Residential real estate agents in the Bay Area are worried right now, and some may have good reason to be.

In a few days, a shake-up takes place that many are calling the industry’s biggest ever. A new set of rules will blow up the longtime practice that a seller’s agent splits the commission on a home sale with the buyer’s agent. Under the new rules, a buyer’s agent must have a separate agreement with their client — and that client, not the seller’s agent, will be responsible for paying them. The National Association of Realtors agreed to make these changes by Aug. 17 as part of its $418 million agreement to settle a lengthy series of class-action lawsuits alleging that the industry’s commission-splitting structure constituted price fixing.

Nobody’s quite sure how the new system will pan out, but one thing seems clear: The winners are the listing agents, who now have more power to dictate terms. The losers are buyer’s agents, who may struggle to convince homebuyers that they add enough value to the transaction to be worth paying for. Their ranks could be thinned substantially, with the industry’s newbies or bottom-tier producers most affected.

Also benefiting are the alternative service providers who have long faced an uphill struggle to establish a toehold on turf that has been zealously guarded by agents and big brokerages long tied to the old commission structure. If commissions go down, people buying and selling homes might also end up saving money on transaction costs.

As buyer’s agents will no longer be part of the listing agreement, home hunters may simply go straight to the listing agent or work through discount companies to make a purchase. For example, Redfin advertises as low as a 1% fee for the Redfin agent, compared with the 3% a buyer’s agent would expect to collect splitting a traditional sales commission of 6%.

“For our entire history, Redfin has advocated for lower fees, transparency and more choices for real estate consumers. Redfin charges customers a listing fee as low as 1%, and we don’t dictate whether or how much our sellers offer to a buyer’s agent,” Redfin told the Business Times in a statement. “And we’ve been an outlier among industry leaders in believing that the reforms could meaningfully lower fees.”

Meanwhile, more buyer-rep competitors are cropping up and offering flat fees in lieu of a percentage, and some players who’ve been in the game for years, like San Francisco’s Opendoor Technologies, are also seizing on the new opportunity.

“As buyer broker commissions decline, and direct sales from listing agents to buyers increase, Opendoor will be able to lower the spreads we charge and offer higher cash proceeds to sellers at the same margin,” the company stated on its website after the NAR settlement was announced. “We expect to see more consumers deciding to transact directly instead of listing on the MLS. Opendoor has been building this future for the last 10 years, and we are perfectly positioned to capitalize on this change, including via our marketplace.”

Longtime buyer brokers say their negotiating skills, knowledge of properties and the market and experience steering buyers around the potential pitfalls of the process create value that buyers will be willing to pay for. But they realize the ground has shifted.

“Discount brokerages are nothing new, but we are likely going to see an influx of more of them,” Vanguard Properties co-owner Frank Nolan said “But you get what you pay for.”

Still, several industry experts have predicted that a swath of brokers in Bay Area could be out of a job by the end of the year, especially if buyer’s agents’ commissions get pushed below the traditional 3%. Real estate brokerages are built on margins, and if commissions go down by 0.5% to 1%, some brokerages may be forced to shut down.

Linnette Edwards, a partner and associate broker with Abio Properties in the East Bay who has a mix of about 60% sellers and 40% buyers, said the changes are the most significant she’s seen in more than two decades of doing business, and she estimates that anywhere from 10% to 25% of local agents might leave the industry within the next 12 months. “The agents that are not taking this seriously and are not proactively moving forward with this new paperwork will be left behind,” she said. “They will have declining business because they will be unable to effectively communicate confidently their value proposition.”

Other high-producing agents also told me anonymously that they thought a 25% industry departure figure for agents was a realistic estimate.

Of course, that’s just one possible scenario, and San Francisco Association of Realtors President Vanessa Gamp is doing all she can to limit the potential for industry disruption via multiple association-wide trainings for agents and extra resources ahead of the new rules.

