The U.S. housing market will change dramatically this summer: What you need to know

The U.S. housing market could face its biggest overhaul in years this summer. The powerful National Association of Realtors has settled an antitrust lawsuit that could change the way real estate agents are compensated.

NAR, which has more than 1.5 million members nationwide, agreed in March to pay hundreds of millions of dollars to settle lawsuits filed over fees, but the plaintiffs say they are forcing sellers to overburden them with unnecessary costs. He claimed that

read more: What the NAR Legal Settlement Means for Home Buyers and Sellers

NAR denied wrongdoing but agreed to pay $418 million over the next four years to end the case. Final court approval of the settlement will not occur until late September, at which point the Justice Department could step in and request amendments to the settlement.

However, the changes promised by NAR include reforming the way real estate agents bill for home sales transactions, requiring written agreements with buyers to increase transparency in the home sales process regarding commissions, and requiring buyers to be compensated independently. It is expected to include things that can be negotiated. Effective in July.

“It has always been our goal to preserve consumer choice and protect our members to the extent possible,” Nikia Wright, NAR's interim CEO, previously said in a statement. We will accomplish both goals,” it said in a statement previously shared with NAR. newsweek.

This change could ultimately eliminate the typical 6% commission that agents set aside when promoting the sale of a home, and it would be nothing short of a revolution in the U.S. housing market. But experts warn that the full impact of the settlement could take time to be felt.

Norm Miller, a professor emeritus of real estate at the University of San Diego, believes most companies will wait until July to end the seller-agent fee structure. He also believes the settlement could limit the expected devastating impact on the U.S. housing market.

“At first, I thought there were a lot of companies trying to compete for buyer representation based on new models and new rates and menus of services. “Based on the current situation, we now believe that the industry will try to maintain the status quo as much as possible,” he said. newsweek.

“There are breakaway companies with lower seller-side fees, and this has been true for many years,” he said.

read more: how to sell a house

Steve Brobeck, senior fellow at the Consumer Federation of America (CFA), said the organization expects the changes brought about by the settlement to occur gradually and ultimately lower consumer costs.

What will change?

Brobeck believes two changes are likely to occur in mid-August that will impact both homebuyers and real estate agents.

“Prior to showings, buyer agents will need to obtain the buyer’s signature on the home purchase agreement.Sellers will also no longer have to compensate their buyer agents for their agents to list the property on their local MLS. . [multiple listing service],” he said newsweek.

Brobeck said both changes will, for the first time, give buyers a real opportunity to discuss and negotiate agent compensation.

“Given that current commission rates are relatively high at 5-6 percent, we expect commissions to fall to an average of 3-4 percent, but that variation will reflect the capabilities of agents and the amount of work they do. That decline would result in a reduction in annual fees of tens of billions of dollars.

The changes also mean some buyers will have to compensate their agents.

“If you have a competent agent, this cost will be offset by lower home purchase prices,” Brobeck said. “There is now widespread agreement that purchase agent commissions are built into the home purchase price. Because there are.” “However, at least initially, almost all buyers will find that the seller is still willing to cover this cost. Many buyers will request compensation for the agent in their purchase offer. .”

Miller said most agents require buyers to include a contract request for fee seller credit, which allows financing of a portion of the fee to be provided as long as other seller credits do not exceed the lender's limits. It might be possible. This is done in lieu of being paid by deductions from the seller's agent commission.

The University of San Diego professor said it's clear some lenders don't want to finance buyers' fees, and some lenders will balk at such seller credits. But he suspects that “that will drive away buyers who look for other lenders.”

read more: What is a home loan? Types and mechanisms

What are the implications for homeowners?

“Some buyers may choose to contact a listing agent at their expense,” Brobeck said. “Currently, these agents who work with both buyers and sellers typically keep their full commission of 5-6%. In new markets, it will be difficult for them to do so,” he said. Ta.

In the new situation, the buyer may end up becoming a customer (unrepresented) or a customer (dual agency or buyer intermediary). In either case, Brobeck said, “They will rarely pay more than 1%, and the listing agent will offer more than the 2.5% to 3% listed in the listing agreement.” It will be very difficult to convince buyers to do so.” . ”

Different buyers have different impacts.

“About four-fifths of today's buyers already own a home, and most have accumulated home equity that can fully or significantly cover the cost of a new home,” Brobeck said.

“If you use the same agent for both the sale of one property and the purchase of a new property, you have the opportunity to significantly reduce commissions from the current 5-6 percent (2.5-3 percent on each sale) to 3-4 percent. “Maybe even lower,” he explained.

First-time buyers will have a harder time. “Most regions face a limited supply of desirable housing and relatively high home prices and mortgage rates,” Brobeck said.

“Some people may receive help from their parents or grandparents to cover all costs, including closing costs,” he said. “We may face difficulties in coming up with the cash to cover costs.”

“We expect buyer agents to ask sellers for assistance here and listing agents to persuade sellers to provide assistance because they need to conduct sales to collect commissions.Most buyer agents will not be able to help other sales. But I am a listing agent.”

Mr. Miller said. newsweek In the short term, this means buyers who are unable to raise fees will need to come up with more cash in addition to the down payment.

“Unless you are an experienced buyer, self-representing buyers can be risky. Eventually, some companies will offer a menu of services and new lower rates to attract buyer business. “And this will give rise to a new wave of business models and services,” he said. “Some law firms will also be involved in representing the purchasers, primarily drafting the contracts. Both of these scenarios should prompt real estate agents to rethink how they add value.''

“If commissions were lowered, we would in any case lose more than half of our existing agents, who only do a few trades a year. This would mean true professionals would do more trades; That will make up for the lower fees.”

Miller believes that in the short term, more sellers will seek lower fees, especially for high-priced homes. Deaf,” he said. “However, I don't think there will be much benefit for the bottom third of the price range, as fees will decline less and the additional upfront costs will be negative for prospective homebuyers.”

What will be the impact on housing prices?

Mr Miller said lower fees would provide some price relief in the long term, adding that aspiring homebuyers should not hold their breath.

“No one will notice because it takes so long and it’s so slow,” he said. “A reduction in fees similar to those paid in the UK, Singapore and Israel (nearly 2%) would bring prices down a bit, but our real estate industry will maintain the status quo and resist any reduction in fees. 'For as long as possible,' he said.

“Again, it all started when I started seeing ads on TV from real estate agents trying to compete on price and service offerings, and that hasn't happened yet.”

For Brobeck, lower fees won't lower home prices, but “it will certainly reduce consumer costs.”