Real Estate Shakedown: The NAR Settlement!
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I've heard it all, the real estate industry is doomed, buyers won't have any agents to help them, the 6% commission on real estate transactions is gone and many other eye-catching headlines. The shocking, and often mis-leading, headlines have settled down a bit now, but a couple of weeks ago when the NAR Settlement was announced, every news agency was trying to put out their most shocking headlines that simply misled everyone. So, what is the NAR Settlement, how does it impact buyers and how does it impact sellers?
In a nutshell, the NAR lawsuit and settlement is surrounding how buyers agents get paid. Currently it usually comes from the seller agreeing to pay the buyers agent a certain percentage and that percentage is listed on MLS. Of course, sellers don't like this, as it means less money in their pocket!!
So what's changing you ask? First, understand that this is a proposed settlement and it still has to undergo review and court approval and is likely to change before final approval. There are two main changes, first when buyers have an agent, they will be required to have an agreement as to how much they will be compensated for their services, this way the buyer is establishing how much they will pay the buyers agent, not the seller. Second, MLS listings will no longer show if a commission is being offered by the seller. They can still be offered, but they will not be reported through the MLS listing. Below I'll dive into how I think this will impact buyers, sellers and even home prices...
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Can I still buy a property with a real estate agent?? |
The short answer is of course! There are and will be plenty of buyer's agent available to help you with your real estate investments! What's changing is how buyers agents get paid. Does this mean that you have to pay them out of pocket? Not necessarily!
First, we should understand what exactly a buyers agent does. They aren't there just to open doors and show you homes, though that is part of the process. A buyers agent first gets to know you and they type of home you're looking for and where you want to live now, and in the future. Then they use their knowledge of the area to help guide your search for homes! A typical buyer will see 12 or more homes before buying one! When you find a home you like, they work with you to expertly write up a legal offer and then manage negotiations between you, the seller and the seller's agent. Once an offer is accepted, your buyers agent stays engaged throughout escrow to refer other real estate professionals for inspections, escrow, title, etc. Everything is on a strict timeline, so your buyers agent keeps everything moving forward all the way until closing! The seller has a professional working for them, shouldn't you?
Now that we can see that a buyers agent is quite involved and help to ensure the home buying process is smooth and completed successfully, don't you think they should be compensated for the significant amount of time they put in? Of course you do... While it is still possible for a seller to pay a commission, once the settlement goes into effect, any commissions will have to be negotiated as it will no longer be listed in MLS. If they are not offering a commission, the buyer can also request a concession. Initial thoughts amongst agents are that this will be the way it'll work. It is essentially the same as a commission, but the buyer is requesting it, rather than the seller offering it. It still gets bundled into a loan and is part of the contract, just like a commission would. In the unlikely case that neither option is agreed upon, then, yes, it may come down to the buyer paying out of pocket. The terms all get written into the purchase agreement, so if the seller isn't offering a commissions or a concession, you'll know before agreeing to purchase the property!
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Are Home Prices going to drop due to the settlement?
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This leads us into the seller side of the conversation. If sellers aren't going to be offering a commission to the buyers agent, does that mean that sellers will accept less money for their home?
If you were selling your home, would you sell it for less?? Probably not. But, as described above, even though a commission is not being set by the seller and advertised in the MLS, doesn't mean the seller will get to keep the buyers agent commission now! If you think of it differently, you'll really see that moving forward the process may change, but the end result is the same. Currently, a buyer pays money to buy a house, a portion of that money goes to the sellers agent, which is then split with the buyers agent based on how much the seller is willing to give to the buyers agent - so really a portion of the total sale goes to the sellers agent, a portion to the buyers agent and the remainder to the seller (after paying off mortgage, taxes and other closing items).
Going forward, it will be similar, but instead of the seller's agent commission being split with the buyers agent, the buyers agent will be paid separately based upon what the buyer and buyers agent agreed to. If paid out as commission or concession, a portion of the total purchase price will go the sellers agent and a portion will go to the buyers agent, similar to how it does above, just a different process.
Now, if a buyer has to pay out of pocket for an agent, rather than bundling it into their loan through a concession or commission, a buyer isn't going to want to pay as much for a home. And while I don't have a crystal ball, I think this is going to be rare. In most situations a buyers agent will still be paid and it'll be bundled into the loan, which means home prices not take a dip as a result of this settlement. |
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In last months newsletter we talked about the current market and why it is a good time to buy! The idea was that if you can afford to buy now, you should. Then when mortgage rates drop, refinance. If you wait for mortgage rates to buy, then home prices are likely to have increased, so now your have a lower mortgage rate, but you're paying more because you waited. As we move into the hot spring and summer market, this is, in my opinion, the best time to buy!
If only we had a crystal ball to help us understand where the market will go --- well, we don't have a crystal ball, but we do have a plethora of data to analyze! The chart above is the median home prices for California and Sacramento County over the past 30 years!! While there are always bumps, this is usually seasonal and temporary. There has only been one significant drop in home values - this was during the 2007-2009 recession / housing bust. But it has been widely discussed, such as here by Yahoo Finance, that our current recession is different than "the Great Recession". The current recession is due to many factors, but unlike the Great Recession, homeowners are not upside down in their homes, owing more than their homes are worth. So, while prices have dropped due to mortgage rates, the expectation is that the overall trend of increasing home prices will continue.
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| Calendar - March 2024 -
April 01 - April Fools Day 🤡
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| Coming up in Future Newsletters - More Buyer and Seller Tips
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© 2024 Steven Weise, Realtor ®
Serving the greater Sacramento area Northern / Central Valley - eXp Realty of Northern California, Inc. CA DRE#02188495 915 Highland Pointe Dr Ste 250, Roseville CA |
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