Industry Changes Affecting Home Buyers

By now, you have probably heard several things in the media about Realtor commissions.

I wanted to explain what has happened and where things are going from here if you are a buyer or if you are a seller.

First, the easy part is for sellers. In my opinion, a good Realtor will recommend that the seller still offers a commission to a buyer’s broker. Sellers benefit with competition amongst buyers and they want as many people through their house as possible. Not offering a buyer’s broker commission will significantly reduce the buyer pool for that seller. Seller’s who don’t offer commission may come to find that the buyer’s write it into the contract and ask for it, or they can ask for concessions and pay their own agent. So it is likely to end up on the settlement net sheet.

We still have a lot of first-time home buyers and they may not have enough money to pay their agent, and that may result in properties sitting on the market for a longer period of time.

Below are some key points and my advice for Buyers.

Who is NAR and What Happened?

The National Association of Realtors (NAR) is a professional organization that represents real estate agents and brokers in the United States.

The lawsuit was filed against NAR regarding its commission practices. The lawsuit alleges anti-competitive behavior and claims that NAR’s rules have resulted in artificially inflated commission rates and it was not a free market. Part of the settlement is that NAR has to have new practices around commission. Commission will still be paid, it will just not be noted in the MLS. Brokers can offer the commission amount on their own websites for the properties it represents.

Impact on Buyers

The outcome of the lawsuit could potentially impact buyers. The settlement to the lawsuit could lead to changes in commission practices, and it may result in more transparency and potentially lower commission rates for buyers.

Additionally, buyers are required to sign a buyer-broker contract when they hire a Realtor and that document will outline their agreement regarding commission.

Importance of Understanding Commission:

It’s important to understand how real estate commissions work. Commissions are typically paid by the seller and are usually a percentage of the sale price. The seller would pay the seller’s broker 6% and then the seller’s broker would pay the buyer’s broker 3%. The seller could offer less, and state what percentage they pay to each broker. The seller always has and always will have control over the commission they offer.

Buyers to discuss commission rates with their real estate agent and ask for clarification on how it affects their overall costs.

Advice for Buyers:

Buying a home is one of largest financial transactions you will make. Not hiring a Realtor for representation may put a buyer at risk and a disadvantage to experienced sellers. Buyers can navigate the commission landscape by talking to their Realtor about how the commission will be negotiated and paid, and a back-up plan if there is no commission agreement from the seller.

Not hiring a Realtor could be devastating. There are so many things that come up in a real estate transaction, an experienced Realtor will help navigate through the process. The home inspection issues, contract problems, repairs, obtaining financing, seller disclosures, and what to do if the deal starts falling apart.

The most important thing for buyers is to find a Realtor provides value beyond just the commission rate. An experienced Realtor who negotiates the best terms for a buyer will be worth the commission.

Myths surrounding this topic.

There is a lot of worry and speculation, and that is what the media wants to instill in its audience: fear. I can’t predict the market, but I will say I do not expect home prices to drop or any significant changes in the market because of this. So there is no reason to hurry up and buy a house nor is there any reason wait if you want to buy now. This will not make Realtors obsolete because most people will continue to request representation. I see business continuing as usual with my clients who see the value in my knowledge and experience when buying and selling homes.

I am a full-time professional Realtor and always up to date on the market and industry. Please feel free to call me anytime for all your real estate needs, questions or concerns. Thank you.

Categorised in: Buying A Home, Selling A Home