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How buyers and sellers are navigating real estate’s seismic shake-up | CNN Business

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When Dana McMahan sold her home this spring, she decided to try to maximize her take-home profit by skipping out on the help of a full-service Realtor.

Traditionally, home sellers in the US have been responsible for paying real estate commissions. The standard 5% or 6% commission was usually split between the seller’s broker and the buyer’s broker, referred to as cooperative compensation.

“I think it’s safe to say that for quite some time I’ve really not felt like it was fair for a home seller to be paying a 6% commission,” McMahan said.

McMahan, a content creator in Louisville, Kentucky, was slightly ahead of the curve when she opted out of the standard commission-sharing model: Beginning August 17, a new set of rules went into effect for the 1.5 million real estate professionals who are part of the National Association of Realtors designed to shift the conversation about how Realtors get paid.

Amid record-high home prices and elevated mortgage rates, NAR’s changes may only seem like tweaks to the opaque process of buying and selling a home. But many experts predict the new rules may eventually spur increased price competition in the real estate industry, opening up the possibility for Americans to save thousands of dollars on Realtor commissions in the future.

Cutting out a traditional Realtor means taking on extra work, though.

“I hosted an open house myself; I provided my own photography and I wrote my own listing description,” McMahan said. “But if I were trying to put a value on my time, I came nowhere near spending what I would have spent on that commission.”

By selling her home without a full-service Realtor, McMahan, who enjoys fixing up and reselling old homes, pocketed some extra cash: Rather than paying 2% or 3% of her home’s final sale price to an agent, she paid a broker just $500 to list her home on her local MLS, a centralized database that Realtors use to learn which homes in their area are for sale.

Despite saving money on her side of the deal, she did not avoid paying a commission altogether. She ultimately offered the standard 3% commission to the agent representing her home’s buyer, a move McMahan said she felt was necessary to entice agents to bring buyers around.

“I knew the house would sell itself. I just needed to get eyeballs on it,” she said.

But NAR’s changes aim to prevent that calculation. After August 17, sellers and their agents are prohibited from advertising how much they would pay to a buyer’s agent in the MLS. Critics have often accused some Realtors of commission-based steering, in which they avoid showing their clients homes on the market that are offering below-market-rate commissions.

NAR has said that the practice was always prohibited but that the new rules have “eliminated any theoretical steering.”

NAR’s rule changes stem from a series of lawsuits that accused the powerful trade organization of keeping commissions artificially high by forcing home sellers to pay out commissions to agents on both sides of the transaction. NAR, which is a significant lobbying group for the real estate industry, denied the accusation, saying Realtor commissions have always been negotiable. Still, the group agreed to pay $418 million to settle some of the claims ­— and agreed to implement the new rules on its members as part of the settlement.

The final approval hearing is scheduled for November 26, but a judge granted preliminary approval of NAR’s settlement in April.

Given the new rules, McMahan said she might reconsider her offer of a 3% buyers’ broker commission the next time she sells her home.

Another aspect of NAR’s rule change: Buyers will be required to sign representation agreements with a Realtor before they can begin touring homes together. These agreements are intended to inform buyers that they may be responsible for covering their Realtor’s commission payment themselves if a seller chooses not to offer it.

Some prospective buyers may balk at being on the hook for thousands of dollars in commission payments and instead turn to lower-cost alternatives, like flat-free brokerages or a la carte services.

Either way, experts caution that homebuyers carefully read any legally binding representation agreement before signing it.

Some Realtors have warned that in competitive markets where homes for sale receive multiple offers, buyers may be pushed to pay their own agents out-of-pocket to make their bids more appealing to sellers, further adding to the often burdensome closing costs associated with purchasing a home.

Bill Colson, who is preparing to sell his Maryland home next year and purchase a retirement home outside Blue Ridge, Georgia, believes the changes will create more costs.

Colson, who is 57 years old and retired from the Navy, said a Realtor in Maryland still advised him to offer the standard 6% commission split between his agent and a buyer’s agent when selling his home — but in Georgia, Colson said another Realtor told him to be prepared to pay his own agent out of pocket to make a potential offer more competitive. That means Colson would be responsible for paying out commissions for both transactions, which would have been unthinkable to many homebuyers and sellers before the changes.

“If you want to stand out, you’re going to have to pay,” Colson said.

“In the end, we may end up paying something like 9%,” he said. “Instead of making things better, it just got a lot worse.”



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Wells Fargo is selling off billions of dollars in commercial mortgages | CNN Business

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Wells Fargo is set to sell the majority of its commercial mortgage servicing business to global loan services provider Trimont, the companies said Tuesday.

The move would make Trimont the largest loan servicer in the US industry, according to rankings from the Mortgage Bankers Association.

Wells Fargo’s deal to sell off its non-agency third-party Commercial Mortgage Servicing business comes as the banking sector in the United States faces increasing pressure due to elevated interest rates and challenges in the commercial real estate market.

Founded in 1988, Trimont is a specialized commercial real estate loan services provider that provides services to help lenders manage and grow their commercial real estate loans.

The deal is expected to close in early 2025, pending certain conditions, and will result in Trimont managing over $715 billion in US and international commercial real estate loans.

