Big changes in the housing market: ‘very disruptive’

Recent rule changes to how real estate agents collect commissions are disrupting the real estate market, making it cheaper for buyers to buy a home, helping sellers save cash along the way and reducing the amount generated by a home, experts say. Billions of dollars in sales with potentially lower fees as well.

On Friday, the National Association of Realtors (NAR), which has more than 1.5 million members, filed a lawsuit alleging that the organization engaged in a system that lacked transparency in how commissions on home sales transactions were structured, resulting in higher costs for sellers. It was settled. High fees.

NAR denied any wrongdoing but agreed to pay more than $400 million over the next four years to end the case. The group also announced changes to the rules on how real estate agents charge commissions on home sales.

The changes, which are likely to take effect in the summer, will mean sellers will no longer be able to advertise the commissions they pay to buyers’ agents, which typically tend to be about 6% of the sale price divided among agents. This suggests that both buyers and sellers can negotiate fees and secure significant savings when buying or selling a home.

Real estate agents without a guaranteed commission from sellers may face a more competitive industry and may be forced to work harder to prove their worth in the home-buying process.

“This is going to drive out a lot of agents,” said Saad Munir, a Boston-based real estate broker. Newsweek. “The main reason for that is that I think for agents to be successful in this environment, they need to really understand what their value proposition is.”

The commission business, which generates an estimated $100 billion a year for U.S. agents, could see its fees cut in half, according to Vishal Garg, CEO of digital mortgage lender Better.com. It is said that there is a sex.

“It may take a few years, but I’m sure it will come to an end,” he said. newsweek. “If you think about an industry where total revenue could go from 100 billion to 50 billion, there’s going to be a big change.”

What it means for buyers

Real estate lawyer Maria D’Avanzo, a partner at Kofi Modica, said the change in fee rules would mean more transparency for buyers about the cost of buying a home. As a result of the settlement, buyers will be empowered because agents will no longer be compensated based on a percentage of the home sale as they previously were.

“The concept of buyer agents steering buyers toward higher-priced homes is less driven because they get paid based on a percentage of the home price,” D’Avanzo said.

If buyers are able to negotiate commissions, agents may charge a flat fee, potentially saving buyers on closing costs when purchasing a home in the long run.

“I think we will move more toward flat-fee type arrangements, just like the other participants in the closing: appraisers, surveyors, attorneys, title insurance companies,” she said. “It’s cheaper for the buyer not to pay half of the 6% fee.”

Buyers may lose some of the expertise that agents provide, but they may save money by being less dependent on buyers, which may increase the selectivity of the services they receive from agents. .

“So if you think about a $400,000 home, the consumer will say, ‘Well, do I really want to spend $12,000 on a 3% buyer’s commission? How much of that work should I do myself? Can we do it?’ $12,000 is like the price of a used car,” Garg said.

Buyers can choose what they want to get from an agent and negotiate a rate commensurate with the services they receive.

“Most importantly, as a buyer, I want to make sure I’m working with an agent that’s worth what I’m paying,” said Munir, a former real estate buyer himself. Ta. Newsweek. “As a buyer, you just really understand what the agent’s value proposition is.”

Ultimately, buyers will have the opportunity to choose what they want to receive from their agent, Davanzo said.

“Maybe there’s something like an a la carte menu, right? If you want us to take you to your house, walk you around, and let you in, that might be one price,” she said. “If I was going to have your company’s engineers and inspectors do an inspection, that would be a different price. And even under that formula, the buyer would end up paying about 3%. I think it will be cheaper than if I had paid.”Purchase price. ”

What it means for sellers

Sellers in today’s market tend to list their homes with a set fee. It typically covers payments made to the buyer’s agent. New rules could give sellers more power to negotiate how much to pay buyer agents. The current 6% that sellers pay to agents could be scrapped, potentially allowing them to earn even more money on home sales.

“For sellers, that means potentially lower costs,” Munir said. “Assuming the price stays the same, they can keep more revenue in their pocket.”

Garg said in a competitive housing market, the new rules will give sellers much more flexibility in selling their homes.

“If I were to sell my house, I know that my house is a great house and I would get 15 offers, but I would only pay 1 percent to the buyer’s agent instead of the usual 3 percent.” “I might say,” he said. “So I think what’s going to happen is that given this country, the lack of housing supply, the very competitive housing market, we’re going to see buyer agent commissions drop dramatically.”

Going forward, the new rules will put sellers in a stronger position, especially in hot housing markets where demand outstrips supply.

“Sellers will have an advantage in terms of agents,” Davanzo said. “The house itself might sell.”

Experts said the expected changes in the real estate market are unlikely to lead to a fall in house prices. Economic factors such as housing inventory and mortgage rates can affect the price of purchasing a home. The reason your agent asks you to make changes is to lower the cost of purchasing your home.

“Housing will become more affordable because basically consumers will be able to buy and sellers will be able to pay lower fees,” Garg said.

For real estate agents, the changes are important, and the NAR acknowledged as much last week, saying the rule changes were costly but worth it.

“This is going to be very disruptive to this industry because this is the way this industry has been done forever, for years,” D’Avanzo said. “A commission of 6 per cent of the purchase price is split equally between the buyer and the seller… If that ceases to be a business model, it will have a hugely disruptive impact on the way real estate agents operate.”