Consumers expect big savings from National Association of RealtorsInstead, the commission agent class action lawsuit may fail.
The agreement drew praise from President Joe Biden, who said it “could save home buyers and sellers up to $10,000,” and former Treasury Secretary Larry Summers, who said breaking up the “Realtor cartel” could save U.S. households $100 billion dollars. over time. But the true benefits remain unclear, especially for first-time buyers who need help most.
This happens in unreliable It’s time for the housing market: Higher mortgage rates pushed sales last year to their lowest level in nearly three decades. It’s especially difficult for first-time homebuyers looking to enter one of the most inaccessible markets in history. In theory, the settlement could lead to lower home prices by lowering commissions. But experts say that’s not a given, especially in the short term.
“No seller I’ve encountered will lower their price just because their transaction cost has gone down,” said Steve Murray, senior advisor to data vendor and consultant to Real Trends. “It will not happen”.
NAR said in a statement responding to Biden’s remarks that the commissions had already been discussed prior to the settlement and would continue to be discussed.
“Real estate agent commissions are determined by the market and are not the cause of the affordability crisis,” NAR said.
How these changes will spread and impact the market is a hotly debated topic, in part because no one really knows.
The decades-old system of remuneration for American agents has long been controversial. Sellers typically pay a 5% or 6% commission to their agent. The listing agent then splits the money with the buyer’s representative. Critics argue that this structure inflates costs and creates bad incentives.
In October, a Missouri jury transmitted A $1.8 billion verdict in which NAR and others were found guilty of conspiring to keep prices high. To resolve this and other NAR cases agreed paid out roughly $418 million to sellers earlier this month and said it would change some of its rules. The most important change is that the trade group will prohibit sellers from including compensation information in the multiple listing service, which has long been the most important tool for marketing homes.
The change, which would go into effect this summer subject to court approval, could encourage sellers to negotiate lower fees. But the industry is rife with speculation that agents will find ways to negotiate commission splits through other methods, such as on brokerage websites.
“Over time, I expect fees to drop to 4% to 5% depending on home prices and geography,” said Mark Zandi, chief economist at Moody’s Analytics. “This is a significant change, but it will likely be gradual. “I expect the majority of the profit will go to the seller, so the impact on house prices will be small.”
Possible results
The settlement was a hot topic at the annual meeting of American Real Estate Society scholars in Orlando this week. Ken H. Johnson, a Florida Atlantic University real estate professor and former broker, was at the event and discussed the possible results with colleagues.
Even the question of who benefits from lower fees—the buyer or the seller—has no easy answer, he said. In theory, the seller should pass on some savings to the buyer, but in a seller’s market, there may not be much.
That could encourage more first-time homebuyers, who sometimes lack the cash to pay brokers up front, to go it alone, Johnson said. More buyers are likely to go directly to listing agents to avoid having to pay commissions. But it could lead to more agents with potential conflicts of interest representing buyers as well as the sellers who pay them.
“Now some buyers will have to pay out of pocket or perhaps buy less expensive homes,” Johnson said.
Another huge question looms over the industry. The Ministry of Justice has took aim when distributing commissions, advocating a complete separation of remuneration for representatives of sellers and buyers. It remains to be seen whether NAR’s settlement will satisfy regulators.
New rules
Agents are already adapting to the new rules as part of the proposed settlement. In New York City, broker Keith Burkhardt is working on a new flat-rate service that will help appraise properties, negotiate deals and navigate the city’s co-op and condo boards. He believes pricing will be critical and estimates charging buyers between $5,000 and $7,500.
Meanwhile, buyers’ agents will also have to work harder to explain how they will add value to any deal, according to Ian Phillips, a California-based real estate agent.
The settlement is a start, said Larry Summers, a paid correspondent for Bloomberg Television, on Wall Street Week with David Westin. But most observers don’t expect the huge changes to happen overnight.
“Right now, everyone is turning that decision into something they want,” said Mike DelPrete, who teaches real estate technology courses at the University of Colorado Boulder. “Some people say not much will change. Others want the story to be that this is a seismic shift for the industry. It’s all driven by fear and uncertainty.”
— With assistance from Jennifer Epstein, Paulina Cachero and Chris Anstey.