A major settlement reached Friday between the National Association of Realtors (NAR) and home sellers could bring significant changes to the real estate industry.
The impact of the $418 million settlement on the U.S. housing market is not yet clear.
Still, the NAR's agreement, which eliminates long-standing rules governing brokerage fees, will reduce a significant expense Americans face when selling a home.
“This completely upends the current system as we know it,” Vassi Yanoulis Riba, a partner in Withers Law Firm's New York real estate team, told The Hill.
The agreement stems from four antitrust lawsuits alleging that a powerful real estate brokerage association worked with real estate agents to enact rules that required home sellers to pay buyer commissions, resulting in interest rate hikes. It is a matter of reconciliation.
Most home sellers currently pay a commission of about 5-6% split between their agent and the buyer's agent. For a $1 million home, this could equate to a fee of $50,000 to $60,000.
Under the newly repealed NAR rules, which were enacted in the 1990s, sellers are required to pay a commission to the broker representing the buyer and present the commission to the buyer's broker when they first list a property. there were.
The real estate agent association denies wrongdoing and says these rules “make professional representation more available, reduce the cost for homebuyers to secure these services, and increase fair housing opportunities.” , which helps sellers expand their pool of potential buyers.”
But the lawsuit alleges that this incentivized buyer brokers to offer higher commissions because sellers were more likely to show homes to potential buyers for higher commissions.
“Buyers and sellers lose some money because they have to pay brokerage fees that would otherwise be lower,” said Tomasz Pikorski, a real estate professor at Columbia Business School.
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Marty Green, a principal at mortgage law firm Polunsky Beitel Green, said buyers' broker fees will likely be “more heavily negotiated” and reduced after the settlement.
Piskorski suggested that NAR's decision to eliminate these rules could result in brokerage fees being reduced by 20 to 30 percent.
This could also cause “quite a seismic shift” for homebuyers, who may be forced to negotiate commissions with agents or choose not to hire one, Yanoulis said.・Mr. Riva stated.
“On the seller side, I think sellers will continue to engage with sales agents because…there's a lot of work that goes into getting a home ready, so they're going to have a little bit of the value that agents add. “It’s easier to understand,” she said, “for sales and marketing.”
Piskorsky noted that with the advent of new technology, homebuyers are increasingly doing much of the work of finding a home themselves, before hiring a real estate agent.
“It's very difficult to argue that these fees should be as strict as they are now,” he said.
Piskocsi said he believes the transition will benefit consumers by lowering the cost of home ownership, but he does not expect “drastic changes in home prices.”
“It's certainly good for consumers because $20 billion, $30 billion a year that goes to real estate agents could end up staying with homeowners,” he said.
“But I don't think that in any way solves the so-called affordability problem in the United States,” Piscolscusi added. “I think there will be more liquidity, more housing turnover and maybe a little more listings, but I don’t see it as a game changer in that regard.”
Housing costs have soared since the pandemic began, curbing new construction while low interest rates stimulate demand.
The average price of an existing single-family home was $379,100 in January, up 5.1% from the same month last year, according to NAR data. Home prices rose in 85% of U.S. cities in the fourth quarter of last year, with 15% posting double-digit increases.
Over the past two years, the Federal Reserve has raised interest rates to 20-year highs, pushing mortgage rates above 7%.
Both Piskosky and Green cautioned that any changes resulting from the NAR settlement will not happen “overnight.”
“The industry will be in a period of transition as everyone digests the settlement and market forces begin to operate,” Green said in a statement.
Green said the settlement could be the “only viable solution” for NAR after a federal jury found in October that a group of real estate agents colluded with brokerages to inflate fees. He added that it is expensive.
The company was ordered to pay $1.8 billion in damages, a total that could have tripled to more than $5 billion under antitrust laws.
“Since the Kansas City jury returned a multibillion-dollar verdict after just a few hours of deliberation, it has become clear that a global settlement that includes NAR is the only viable solution,” Greene said in a statement. ” he said.
“In my view, NAR made the right choice in resolving the claims because, while this settlement is very high, it puts NAR on the path to a new fee structure that will make the industry more negotiable. “Because it can be helpful and it provides a way forward,” he added.
Nikia Wright, NAR's interim CEO, said in a statement Friday that continuing to litigate this issue would ultimately “harm our members and their small businesses.”
“No outcome is perfect, but this agreement is the best we can achieve under the circumstances,” she said. “This provides a path forward for our industry and NAR, which accounts for nearly one-fifth of the American economy.”
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