Addie Pena has purchased two houses. But the third time around, the buying process has been a little different for her.
A new law that took effect in Louisiana last week requires all homebuyers to have a written agreement with their real estate agent before they can look at a house. Before, no such agreement was needed.
As far as Pena is concerned, so far, “it really makes no difference.”
“It’s just another added piece of paper,” she said, standing in the kitchen of a home in University Club in Baton Rouge with her real estate agent, Trey Willard.
But many in the real estate business say the change could crimp the number of home sales and potentially squeeze commissions for agents.
The agreements can cover a one-time showing, or they can set up an exclusive relationship between the buyer and their broker over a period of time. The agreements also cover how much the buyer’s broker will get paid, if it will be a flat fee or percentage of the sale price and who will pay it — the listing broker, the seller or the buyer.
Agents will have to navigate the changes, said Jim Keaty, owner of Keaty Real Estate in Lafayette.
“The Realtors just have to figure out how to follow the rules. For some people, it’s going to be easy,” Keaty said. “For some people, it could be a challenge, and ultimately maybe they leave the business because they don’t want to do it.”
The change comes from a $418 million class-action case settled earlier this year that claimed homeowners were forced to pay inflated commissions when they sold their home. The sellers argued they had little choice but to pay the buying agent’s commission in order to guarantee their home was shown to as many people as possible.
Home sellers traditionally offered to cover the commission paid to any buyer’s agent when listing their home on the market. But that will no longer be allowed because commissions must be negotiated by the buyer for each transaction.
A homebuyer may still try to negotiate a deal from the seller where they pick up the cost of a real estate commission. But if the seller declines, that would leave the homebuyer on the hook for paying for their agent’s services.
The National Association of Realtors is behind the policy changes, which stem from the settlement earlier this year of federal class-action lawsuits that claimed homeowners were forced to pay artificially inflated real estate agent commissions when they sold their homes.
In Louisiana, those changes have become law.
Companies behind several major real estate brokerage brands, including Keller Williams, Re/Max and Redfin, also agreed to pay millions and make policy changes to settle more than a dozen lawsuits filed across the country by homebuyers.
Generally, an agent who represents a buyer receives a 2.5% to 3% commission based on the purchase price of the home. Agents then share part of their commission with the brokerage they work for.
Chaunta Mero, owner of Flat Rate Real Estate in Shreveport, said her experience with commissions in selling her own home led her to get a real estate license in 2007. Mero listed a home, sold it and at the closing had to pay 6% of the price to the buying and selling agents.
“I wasn’t knowledgeable of the fees, how they worked, that it was split, so I decided to get into the business to see what was going on,” she said.
Mero said while she thinks the changes will be better for buyers and sellers because of the transparency, there will be some growing pains.
“Right now, it’s about to be every man for themselves,” she said. “You’ve got to figure out a way to still give that great service but for a lesser commission.”
David Favret, managing broker of Reve Realtors in New Orleans, said he’s been working with agents for more than a year to prepare them for the changes.
It will be more difficult for newer agents, since they generally tend to work with buyers first.
“I also coach my agents to remain flexible,” he said. “The ‘how we do what we do’ is evolving.”
Michael Doughty, of Platinum Realty of Lafayette, said he expects the homebuying market will shake out the changes shortly.
“I think it’s going to be the same system, just less efficient,” he said. “The real pain in the butt is going to be the day-to-day. If you say you want to see 10 houses, I have to get you to agree to pay me on each of them even if you don’t want to pay me. I expect less showings but more serious showings.”
The changes in the law come at a tough time for the local and national housing markets. A steady series of interest rate hikes, coupled with rising insurance costs and high inflation, caused sales to slow down in most of south Louisiana for the past year or two. Through the first seven months of the year, metro New Orleans home sales are down 8.3% compared to where things stood in July 2023, while the Baton Rouge area has seen a 2.5% drop. In Lafayette Parish, the number of existing homes changing hands has dropped 2% year to date, while new home sales prices have fallen by 6%.
But Willard, who was showing houses to Pena in Baton Rouge, said he sees the likely prospect of the Federal Reserve trimming interest rates next month being more of a factor in home sales than any change in paperwork.
“If we get some good news from the Fed in September, that will bring some buyers off of the fence,” he said.
The slowdown caused by the interest rate increases has created 2½ years of pent-up demand, he said.
What remains unknown is if the changes to the law will affect how much money real estate agents make. Willard said buyers may have to open their minds to the possibility of paying their broker instead of having the seller put down the fee. Already some major lenders are changing their limits on mortgages to cover the costs of buyers having to pay for a commission.
“If anything, some of us will get paid more, because we can save you a lot more than the 3% fee it will cost you,” he said, noting that veteran agents know how to negotiate the best prices and compensations, such as the seller helping pay for a home inspection, making necessary repairs and covering closing costs. “We’re going to have to get really, really creative to get deals across the finish line.”
Acadiana Business editor Adam Daigle and business writers Stephanie Riegel and Liz Swaine contributed to this report.