Spencer Rascoff, Co-Founder, heyLibby, Pacaso, Zillow
Illustration by Lanette Behiry/Real Estate News

Ex-Zillow CEO: NAR lawsuits ‘a seismic event’ for agents, portals 

Spencer Rascoff said home search portals may need to pivot in a world where buyers agents are no longer paid via the listing agent’s commission.

September 1, 2023
4 minutes

Key points:

  • In an exclusive interview, Rascoff said ending cooperative compensation would have impacts that extend to brokerages, franchisors, NAR and MLSs.
  • Rascoff predicts that “a couple hundred thousand” agents could leave the industry if cooperative compensation goes away.
  • “Right now, buyers think that buyer agents are free,” Rascoff said, and most would not be willing to pay 3% out of pocket.

As class action lawsuits threaten to upend agent compensation practices, the industry may need to prepare for a future where agents will have to discuss exclusivity and compensation upfront with clients. 

But how would the major home search portals fare in a world where buyer agent compensation is decoupled from the listing agent's commission? Would a change to industry standards create new opportunities or deal a major blow to the business models of sites like Zillow and Realtor.com?

Serial entrepreneur Spencer Rascoff, the former CEO of Zillow and previous No. 1 on the Swanepoel Power 200 ranking of industry leaders, recently spoke with Real Estate News about the buyer-broker commission suits and more. (This interview has been edited for length and clarity.) 

If the verdicts in the commissions lawsuits go against NAR, what kind of impact would that have on the industry?

If cooperative compensation were to go away or to be diminished — either because of one of the class action lawsuits or the DOJ investigation — it would have a seismic impact on the portals, on buyer agency, on NAR membership, on the structure of the MLS, on agent count, and on the readership of the trade press that covers our industry. It would also impact franchisors and the brokerage model. 

I've been tracking the commission lawsuits and the DOJ investigation for the last couple of years, and I'm glad that the industry is now finally paying attention to what could be an incredibly seismic event.

Would separating buyer agent compensation from listing agent commission cause Zillow and other home search sites that sell leads to change their business model?

Right now, buyers think that buyer agents are free, and if they have to pay 3% out of pocket, most of them will not opt to use a buyer's agent. So business models like Zillow Premier Agent, like Realtor.com's and Movoto's referral fee businesses, will all be incredibly challenged, to say the least, in a world without cooperative compensation. 

They might try to pivot to a listing agent model, which is prevalent outside of the United States, particularly in Australia and the UK, where buyers are unrepresented. There's only one agent in the transaction who typically charges 1% to 2%, and the portals monetize by charging listing agents for sort order or other merchandising elements. 

Zillow is already testing this with the listing agent package. Zillow has always dabbled with monetizing the listing agent side of the commission, but it monetizes so well on the buy side that it was never worthwhile to build out the listing agent side. But if buyer leads are suddenly worth much less, then listing agent monetization will be the key for them to try to move forward.

How would buyer agents be affected if the compensation structure changes?

The impact on agent count would be significant because we all know that most agents carry no listings — they are just buyer's agents. And so there will be a couple hundred thousand agents who will leave the industry should cooperative compensation go away. And that will hurt NAR membership, it will hurt MLS membership, it will hurt agent count at the franchise systems. So it will be significant.

When a buyer is using a portal and they press a button to ask an agent to show them 123 Main Street, and in this new potential world the buyer agent says to the consumer, "Hey, I'm happy to show you 123 Main Street, but just so you know, you're gonna have to pay me 3% if you end up buying this house — that's going to be about $12,000 on a $400,000 house and it's not financeable. You'll have to pay it out of pocket. You can't pay it through the mortgage," most buyers are going to hang up the phone on that agent. 

Talk about what could torpedo the conversion — that would torpedo the conversion.

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