Achi news desk-
CNN
–
The seismic settlement announced by the National Association of Realtors earlier this month has yet to be approved, but it is already sending shock waves through the real estate industry.
The mere prospect of a future settlement has already caused some Americans to change their behavior when buying and selling their homes. Some potential house buyers said they plan to restart their house search after the new rules are in place in the hope of finding lower house prices, while some sellers not waiting for the new rules to come into effect in July to lower – or even eliminate – the commission they offer buyers agents.
Housing experts say the $418 million settlement will effectively overturn the current real estate business model, where home sellers pay their agent and their buyer’s agent, which critics say inflates home prices.
If approved by a judge, the settlement will bring new rules for Realtors.
“This is uncharted territory,” said Debra Dobbs, a Realtor in Chicago, about the potential new rules.
The new rules could help lower house prices, experts say.
That’s what Jeremy Cannon, a 34-year-old teacher in Corona, California, hopes.
Last year, Cannon and his wife tried to buy their first home, submitting offers on multiple properties.
“All of our bids were rejected because other people outbid us,” Cannon said. “We were already trying to offer above the asking price for almost every place.”
At that time, Cannon decided to put his dream of owning a home on hold. But, for Cannon, the new rules established by the NAR settlement may clear what felt like an insurmountable obstacle to him: the high cost of housing.
Sales commissions, traditionally shared between a buyers agent and the agent listing a home on the market, are usually between 5% and 6% of the sale price of a home. The median price of a home in the United States is $417,000, according to census data, meaning the average seller could be paying more than $25,000 in brokerage fees.
Vendor groups brought lawsuits against the NAR for this practice, claiming it violated antitrust laws.
Under the terms of the proposed settlement, sellers’ agents will no longer be required to offer to split their commission with buyers’ agents, decoupling commissions from house prices and opening the door to a more competitive housing market.
Many experts believe that commission costs are baked into home listing prices. Lower commissions could mean lower house prices.
“I think it might help,” Cannon said. “I hope it could be cheaper and bring house prices down more.”
He now plans to restart his home search this summer.
A price drop would be a much-needed boost for Cannon and others looking to buy a home: the median sales price of a new home has increased 21% since January 2020, according to census data.
The new rules also require agents to enter into written agreements with their buyers. Many agents intend to point out that if a home seller does not agree to pay their commission, their buyer is on the hook for that money.
But Cannon said that if buying a home became more affordable, he would be willing to pay out of pocket for an agent, as long as it was “someone who has my best interests in mind.”
Matt Hanley, a 49-year-old man who works in the insurance field in Minnesota, has lived in his home since 2007. He was familiar with how real estate transactions work when he recently bought a new home.
“We were confused,” he said. “I’m like ‘wow, I’m surprised the seller has to pay my agent’s commission.’ It seemed like a conflict of interest.”
Hanley now plans to list his home in April. However, after the NAR settlement was announced, he changed course: Instead of offering to pay a commission that would be split between his agent and his potential buyers’ agent, he asked his agent to write “0%—negotiable” as the buyers. agent’s commission on his home listing page.
“Why wait for the settlement? This is common knowledge now,” Hanley said. “I’m going to try to be at the beginning of this bell curve.”
However, Hanley’s experiment may be premature. The new rules will ban agents’ compensation from being included on central listing portals, which some critics say has led agents to push more expensive properties on customers. But, for now, buyers’ agents will still be able to see that Hanley is not offering them compensation, potentially preventing them from showing his home to clients.
But Hanley pointed to favorable conditions in his market as a reason he believes buyers may still consider buying his home, even if they have to pay their realtor out of pocket.
“We have everything going for us. We don’t have any inventory in our area and we sell during peak hours, so we said, ‘Let’s give it a try,’” he said. “If someone really wants it, they’re going to find their buyers’ fee.”
“They should be reporting to their agents, we should be reporting to ours,” he added.
Mariya Letdin, associate professor of business at Florida State University, said this settlement helped raise awareness that people have a right to negotiate. Nevertheless, Letdin said it was possible to maintain the status quo.
“It’s up to the users on the seller’s side and the buyer’s side to bring this into widespread use,” he said. “I think it’s going to take more than just a judgement. I think consumers will need to advocate for themselves and not be passive.”
“They now have a legally protected voice, and they should use it if we want to see change happen,” said Letdin.
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