On March 15, 2024, the National Association of Realtors (NAR) settled a lawsuit brought by Missouri home sellers, agreeing to remove mandatory commission split offers. The industry standard had been a 5-6% commission paid by the home seller and split between the seller’s and buyer’s agents. New practices, started in late August, bring about two major changes for agents. First, agents cannot make offers of commissions to a buyer’s agent when listing a property on a database. Second, home buyers need to sign a written agreement regarding payment before touring, making them now responsible for compensating their agent.

These changes are expected to increase competition among agents and improve the consumer experience. Buyer’s agents expect some compression in commission rates as the burden shifts to buyers to pay their own agents and as consumers learn that these rates are negotiable. Agents may also create new pricing models, such as basing their commission on an hourly rate or by the number of tours. For buyers, they may feel stretched in having to pay their agent’s fee on top of all the costs of buying a home. But the change is also intended to protect consumers by reducing steering, a practice of agents selectively showing consumers higher commission offers on listing sites.

Since the rule change was introduced this past March and enforced in late August, signs of the impact on buyer’s agent commissions have been mixed. According to Redfin, buyer’s agent commission rates have still fallen from 2.43% at the announcement to 2.33% in October, although they were also falling prior. On the other hand, some industry participants have reported seeing no compression, with some agents able to negotiate higher rates.

Exhibit 1: Average Buyer's Agent Commisions Have Dropped Around 10 bps Since the Burnett v NAR in Oct. 2023

Source: Redfin, Data compiled by Goldman Sachs Global Investment Research

Whether buyer agent commission rates fall or not, we expect agents will increasingly need to justify their fees due to the increased transparency of what they are charging. This may yield market share gains for brokerages with the strongest technology platforms that can best assist agents in providing value to their customers. Heightened competition and the potential for lower commission rates may lead to less sophisticated and part-time agents leaving the industry. Tech providers to agents could also benefit as agents seek out more efficient ways to provide value for their customers to justify their commission rate. For some brokerages, making listings proprietary may be another avenue to differentiate themselves and counter potential pricing pressure.

One potential outcome of the industry’s new practices that would negatively impact all brokerages would be if buyers forgo an agent altogether if they determine having an agent is not worth it. In a recent EvercoreISI housing survey, builders and real estate brokers have seen an increase in buyers showing up unrepresented.

Exhibit 2: Share of Unrepresented Buyers Observered by Home Builders and Real Estate Brokers

Source: Evercore ISI Company Surveys

With the traditional home-buying season starting in a couple months, we will be closely monitoring how the new industry practices affect buyer behavior and translate into the revenue and earnings growth for real estate brokerages, real estate platforms and homebuilders.

*This piece was co-written by Associate Analyst, Felicity Huang. Please find her bio here.