Slightly, at least that’s my take
Substantial changes are coming to the real estate market.
Background:
- The National Association of Realtors (NAR for short and hereafter) was sued by groups of home sellers (the Sitzer-Burnett case filed in Missouri federal court) for artificially driving housing prices/values higher due to their selling model.
- NAR has over 1.5 million Realtors thorough the country. These make up a great number of the practicing real estate brokers and agents in the country, close to 52%. What happens to NAR doesn’t stay in NAR, it affects their members and consumers, therefore a large portion of the market.
- As of March 15, NAR reached a settlement to not require home sellers pay for the buyer’s agent /broker commission, which is the norm in many states. Under the settlement agreement NAR will also require for brokers and agents to make written agreements with buyers prior to showing them homes.
- Other agents represented by HomeServices of America are still litigating, and not part of the aforementioned agreement.
Why will this make home prices go down?
Buyer’s agents now have to get into an agreement with an agent. Said buyer will now pay the agent’s commission, which may raise their closing costs and expense to purchase the home. This is going to affect the values in two ways, in my opinion. As buyer’s now have a heavier burden on the expense of buying a home, added to the increase in interest rates, it will be harder for buyers already financially challenged to purchase a home.
- Since the seller will no longer have to pay the buyer agent’s commission, ranging mostly between 2.5% to 3% of the purchase price, this will lower the pricing of homes. Notwithstanding, sellers who wish to pay for the compensation of buyer’s agents can do so, they just can’t announce it in the MLS.
- Most lenders don’t allow real estate broker compensation to be financed. NAR says 1% of broker commissions that first-time buyers pay out of pocket would put their home $2,300 further out of reach.
- As less buyers can afford to purchase homes, specially first-time buyers, sellers will now have to lower their prices to attract buyers to their sale.
A Positive Result
Another outcome of the settlement will most likely be real estate agents may leave the industry fearing they will not make the money they were used to making. Just a thought.
Once many real estate agents leave the industry, this will shuffle the market. Competition will be fierce and agents will have to educate themselves which will benefit consumers as a whole. Since the market bubble of 2008 and the rapid rise in values during 2019–2021 there have been many agents entering the industry, many of whom did not serve their clients well, to put it mildly. Those who stay will have to get trained and knowledgeable not only in marketing but mostly in serving their clients well, being able to handle the processes and steps of the purchasing of a home. You would be surprised the amount of uninformed agents out there.
The hope is buyers will be more demanding since many will have to pay out of pocket for their services.
The agreement between NAR and some home sellers, which affects all NAR membership and how they carry out business, will take affect in July after court approval.
NOTES:
NAR membership: 1,578,077 as of October 2023. The The Association of Real Estate License Law Officials (ARELLO) estimates that there are over 3 million active real estate licensees in the United States. Around 52% of real estate agents in the U.S. are Realtors.