How buyers and sellers are navigating real estate’s seismic shakeup
Amid record-high home prices, NAR’s changes may only seem like slight tweaks to the opaque buying and selling process, but the changes could spur cost-savings.
Realtor Commissions: A New Era of Uncertainty?
Dana McMahan, a content creator in Louisville, Kentucky, recently sold her home and decided to forgo the traditional realtor commission model, believing it was unfair to sellers. She saved money by taking on additional responsibilities like hosting an open house and creating her own listing description. While McMahan paid a broker a small fee to list her home on the MLS, she avoided paying a full commission to a selling agent. Instead, she offered a standard 3% commission to the buyer's agent to incentivize them to bring potential buyers.
This situation highlights a shift in the real estate industry. As of August 17, new rules implemented by the National Association of Realtors (NAR) have significantly impacted the way Realtors are paid. These changes, stemming from antitrust lawsuits accusing NAR of artificially inflating commissions, aim to promote transparency and potentially lower costs for both buyers and sellers.
Key Changes:
No More Commission Advertising: Sellers and their agents can no longer advertise the commission they'll offer buyer's agents on the MLS. This is intended to prevent "commission-based steering," where agents might prioritize properties with higher commissions, potentially hindering buyers from seeing all available options.
Mandatory Representation Agreements: Buyers must now sign representation agreements with Realtors before viewing homes, clearly outlining potential commission responsibilities.
Commission Flexibility: Sellers have more flexibility to negotiate commission rates with their agents, potentially leading to more competitive pricing.
Potential Benefits and Challenges:
Potential Savings: While McMahan's experience showcases the potential for savings, the extent to which buyers and sellers will benefit from these changes remains uncertain. Some argue that increased competition could lead to lower commissions overall.
Shifting Burden: However, some experts fear that in competitive markets, buyers might be pressured to pay their own agents' commissions to make their offers more attractive, adding to already substantial closing costs.
Complexity: The new rules have introduced complexity, especially for buyers, who must now be aware of potential commission obligations outlined in representation agreements.
Future Uncertainties:
The long-term impact of these changes is still being debated. While some predict increased competition and lower commissions, others worry about the potential for higher costs and complexities for buyers.
Bill Colson, a retired Navy officer selling his Maryland home, provides a contrasting perspective: He was advised to offer a standard 6% commission in Maryland but was told in Georgia that he would likely need to pay his agent's commission out-of-pocket to be competitive. Colson sees the new rules as adding cost and complexity, potentially making homebuying and selling more expensive for both parties.
The NAR's settlement and rule changes are still in progress, with the final approval hearing scheduled for November 26. It's clear that these changes have the potential to fundamentally alter the real estate industry, and their true impact will likely be evident in the coming years. Buyers and sellers should be prepared for a more complex and potentially costly environment, requiring careful consideration and due diligence.
Dana McMahan, a content creator in Louisville, Kentucky, recently sold her home and decided to forgo the traditional realtor commission model, believing it was unfair to sellers. She saved money by taking on additional responsibilities like hosting an open house and creating her own listing description. While McMahan paid a broker a small fee to list her home on the MLS, she avoided paying a full commission to a selling agent. Instead, she offered a standard 3% commission to the buyer's agent to incentivize them to bring potential buyers.
This situation highlights a shift in the real estate industry. As of August 17, new rules implemented by the National Association of Realtors (NAR) have significantly impacted the way Realtors are paid. These changes, stemming from antitrust lawsuits accusing NAR of artificially inflating commissions, aim to promote transparency and potentially lower costs for both buyers and sellers.
Key Changes:
No More Commission Advertising: Sellers and their agents can no longer advertise the commission they'll offer buyer's agents on the MLS. This is intended to prevent "commission-based steering," where agents might prioritize properties with higher commissions, potentially hindering buyers from seeing all available options.
Mandatory Representation Agreements: Buyers must now sign representation agreements with Realtors before viewing homes, clearly outlining potential commission responsibilities.
Commission Flexibility: Sellers have more flexibility to negotiate commission rates with their agents, potentially leading to more competitive pricing.
Potential Benefits and Challenges:
Potential Savings: While McMahan's experience showcases the potential for savings, the extent to which buyers and sellers will benefit from these changes remains uncertain. Some argue that increased competition could lead to lower commissions overall.
Shifting Burden: However, some experts fear that in competitive markets, buyers might be pressured to pay their own agents' commissions to make their offers more attractive, adding to already substantial closing costs.
Complexity: The new rules have introduced complexity, especially for buyers, who must now be aware of potential commission obligations outlined in representation agreements.
Future Uncertainties:
The long-term impact of these changes is still being debated. While some predict increased competition and lower commissions, others worry about the potential for higher costs and complexities for buyers.
Bill Colson, a retired Navy officer selling his Maryland home, provides a contrasting perspective: He was advised to offer a standard 6% commission in Maryland but was told in Georgia that he would likely need to pay his agent's commission out-of-pocket to be competitive. Colson sees the new rules as adding cost and complexity, potentially making homebuying and selling more expensive for both parties.
The NAR's settlement and rule changes are still in progress, with the final approval hearing scheduled for November 26. It's clear that these changes have the potential to fundamentally alter the real estate industry, and their true impact will likely be evident in the coming years. Buyers and sellers should be prepared for a more complex and potentially costly environment, requiring careful consideration and due diligence.