Last week, the National Association of Realtors, one of the country’s largest industry associations, reached a groundbreaking $418 million settlement over an alleged conspiracy to inflate realtors’ commissions. Some have said the settlement signals an end to real-estate agents as we know them. But an award-winning finance professor, specialized in housing economics, says the demise of this particular profession has been coming for a while.
Indeed, Andrew C. Spieler, a distinguished professor in business and finance at Hofstra University, likens real estate agents to travel agents. Like travel agents, realtors were once the “gatekeepers” of information. They had access to MLS listings that consumers couldn’t find on their own, so buyers had to be much more “dependent” on their agents to even start house hunting, Spieler tells Fortune.
“You just don’t need them,” he says in regard to both travel agents and real estate agents. “I mean, there’s still a few out there, but it’s going to compress the industry.” Spieler is an award-winning academic who has won several industry awards for his real-estate research.
It’s not rocket science, he says. It’s the internet. Online, homebuyers have access to nearly all the information they’d need to purchase a home. On websites like Zillow and Realtor.com, consumers get almost all of the details they’d want to know, plus photos of the property.
Questioning the use of real estate agents was “inevitable even without the settlement,” Spieler says. “If you think about what an agent does for you, I think it’s very different than what they used to do for you because so much more information is available on the internet.”
Before the advent of the internet (and online real estate marketplaces, more specifically), homebuyers had to be much more “dependent” on their real estate agents to even show them inventory, he says. In fact, it was hard to even start house hunting “unless you happened to be driving by and someone had a for-sale sign.” Back in the day, real estate agents would just print out the MLS listings (that only they had access to), or “if you’re lucky, [they’d] email it to you,” Spieler says.
“Now, that part of the process is completely removed,” he says. “The buyers are so much more informed. And to me it comes down to, ‘What am I paying for as the buyer?’”
Really, the main purpose a real-estate agent serves now is getting the transaction done with the “least amount of stress,” Spieler says. They still can be useful in situations where buyers or sellers need to make a quick move to avoid a “misstep” in the transaction.
Let’s talk commissions
Getting back to the NAR settlement itself, another main concern buyers and sellers have with using real estate agents today is commission rates. NAR agreed to pay the $418 million in damages across several antitrust lawsuits, including the $1.8 billion verdict that landed on Halloween last year. These found NAR and other brokerages conspired to inflate realtor commissions. While NAR still denies any wrongdoing in these cases, the organization said it would prevent broker compensation offers on MLS and require users to complete written representation contracts with buyers.
Commission rates can be particularly sour for buyers and sellers of expensive properties. Take a $2 million home, for example. At a standard 4% commission rate, the realtors on the transaction would take home $80,000 (although that figure is distributed among the buyers’ agent, the sellers’ agent, and a broker). Typically, a commission rate falls between 4% and 6% of the transaction price.
“That’s a lot to pay for,” Spieler says. “And for what? Sometimes you sell the house pretty quick. You find the person, and you’re shuffling some papers. It’s a lot of money when you think about it.”
In total, analysts suggest Americans pay about $100 billion in real estate commissions each year, but the result of the NAR settlement could cut that by 30%. With such a steep drop in commissions earnings, some experts argue this could mean the demise in real estate agents—or as Spieler puts it, a major “compression,” or downsizing of the profession. Currently, there are about 1.5 million realtors in the U.S.
Other real estate experts, however, argue the NAR settlement won’t really change that much in the long run.
“I do think we’re in for a little shake-up, but in the end, we’ll find a workaround all the way back around to where we’re doing business very similar as we are today,” Ken Johnson, a former broker and current associate dean in the Florida Atlantic University’s college of business, told Fortune’s Alena Botros.
But what the NAR settlement does indicate, however, is realtors could start making less on commissions. While realtors may hope for more transactions, they’re not a “commodity” like stocks, Spieler says. And with historically low inventory levels, there’s just less business to go around.
“You’re going to squeeze some people out” of the real estate profession that way, Spieler says, which means “less profits in the industry. I’d expect you to definitely see a compression in agents.”
