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The seismic settlement announced by the National Association of Realtors earlier this month has not yet been approved, but it is already sending shockwaves 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 prospective homebuyers said they plan to restart their housing search after the new rules are in place in hopes of finding lower home prices, while some homesellers aren’t waiting for the new rules to take effect in July to lower — or even eliminate —?the commission they offer to buyers’ agents.
Housing experts say the $418 million settlement will effectively demolish the current real estate business model, in which home sellers pay both their agent and their buyers’ agent, which critics say inflated housing prices.
If approved by a judge, the settlement comes with new rules for Realtors.
“This is unchartered territory,” said Debra Dobbs, a Realtor in Chicago, of the potential new rules.
Potential for lower homebuying costs
The new rules could help lower home 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, putting in offers for multiple properties.
“All of our offers got denied because other people were bidding higher than us,” Cannon said. “We were already trying to bid above asking price for pretty much every place.”
At the time, Cannon decided to hit pause on his dream of owning a home. But, to Cannon, the new rules established by the NAR settlement could potentially clear what felt like an intractable hurdle for him: the high cost of housing.
Sales commissions, traditionally shared between a buyers’ agent and the agent who lists a home on the market, are usually between 5% and 6% of a home’s selling price. The median price of a home in the US is $417,000, according to census data, meaning the average seller could be paying more than $25,000 in brokerage fees.
Groups of?sellers brought lawsuits?against the NAR for this practice, alleging it was a violation of antitrust laws.
Under the proposed settlement terms, sellers’ agents will no longer be required to offer to share their commission with buyers’ agents, uncoupling commissions from home prices and opening the door to a more competitive housing market.
Many experts believe commission costs have been baked into home listings prices. Lower commissions could mean lower home prices.
“I think it could be helpful,” Cannon said. “I hope it might be cheaper and bring the prices of houses down more.”
He now plans to restart his home search this summer.
A price drop would be a much-needed reprieve for Cannon and others looking to buy a home: the median sales price of a new house has surged 21% since January 2020, according to census data.
The new rules also require agents to enter into written agreements with their buyers. Many agents plan to stipulate that if a home seller does not agree to pay their commission, their buyer is on the hook for that money.
But Cannon said if buying a home becomes more affordable, he would be willing to pay out-of-pocket for an agent, as long as it is “someone who has my interests in mind.”
Some are getting ahead of the new rules
Matt Hanley, a 49-year-old who works in insurance in Minnesota, has lived in his home since 2007. He was reacquainted with how real estate transactions work when he recently purchased 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. After the NAR settlement was announced, though, he changed course: Instead of offering to pay a commission that would be split between his agent and his future buyers’ agent, he asked his agent to write “0%—negotiable” as the buyers’ agent commission on his home’s listing page.
“Why wait for the settlement? This is common knowledge now,” Hanley said. “I’m going to try to be at the start of this bell curve.”
Hanley’s experiment may be premature, though. The new rules will prohibit agents’ compensation from being included on centralized listing portals, which some critics say led agents to push more expensive properties on customers. But, for the time being, buyers’ agents will still be able to see that Hanley isn’t offering them compensation, potentially disincentivizing them from showing his home to clients.
But Hanley pointed to favorable conditions in his market as a reason that he believes buyers may still consider purchasing his home, even if they have to pay their realtor out-of-pocket.
“We’ve got everything going for us. We have no inventory in our area and we’re selling at peak time, so we said, ‘Let’s try it,’” he said. “If someone really wants it, they’re going to come up with their buyers’ fee.”
“They should be reporting to their agents, we should be reporting to ours,” he added.
‘It will take more than just a ruling’
Mariya Letdin, an associate professor of business at Florida State University, said this settlement has helped raise awareness that people have a right to negotiate. Even so, Letdin said it’s possible that the status quo is maintained.
“It’s up to the consumers on both the seller side and the buyer side to bring this to wide use,” she said. “I think it will take more than just a ruling. I think it will take consumers advocating for themselves and not being passive.”
“They now have a legally protected voice, and they should use it if we want to see change happen,” Letdin said.
