NAR settlement cuts commissions, homebuyers may see to higher fees

The National Association of Realtors (NAR) agreed to pay $418 million in damages after settling a lawsuit in which a federal jury ruled that the organization had conspired to artificially inflate commissions. With sweeping changes to home sellers' operations, the market may record a paradigm shift.

Mphasis Digital Risk Founder Jeff Taylor and Pulte Capital CEO Bill Pulte join Yahoo Finance to discuss the broader implications of the NAR settlement.

Pulte claims that the new rules the settlement would enact may encourage "creative thinking" in the market: "You could see potentially people reduce their commissions. You could also see I think some creative thinking like the builders have done...The builders have gone in and bought down mortgage rates as a means of making their homes, meaning new homes, more attractive for home buyers."

To Taylor, the settlement is a "game changer" for commissions: "There's always been this perception it's 3% and 3%, 6% or 5%, depending upon where you are. But now as you present that contract, look, theoretically the selling agent could say, we're going to charge 3% but we're not going to provide anything for the buyer on that 3%. How is that going to affect that behavior? That could change a lot going forward."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

- Well $418 million settlement by the National Association of Realtors is expected to usher in sweeping reforms to the real estate market. This settlement came after a federal judge ruled that an existing rule requiring compensation to a buyer's agent artificially inflated housing fees. To discuss the implications for buyers and sellers, let's bring in Bill Pulte, he's Pulte Capital CEO and Jeff Taylor, emphasis a digital risk founder and Mortgage Bankers Association. Gentlemen good to have both of you on today.

Jeff-- Bill let me start with you first by talking about-- just sort of put this in context for us. I mean, we keep hearing these sweeping reforms likely to happen. This is a significant shift within the real estate market. Put it in context for us.

BILL PULTE: Well the reality is the home is made up of obviously lumber and drywall and roofing and all kinds of materials and stuff. A big part of it, too is fees, taxes, title insurance, mortgage insurance to the extent that one has all of those things. And then another thing is the realtor fees.

Now, what's so interesting about this landmark thing is that now, basically, the 6%, in my opinion, is really up for grabs. And you're going to see people become very creative, you're going to see companies become very creative as a way towards being more competitive. And I think in an inflationary environment, all creativeness, in my opinion, is welcome. And I think that this is potentially very good for consumers.

- What kind of creativity are we talking about, Bill?

BILL PULTE: I think you could see potentially people reduce their commissions. You could also see, I think, some creative thinking like the builders have done where they've gone in, as you just mentioned or your colleague just mentioned, the builders have gone in and bought down mortgage rates as a means of making their homes, meaning new homes, more attractive for homebuyers. I think you could also see where you have potentially realtors being incentivized by some of the big builders.

I think it's a very-- you know, obviously, this is kind of a biased statement from my perspective, but it's a very bullish time, I think because the big builders are taking market share from smaller builders all across the country.

- Jeff, to what extent do you think this opens up the market? I mean I will admit that I do follow quite a lot of real estate agents online. So many of them are already taking to social media to say, look, we will meet you where you want to be, especially for sellers who are concerned that the cost may come down on their end or come up on their end.

JEFF TAYLOR: As founder of Digital Risk what we do is we help lenders make sure that they're providing quality mortgage loans. As-- and a board member also very responsible for making sure the housing market functions correctly. And this has the potential to be, as I was saying, a little bit of a game changer.

There's always been this perception that it's 3% and 3%, 6% or 5%, depending upon where you are. And now, as you present that contract, look theoretically the seller-- the seller's agent could say, hey, we're going to charge 3%, but we're not going to provide anything for the buyer-- the buyer on that 3%. How is that going to affect that behavior. That could change a lot going forward.

I think in a lot of other industries, as far as commissions, have always been negotiable. In housing, in real estate commissions, they've been negotiable too. But I will tell you, of all, if I look at money management and other industries, this has been, sort of, the hey, it's 6% coming out of the gates that we've had for many years. So I think to the point of getting more creative, trying to say, hey, how much am I really going to have to pay in commissions. I think that dialogue is going to be happening a lot more at the signing of a listing agency, starting the listing right now than it has historically.

And once that conversation opens up and it's no longer this is just a way that it's been for 40 years and here's the way we're entering our transaction, you're going to see a lot of other potential ways for people trying to get that overall fee down on both sides, I would imagine.