Silicon Valley realtors brace for commission revamp

Nationwide changes in the way real estate agents are compensated might not make a difference in Silicon Valley.

A pending settlement from the National Association of Realtors (NAR) could be an industry game changer that upends the commissions homebuyers pay real estate agents. The key changes could come as soon as July. This includes real estate agents no longer seeing commissions on the multiple listing service, and having a written agreement with the buyer showing form of payment.

Michelle Perry, president of the Santa Clara County Association of Realtors, said these changes are unlikely to affect Silicon Valley’s real estate market for a variety of reasons. Perry said the market is what drives prices, and the region’s low housing inventory and high interest rates are mostly to blame. If anything, she said prices might rise more, but that’s yet to be seen.

“This is just another change,” Perry told San José Spotlight. “The consumer will see more and more as to what the value actually is when it comes to buyer representation.”

The change comes on the heels of an October 2023 Missouri jury decision that found NAR, Keller Williams and HomeServices had conspired to inflate commissions. NAR agreed to settle on March 15, paying $418 million in damages and changing industry rules. The court has not finalized the agreement.

Typically, a buyer’s real estate agent is paid commission on a sale directly out of the total home price. The amount of commission is historically listed on the multiple listing service platform used by real estate agents to identify and compare properties for sale.

Perry said these changes will make the process more clear for buyers. She added it’s always been possible to negotiate an agent’s compensation, but now people hoping to buy a home will have to sign a buyers agreement, which will ensure all parties know how the agent is paid.

A report compiled by digital real estate company Redfin found about one quarter of buyers — 28% — don’t know how much their agent is paid. That same survey found 19% of buyers don’t know who paid their agent. The same report noted commissions for agents are typically 2.5% to 3% of the home sale price for both the buying and selling agent.

Brett Caviness, local realtor and former president of the Silicon Valley Association of Realtors, also doesn’t expect a large change in how the local industry operates. He said the proposed settlement will make the process more transparent for homebuyers, and it may increase the level of service offered by agents.

“Buyers are going to be really empowered, I think, to interview and scrutinize the realtors that they’re choosing to work with, to make sure that they’re skilled and professional and going to help them achieve their goals based on the compensation that they’re agreeing to,” Caviness told San José Spotlight.

Caviness said because Silicon Valley’s real estate market turns so fast, sellers might offer high compensation to incentivize buyer agents to work with them.

“We really don’t have the data yet to know which direction consumers are going to go with this,” he said. “The win for consumers is more transparency, more upfront clarity on how realtors are compensated and the fact that compensation is negotiable.”

Contact B. Sakura Cannestra at [email protected] or @SakuCannestra on X, formerly known as Twitter.