Aug. 17 will mark major changes for the real estate industry and the rollout of new rules about how Realtors are paid for buying and selling homes.
The changes are coming about because the powerful real estate trade group, the National Association of Realtors, agreed in March to settle lawsuits in which sellers accused the group of running up fees. At the time, the group agreed to pay $418 million in damages, but it also agreed to change the way commission rules work — a change that will go into effect within the week.
In the past, when someone went to buy a home, he or she would typically go out and get representation from a Realtor, and that Realtor’s compensation for his or her services was paid by the seller, according to Stephen O’Connor, chairman of the Center for Real Estate and Urban Analysis at George Washington University.
“So typically, a commission on a home, if you had a home for one million dollars and you were selling it, the commission structure would typically be 5% or 6%, out of that 5% or 6%, typically half would go to the listing broker, the person who was actually selling the house for the seller, and the other half would go to the buyer’s agent,” he explained to the Washington Examiner.
The NAR was sued because some people thought that was an unfair payment structure. Still, the NAR has argued that their compensation structures were always negotiable and transparent, O’Connor added.
With the new changes, now when someone wants to buy a house, he or she has to sign an agreement with an agent.
“So no longer is the seller responsible for paying the commission structure or the fees associated with the buyer’s representation,” O’Connor said. “So right now, as of Aug. 17, if I want to go out and I want to buy a house, I’m going to have to negotiate with a real estate agent and sign an agreement for buyer’s representation and negotiate what I’m going to pay out of my own pocket … the fee that that person is going to charge me for their professional services.”
The NAR itself has been optimistic about the new changes. Vince Malta, a member of NAR’s leadership team who previously served as the group’s president, told the Washington Examiner that the written agreement will improve transparency.
“We believe this will help with transparency, a better understanding of the relationship, what are the expectations of the parties, and it has to specify what compensation is expected or will be paid,” Malta said.
Malta said the agreement also makes it so offers of compensation will no longer be allowed on multiple listing services — central databases used by Realtors to share details about homes for sale.
“Those offers of compensation would have to occur off of the MLS, so various ways — another document like in a disclosure package or a phone call, but not on the multiple listing service,” he said.
But it doesn’t preclude an offer of compensation.
“If a seller and listing agent believe that it is in the best interest to sell that home to offer compensation to an agent that is representing a buyer, then offers of compensation could still be made,” Malta said.
The $418 million settlement and rules change came after a federal jury last October found major real estate groups liable and ordered them to pay $1.8 billion in damages as part of the antitrust lawsuit that accused them of colluding to inflate the rates of commissions.
The jury, based in Kansas City, Missouri, found that not only NAR but also Keller Williams Realty and HomeServices of America conspired to inflate and maintain high commissions artificially.
O’Conner said he doesn’t think this will greatly affect home sales volume. The housing market has been closely watched the past few years given soaring mortgage rates and home prices.
As of Wednesday, the average rate on a 30-year, fixed-rate mortgage was at 6.52%, according to Mortgage News Daily, which tracks daily changes in rates. That is down from a peak last year of above 8%, although it is still higher than in the years prior to the pandemic.
“I don’t think it’s going to affect home sales at all,” O’Connor said. “I think people are going to sell their home when they’re ready to sell their home. People are going to buy a home when they’re ready to buy a home. This is just different in terms of who gets to represent who and, more specifically, who’s paying who.”
On the agent side, O’Connor said it is yet to be seen how it will shake out, for instance, whether the change will affect the total membership size of the NAR. But he said it will be harder for agents to make money because of the change.
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Others think this will be a big change that may be challenging for realtors.
“This is a grand social experiment in an industry at scale,” Leo Pareja, CEO of eXp Realty, told CNN. “I’m bracing my agents for what I call the ‘messy middle.’ I fully expect a lot of confusion.”
This article was originally published by a www.washingtonexaminer.com . Read the Original article here. .
