Seismic shift in real estate arrives with NAR settlement

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No doubt about it. The real estate industry just got hit with a massive life change, and along with it, consumers who rely on experts to help them buy and sell their homes.

NBC News’ Christine Romans and Rob Wile report on a groundbreaking $418 million settlement by the powerful National Association of Realtors (NAR) set to usher in the most sweeping reforms the American real estate market has seen in a century, the results of which could dramatically drive down homebuyers’ costs — and push some real estate brokers out of business.

For decades, the NAR has required home sale listing brokers to provide an offer of compensation to a buyer’s agent upfront. That usually comes out to about 6%, split between a seller’s broker and a buyer’s agent.

While agents have always claimed those fees to be negotiable, it has been the standard for decades, sometimes steering buyers’ agents away from showing homes listed for lower compensation commissions. Now it has come under intensifying scrutiny, with critics comparing it to price-fixing, even likening it to a cartel. This comes on the heels of a Kansas City federal court finding the longstanding practice to be a form of collusion that artificially inflated real estate fees, awarding a massive $1.78 billion judgment against NAR.

So how does this affect the “little guy” — meaning us? If the settlement announced Friday is approved by a federal court, the standard 6% commission goes away. Sellers would no longer have to make a compensation proposal to prospective buyers and their agents. And working with a broker would see buyers having to sign an explicit deal with a broker before they start working with one — something experts say would lead many homebuyers to forgo using brokers entirely, according to Romans and Wile. Realtors will no doubt be raising red flags warning consumers that they will no longer be protected from lawsuits without proper representation and expertise – true in some cases – and the games will begin.

The new rules are set to take effect within months of approval, currently expected around mid-July, so what does that portend for those looking for a home now? It means a settling-in period no one can precisely place their finger on. The industry will be in transition as market forces begin working. Agents will no doubt begin to get creative and consumers will see what that means to their bottom lines.

While discount brokers have been in existence just as long as bonafide Realtors, many dismissed them as less than serviceable, meaning finding listings at lower fees was often not included in multiple listing services. “Home buyers and their agents will need to decide on a commission and put it in writing,” says Romans and Wiles. “Sellers, likewise, will need to work carefully with their listing agents as the new rules come into effect.”

Cutting to the bottom line, the changes mean buyers will save significantly on commissions, eventually bringing U.S. fees more in line with the much lower transaction costs seen in other residential property markets around the world.

Experts say it’s too early to declare the end of local real estate agents given their local expertise and reputation in neighborhoods. It’s hard to know if what happened to the travel agency model, where agents could no longer collect commissions on airline tickets and neighborhood travel agent offices all but disappeared will happen with real estate. But we are in for a ride.

The NBC News reporters cite Nerdwallet’s Holden Lewis, who warns of a “potential negative trade-off”: “Buyer-seller negotiations will become more complex, and buyers with plenty of cash might navigate the process more easily than buyers who don’t have a lot of savings,” he said. Others say it could particularly affect first-time buyers with limited means to pay for an agent.

Brokers and agents have come out against the settlement, with listing agents saying they often participate in paying out thousands of dollars in services like staging homes to aid the sale process. Buyers’ agents (who often spend weeks or months on end trying to find the right home for their clients) will be left “flying blind” since they won’t know how much they’ll end up making from a given home because they can’t see it in the MLS. It may also mean getting an agreement signed by the buyer outlining how much they’ll be able to compensate them.

Where this lands, nobody can predict at this point. A Reddit thread explains, “Waiting isn’t saving you any money. The only thing changing is that the commission amount the seller/listing agent is offering the buyers' agents won’t be listed in the MLS.” It goes on to say, “The amount you can offer isn’t changing. It has always been $0 minimum, and offering $0 will just cut your buyer pool way down. In turn, your home might sit longer and sell for less if many buyers can’t afford it. Pros and cons that should be explained to you if you are using a Realtor.”

This “shaking out” period may, however, make home-buying in the current world of high prices and high mortgage rates a bit more palatable.

NBC News, TBWS


All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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Brian Voytko

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Mortgage Advisor

NMLS: #437292

Cell: 215-407-3832


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