buyer who is already struggling with affordability, we are simply adding fuel to the fire.  

As a seller, you get to decide what to offer to a buyer's agent.  What if you're a home seller who decides to offer $0 to a buyer's agent?  You can certainly do that. But consider that this may not be a unilateral decision.  Other sellers may be offering to pay a co-op fee to a buyer's agent.  Of course that benefits the agent ... but it also removes the burden from the buyer.  So buyers may direct their agent to only show them homes where the co-op is offered.  If you've offered nothing to a buyer's agent, your home may not get the attention in the form of showing requests from buyers. And showings lead to offers.  So this could cause your home to sit unsold.

Impact on Buyer Affordability 

With the average close price in the Denver Metro area at $660,000, the topic of affordability is all over the news.  Denver continues to be a city that draws newcomers.  Our economy is thriving and we all love the plentiful outdoor activities and escaping to the mountains on a whim.  Our real estate market has historically been one of the hottest non-coastal markets in the nation.  In fact, check out this report from US News where we sit at #1! But our affordability continues to be an issue. Denver's median price about 36% higher than the national average. Our home prices have seen dramatic appreciation in the past several years and we've simply risen to home values that create a struggle. Especially for first-time home buyers. The debate over real estate commissions simply adds to this.

The Possibility of Buyers Paying Their Own Agents

Could buyers find themselves footing the bill for their agents' services in the future? We may start to see this.  But here's the rub. Currently, a buyer is not allowed to include commission as part of their mortgage. So the buyer would need to have additional funds to pay the buyer's agent.  And if they've scrimped to save up for a down payment - and now need to fund an agent - we just decreased their chance of buying a home.  

One likely scenario we may see is a buyer calling the agent who has the house listed.  They may perceive that they will not need to pay an agent this way.  But as we highlighted in Part 1 of this series, calling the listing agent potentially leads to a buyer who is unrepresented and no agent negotiating for their best interests.

Next Steps with NAR

With the recent legal battles and regulatory scrutiny surrounding real estate commissions, what's next for the National Association of Realtors (NAR)? 

NAR is continuing to defend the lawsuits.  And there's good reason. As we outlined in Part 2, a lot of evidence was not allowed to be presented in court.  As these lawsuits play out and get appealed, it may just lead to a realization that there's no funny business happening.  And we may continue with the current process.  I do think there's benefit to the investigation though.  Shedding light on how agents get paid and helping buyers understand that they have a choice in who they hire is always healthy.  

What Does All of This Mean to You?

As we peer into the future of real estate commissions, one thing remains certain—change is inevitable. Whether it's sellers reconsidering their approach to commissions or buyers facing new financial considerations, the landscape of real estate is constantly evolving. Stay tuned as we navigate these changes together and continue to uncover the latest insights.  You'll always get the straight talk from me!

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