Major settlement could end 6% real estate commissions and reduce San Diego prices

San Diego homeowners could see a drop in the cost to sell properties after a historic settlement with a national real estate agent group.

The National Association of Realtors has agreed to pay $418 million to settle a series of lawsuits that alleged the organization conspired to keep agent commissions high. As part of the deal, the association will do away with rules that led to set commissions, which are typically around 5 to 6 percent.

The association acknowledged the pending settlement in a statement Friday and denied any wrongdoing

Experts say the settlement could mean a drop in commissions, which are often baked into the overall selling price of a home, and potentially lower housing costs across the nation. It’s expected to make a big difference in costly markets like San Diego.

Norm Miller, real estate professor at the University of San Diego, said a drop in commissions — to 3 percent to 4 percent — would mean more money in the pocket of buyers and sellers. While the median home price might not come down or, at least, take a long time to see a decrease, it is possible reduced fees will motivate more sellers to put homes on the market, increasing inventory and reducing competition.

The median home price in San Diego County was $802,500 in January. Assuming a seller paid 6 percent in real estate commissions, that is about $48,000. If the commissions came down to 4 percent, that would be about $32,000.

Miller said there are good real estate agents that are worth the fees, but there are a lot of part-time agents that might not be worth the commission.

“There are some really good agents out there that keep you out of trouble,” he said. “For some buyers and sellers, it is worth the fee because the risk is so high. The problem is we have all these part-time, mediocre type agents out there that don’t know what they are doing.”

A possible change to commissions comes during a tough time for those in the business of selling houses. There were roughly 23,000 real estate agents in San Diego County in January, said the state Employment Development Department. There were only 1,678 homes sold that month, said CoreLogic, a tie for the lowest-ever sales month in San Diego County history.

North County real estate agent Raylene Brundage, also a director at the California Association of Realtors, said the change will be good for the industry by making the process more professional. As a 20-year veteran of the industry, she said she’s seen part-time agents or discount brokerages make mistakes that lead to lawsuits and, overall, bad deals for clients.

“I’m a seasoned agent that is a very good negotiator,” she said. “My value is not the same as an agent that does one or two deals a year. I protect my clients.”

The thinking is that without a set commission, agents will likely lower rates to compete for business. Critics often argued that buyer’s agents were more likely to steer clients to higher priced homes as a way to get a bigger commission. The settlement requires that any fields on online databases displaying broker compensation be removed.

It will be some time time before San Diego County buyers and sellers see any difference. For starters, the National Association of Realtors still needs to get the deal approved in federal court. If and when it is approved, it could be a while before we know what it could mean for fees or the real estate industry as a whole.

Miller, and others, have suggested the change might create a new type of business model for buying and selling homes. Also, there is speculation a large number of real estate agents may walk away from the profession if there’s is a smaller chance of a set commission, adding to difficulties with low sales figures. Investment banking firm Keefe, Bruyette & Woods predicted 1 million agents could leave the industry after commissions change.