There are new rules on the horizon for the real estate market, following a major settlement reached by the National Association of Realtors and its agents. These rules will impact how commissions are paid to the 1.5 million agents across the country.
Starting tomorrow, the industry will undergo significant changes as a result of a settlement that resolved litigation related to artificially inflated brokerage commissions by a real estate group. The settlement brings about sweeping reforms.
The adjustments are being made as the housing market shows signs of improvement. Earlier this month, mortgage rates dropped to their lowest point since April 2023. This provides a glimmer of hope for potential homebuyers who have been struggling with high borrowing costs and record-breaking home prices in June.
However, the current rate on the 30-year fixed loan remains at approximately 6.5%, which is more than twice the sub-3% rates that were available in 2020 and 2021. In September, it is widely anticipated that the Federal Reserve will lower its benchmark interest rate. This move is expected to have a positive impact on mortgage rates, which are currently at a level that has contributed to historically low levels of activity in the housing market.
Meanwhile, real estate agents nationwide will need to adjust to new changes that may potentially decrease the commission asked of home sellers.
What Experts Say
Some experts predict a potential decline in home prices due to changes in the way commissions are factored into the sticker price.
Buyers must now sign a form before being shown a home by real estate agents. The agreements aim to outline the specific payment expectations for buyers and agents.
According to Steve Brobeck, a senior fellow at the Consumer Federation of America, the buyer may not have had enough time to properly evaluate the agent at that point. “When you’re touring houses with an agent, it’s the perfect opportunity to get to know them better and see if they’re the right fit for you.”
According to Brobeck, many buyers would prefer not to commit to a contract with financial obligations so early in the process. He mentioned that this new requirement was requested by the industry and was not included in the NAR’s settlement.
According to Brobeck, it is recommended that buyers refrain from signing a contract with any financial obligations until they are fully prepared to make an offer. “There are alternative methods for viewing a house,” he pointed out, such as contacting the listing agent or attending an open house.
There is another option that is gaining popularity – touring agreements that have a limited time frame and no financial obligations. Zillow has actually developed one of these agreements. According to Brobeck, there are concerns about the readability and consumer-friendliness of many model contracts developed by the industry.
According to the speaker, a buyer-broker agreement created by real estate brokerage eXp Realty is designed to be straightforward, focused on the consumer, and fulfills most of their requirements. “It has been made accessible for the industry to utilize.”
According to the advocacy group, it is worth considering alternative payment options such as a flat fee or an hourly rate for homebuyers when working with their agent.
Sellers’ Delight
For individuals selling their homes, the evolving market should provide some immediate relief, as their agents are no longer required to offer commission to buyers’ agents.
The majority of home sales are managed by real estate agents who are part of the NAR, the largest trade association in the country. Before listing homes on its property database, known as the Multiple Listing Service, or MLS, home sellers are required to factor in a commission rate, typically around 6%.
The commission paid by home sellers was then split between the agents representing the seller and buyer. The fee in question was at the center of a lawsuit that the NAR lost against a group of home sellers. These sellers alleged that the trade group and others conspired to increase the commissions.
According to Redfin, the median sale price of a home in June was $442,451. In the past, sellers would have to pay a total of $26,547 in commissions. The default rate has changed and is no longer the usual one.
Sellers can now anticipate being requested to contribute only a single portion of the commission, which would typically amount to an average of 2.5% to 3%.