This is news that has home buyers and sellers wondering what happens next.
A landmark real estate settlement could impact housing markets across the nation or leave many in the industry uncertain. Experts say only time will tell, as North Texas home prices remain high and competition heats up in the spring home-buying market.
This all stems from a huge settlement that was reached last Friday.
The National Association of Realtors, which dominates the real estate industry through multiple real estate information services, has agreed to pay $418 million to settle multiple class action lawsuits.
The lawsuits allege that homeowners are being forced to pay artificially inflated agent commissions when selling their homes, a charge the industry groups deny but have agreed to make several policy changes as part of the settlements.
Under NAR’s proposed settlement, brokers who represent sellers will no longer be able to include comprehensive offers of cooperative compensation to prospective buyers’ representatives when advertising properties on NAR-affiliated Multiple Listings Services, where the majority of homes for sale in the U.S. are listed. This is intended to eliminate any incentives that buyers’ representatives may have to steer their clients away from home listings that do not include cooperative compensation offers.
The trade group also agreed to require agents and other parties who do business with home buyers to enter into written contracts with them, to ensure buyers know up front how much agents will charge for their services.
Some housing experts say this is like hitting the reset button on the housing market, but it’s too early to know exactly how this will affect buyers, sellers, and the real estate agents they work with.
Since news of the settlement and policy changes broke, rumors and misunderstandings about the settlement have been circulating, including details that the NAR will eliminate commission thresholds, which are typically set at around 6%, raising concerns that this will result in reduced income for real estate agents.
But local real estate experts said these fees have always been negotiable and have never been set by the NAR.
“This has always been negotiable, and that’s what’s caused a lot of this kind of frustration and misunderstanding,” said Ashley Massey, Dallas-Fort Worth real estate advisor and author of “Fast Track Agent.” “This has always been an industry that’s been negotiable, so we’re basically trying to bring back information about this and help both sides realize that it’s always been negotiable from the beginning.”
The trade group issued a statement this week “in response to inaccuracies in recent media reports that incorrectly stated or suggested that the National Association of Realtors requires a standard 6% commission rate,” clarifying that the group does not set commission rates.
“NAR does not set fees; fees are negotiable. The rules at issue in the lawsuit only require listing brokers to communicate an offer of compensation, which can be any amount, including zero. Additionally, other rules in the MLS Handbook and throughout NAR policy specifically prohibit MLSs, associations, or brokers from setting or suggesting the amount that should be included in that field,” NAR said in a statement.
Massey doesn’t expect the North Texas housing market to be affected by these changes anytime soon.
“The real estate industry is always changing, there’s always something new coming up and there’s always something that you have to adapt to as a professional in any business, any industry, and this is definitely one of those times,” she said. “How real estate agents deal with it, how each state deals with it, is very different. So we’ll just have to wait and see how it plays out as the summer goes on, because each state is going to look at the situation differently.”
The new rules aren’t scheduled to go into effect until July, before which the settlement must be approved by a federal court.
According to the Associated Press, several real estate brokerages, including Anywhere Real Estate and Keller Williams, have reached separate settlement agreements that include provisions to increase transparency of broker commissions for homebuyers and sellers.
Experts said that while spring homebuyers won’t be affected, those looking to move in the summer or fall should consult with real estate professionals about how the policy changes will be implemented.
“In the U.S., representation is optional. You don’t have to use a real estate agent to buy or sell a home. But a lot of people find themselves hiring an agent to represent them. It’s a big deal. There are a lot of legal implications to buying and selling a home. So if you hire someone who understands the contract and understands both sides, it really helps everyone involved,” Massey said. “Again, for buyers and sellers, everything has always been negotiable. Agents negotiate the fee they’re going to charge, and based on that fee, agents get their commission. Part of that is getting around to the buyer’s side and getting as many eyes on you as possible. As a seller’s agent, my job is to sell your house as quickly as possible. Part of my way of doing that is to invite buyers to come and see your house. And we do that through commission.”
But some experts believe the changes could upset booming markets like North Texas and make housing even more unaffordable.
John Bain, a professor in the UNT College of Business real estate program, says a buyer’s agent is typically included and built into the price the seller receives.
“The question is, if you don’t build it in there, who’s going to get that 2 percent or 3 percent? And you can see right away that sellers want that, they want that extra capital. Right now, in a situation where there’s not a lot of affordable housing, there’s such a shortage of housing that this is going to be a barrier for buyers,” he said.
According to the Associated Press, the proposed rule changes would allow individual home sellers to negotiate such arrangements with buyers’ agents outside of the MLS platform, essentially creating a loophole for agents to maintain the status quo.
Home buyers can also ask home sellers for concessions, including money to supplement the buyer’s agent’s commission.
But if sellers don’t want to pay the buyer’s commission, home buyers will have to shop around for an agent who will. The policy change also requires clients to sign a contract that specifies how much the agent will be paid before engaging with them.
Bain worries that some home buyers may opt not to use an agent to save money on what is already an expensive and often complicated home-buying process.
“I don’t buy anything without some help. I want an outsider to look over me,” he advises. “The listing agent’s job is usually to get the highest price for the seller, and the buyer’s agent’s job is to get the lowest price and all the perks for the buyer. So who’s going to pay the buyer’s agent if it’s not built into the price of the listing agreement? I think the buyer should pay it. It’s an additional down payment.”
Bain said everyone will have to wait and see how the NAR settlement will impact tough housing markets like North Texas over the next year.
“Standard or traditional commissions were introduced into the market. Let’s say I’m a seller and I say I’m not going to pay 6% commission, I’m only going to pay 4% commission. Then the other 10,000 agents in Dallas-Fort Worth won’t show my house for half the commission, 4%, not 6%. I can’t get all the buyers,” he explained. “So in a tough market, I’ll pay more commission. And in an easy market, I might pay less commission. But the reason NAR did this is because there was a lawsuit filed against them. They settled the lawsuit and are letting the market regulate itself. And I think the market has always been that way. Because unless they offer the full asking price, they’re not going to get the full commission. It’s negotiable either way.”
