Homebuyers expecting realtor-settlement savings face letdown

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Consumers are expecting big money from a National Association of Realtors‘ Focusing on groups on agent commissions would instead be counterproductive.

The agreement pleased President Joe Biden, who said it would “save home buyers and sellers up to $10,000” in one example, and former Treasury Secretary Larry Summers, who said breaking the “Realtor cartel” could save US families $100 billion. over time. But the real benefits are unclear, especially for first-time buyers who need help the most.

It reaches a dangerous period of the housing market, with high mortgage rates pushing sales last year to the lowest levels in nearly three decades. It’s especially difficult for first-time buyers who want to jump into one of the least affordable markets in history. Theoretically, that stabilization could translate into lower home prices by pushing commissions down. But experts say this is not a given, especially in the long run.

“No seller I’ve met will drop a price because their price has gone down,” said Steve Murray, senior data provider and Real Trends consultant. “This is not going to happen.”

The NAR said in a statement in response to Mr. Biden’s comments that the committees had already discussed the agreement before and would continue to do so.

“Real estate commissions are driven by the market and are not the cause of the problem,” NAR said.

How these changes affect the market is a matter of much debate, in part because no one knows.

The decades-old system of how U.S. agents are paid has been controversial. Sellers usually give their agent a commission of 5% or 6%. The registrar then shares the money with the buyer’s representative. Critics argue that the system raises costs and creates negative incentives.

In October, a Missouri judge to be given a $1.8 billion settlement that found NAR and others jointly liable for the high rates. To settle the case with others, NAR he agreed earlier this month to pay retailers about $418 million and said it would change some of its rules. In one of the most important changes, the trade group prohibits sellers from including compensation information on most services, which have become an important tool in the real estate market.

This change, to be implemented this summer subject to court approval, would encourage retailers to discuss the floor committees. But these companies are of the opinion that agents will find ways to negotiate the split through other channels, for example, on rental websites.

“I expect loan commissions to rise to 4% to 5% over time with real estate prices fluctuating,” said Moody’s Analytics Chief Economist Mark Zandi. “It’s a big change but it has to happen gradually. I expect that the biggest profit will be taken by the seller, so the impact on house prices will be minimal.”

Possible results

The settlement was a hot topic at the American Real Estate Society’s annual student conference in Orlando this week. Ken H. Johnson, a professor of real estate at Florida Atlantic University and a former broker, was there, discussing the possibilities with his colleagues.

Even the question of who is getting the benefit from the floor commissions – the buyer or the seller – does not have an easy answer, he said. In theory, the seller must offer some money to the buyer, but probably not much in the auction market.

And it could encourage first-time home buyers, who sometimes lack the money to pay businesses up front, to do it themselves, according to Johnson. Many consumers may go directly to the agent to avoid chargebacks. But this can lead to many people having a conflict of interest, representing both buyers and sellers who pay them.

“Now some buyers will have to pay out of pocket, or maybe buy affordable housing,” Johnson said.

Another big question is coming up for the industry. The Department of Justice said purpose for commission sharing, arguing for the complete exclusion of compensation for sellers and buyers’ representatives. It remains to be seen whether NAR’s stability satisfies regulators.

New Rules

Agents are already adapting to the new rules that have been put in place. In New York, broker Keith Burkhardt is working on a new low-cost project to help appraise properties, negotiate contracts, and run the city’s co-op and condo boards. He says prices will be tough and estimates buyers between $5,000 and $7,500.

Meanwhile, buyer’s agents will also work hard to explain how to maximize the value of each sale, according to Iain Phillips, a real estate agent in California.

The settlement is just the beginning, said Larry Summers, a contributor to Bloomberg Television, at Wall Street Week and David Westin. But many observers do not expect a big change to happen immediately.

“Right now, everyone is changing the decision to what they want,” said Mike DelPrete, who teaches building engineering at the University of Colorado Boulder. “Some people say that not much is going to change. Others want the issue to be about corporate climate change. All of these things are driven by fear and uncertainty.”

– Contributed by Jennifer Epstein, Paulina Cachero, and Chris Anstey

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