“There’s definitely going to be a population of the realtor community that might be more affected than others,” Gamp said. “I certainly think it’s not going to be a huge number in San Francisco, because if you’re here selling real estate, you’re already working pretty hard to do so,” she said, noting the competition in Bay Area real estate makes it a difficult career to do part time.

But Gamp and SFAR aren’t taking any chances. She said SFAR actually made the rule switch on Aug. 12 as opposed to Aug. 17 to create a runway of security for its members. SFAR has also doubled the amount of staff available the first weekend to answer phone calls and emails from members and is also providing bilingual support.

“This is a huge shift for our industry — shifting how we think as agents, how we are going to be compensated for the work that we do,” Gamp said.

And with that shift comes confusion, often in the form of gray areas regarding what’s in the no-no category. Offering any sort of commission-splitting on the Multiple Listing Service is a clear-cut violation, but what about including a link on the MLS to a private website that mentions that commissions are available to the buyer’s agent? Gamp said including such a link could get agents into legal trouble even if it doesn’t directly mention buyer’s agents commissions on the MLS.

Meanwhile, the settlement also allows for public open houses without buyer-broker agreements, but if a buyer’s agent wants to privately tour property with a potential buyer, they need to have some sort of contract signed first.

“People were nervous but once we were able to give some finite answers they were able to wrap their heads around it,” she said. “They just want to know what they can or can’t do.”

But paperwork mixups, false starts and putting the tour before the paperwork could spark the new lawsuits.

Gamp said SFAR has put in time and training in advance to prevent slip-ups.

“We realize that is the key, and so that is why we are putting out so many videos and training sessions. The association has offered to any brokerage in the city that wants an in-person training that our team will come out to the office to train on things. The California Association of Realtors has made almost all of their classes around the new forms completely free. Many of those classes cost hundreds of dollars, and they’re now all completely free to make sure there’s no barrier whatsoever for education to learn the new paperwork,” she said.

Still, there will likely be room for legal challenges. “We’re going to see attorney vultures finding these opportunities, and there will be more lawsuits than we’ve seen in the past,” Edwards said. “If agency isn’t established correctly, that’s when lawsuits ensue.”

“I’m sure we are going to learn a lot of stuff the hard way,” said Matt Sevenau with the Living in Wine Country Group affiliated with Compass.

And as for SFAR, will its tally of roughly 4,000 members remain the same a year from now?

“It remains to be seen,” Gamp said.

By the numbers

NAR members nationwide: 1.55 million

Total agents nationwide: 2 million

Total agents in California: 200,000 (CAR data)

Total NorCal MLS Alliance membership (includes Bay Area and Sacramento area): approximately 65,000

Total agents by occupation in San Francisco-Oakland-Hayward metro area: 4,750

Total San Francisco Association of Realtors membership: over 4,000

Sources: NAR, CAR, U.S. Bureau of Labor Statistics

This year’s Family-Owned Businesses list includes 50 businesses, with the top 25 accounting for over $7 billion in (combined) revenue in 2023. And, of the 45 businesses that provided employee numbers, that translates to 7,849 jobs.

The top three businesses each had revenues north of $1 billion: ASI Corp., The Sobrato Organization and Del Grande Dealer Group Inc.

Here’s what the demographics of the list showed, 42% are based in San Jose and 12% are based in Santa Clara. By sector, there were four HVAC service and installation firms, three automotive/truck related businesses, three wineries, and two pizzerias, amongst 15 various types of licensed contractors.

In order to qualify for the list, companies must be headquartered in Silicon Valley and be majority family-owned. Companies are ranked by the prior year’s revenue.

Silicon Valley is defined as Fremont, Newark and Union City in Alameda County; Atherton, Belmont, East Palo Alto, Foster City, Menlo Park, Portola Valley, Redwood City, San Carlos, San Mateo and Woodside in San Mateo County; San Benito County; Santa Cruz County and Monterey County.

Information was obtained from company representatives.