The “strategically important transaction” will position Trimont to be a key partner to real estate capital providers, said Jim Dunbar, chair of Trimont and partner at Värde Partners.

Commercial real estate markets, particularly in the United States, have suffered a sharp fall in valuations since 2021 after office vacancy rates jumped in the wake of the pandemic, with analysts predicting further challenges for lenders and property owners in the near future.

Last year, Wells Fargo announced a significant shift in its mortgage business, saying it would be focused on serving bank customers and minority homebuyers instead of acquiring new customers.

The lender also said it would exit its correspondent business, which buys loans made by other lenders; and reduce the size of its mortgage servicing portfolio.

Wells Fargo has long been one of the biggest players in the mortgage business, but was dogged by a slew of scandals in 2016 that led to regulatory action and billions of dollars in fines. Its then-CEO, John Stumpf, agreed in 2020 to a lifetime ban from the banking industry and a $17.5 million fine for his role in leading the bank through its massive fake accounts scandal and other sales practice misconduct.



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The NAR settlement comes into effect today: Here’s what changing and why | CNN Business

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On Saturday, a new set of rules governing how most real estate professionals do business in the US officially take effect — and the changes could potentially upend how Americans buy and sell homes.

The rules were agreed to by the National Association of Realtors, the powerful trade association that counts 1.5 million members, as part of a $418 million settlement into antitrust claims. The rules are designed to transform the way Realtors get paid and who pays them. It’s the largest change to the organization’s rules in at least a generation.

In a statement, Kevin Sears, NAR’s president, said that the changes “help to further empower consumers with clarity and choice when buying and selling a home.”

“I am confident in our members’ abilities to prepare for and embrace this evolution of our industry and help to guide consumers in the new landscape,” he said.

Here’s what you need to know:

Historically, buyers were not expected to pay their real estate broker directly. That’s because Realtor commission fees — to both the buyers’ agent and the sellers’ agent — were paid by a home seller.

Commissions usually total 5% or 6% of a home’s selling price, so for a $450K home, roughly the average price of a home in the US, a seller would be responsible for $27,000 in fees. Many experts have said these commissions have been baked into a home’s listing price, inflating home prices.

But beginning this week, seller’s agents will no longer be allowed to advertise commission fees to buyers’ agents on multiple listing services that Realtors use to list and find homes for sale and to facilitate transactions.

That means that a buyer’s agent can no longer use the database to search for houses based on how much they’ll get paid, a practice called “steering,” which led some agents to skip over showing homes that fit their client’s criteria solely because a seller was offering below-market commission rates, critics allege.

“By not having commission on the MLS anymore, it makes it harder to steer, because you can’t just do a search for 3% commissions,” said Tanya Monestier, a professor of law at the University at Buffalo School of Law. “You can still call everyone up and figure out what the lay of the land is, but this just makes it much harder.”

The second change affects the relationship between prospective home buyers and their real estate agents. Buyers must now sign a legally binding representation agreement with their agent before they can begin touring homes together.

These agreements are designed to inform home buyers how their agent gets paid,­ and if sellers do not agree to pay the agent’s commission, the buyer may be on the hook for that payment. They’re also designed to inform buyers that this commission is fully negotiable.

“The idea is if buyers are aware that they can negotiate commissions and that if they, in fact, do pay them, not the seller, it might create a more completive market and possibly a menu of services in the future that would be more comparable to other developed countries,” said Norm Miller, professor emeritus of real estate at the University of San Diego.

A key element to these agreements is that a buyer’s agent cannot receive more compensation than what the buyer initially signed onto, even if a seller is willing to offer more.

On its website, NAR said that these two changes have “eliminated any theoretical steering, because a broker will not make more compensation by steering a buyer to a particular listing because it has a ‘higher’ offer of compensation.”

The final approval hearing is scheduled for November 26, but a judge granted preliminary approval of NAR’s settlement in April.

Some brokerages have realized that buyers may get nervous about signing anything that commits them to a legally binding relationship with an agent before they begin touring homes. So, they created shorter-term contracts that cover a week­ or maybe even an hour for buyers to get comfortable with an agent before committing.

But, Monestier cautioned that buyers should be careful about signing any kind of legally binding contract without giving it a thorough read.

“You’re going to see all sorts of different versions of these agreements that are going to vary, state-by-state, brokerage-to-brokerage. There may end up being thousands of them out there,” she said. “It concerns me that buyers and sellers may sign something blindly and then be surprised when things are not as they think.”

Leo Pareja, the CEO of eXp Realty, one of America’s largest brokerages, told CNN that he drafted his company’s buyers’ agreements with simplicity in mind to head off potential confusion.

“It is designed to be something that a consumer could read in the driveway of a house without feeling put in an uncomfortable situation,” Pareja said. “You don’t need a law degree to read it.”

Pareja decided to make his contracts widely available so that they could be used by other firms, as well.

“We just want consumers and agents to have the least amount of friction going forward, because that’s the last thing we need right now,” he said.

Some real estate professionals have warned that the new rules could have a chilling effect on the home-buying market since more buyers may now be expected to come up with cash to pay their own agents.

But Monestier said that she believed in the long-term, the changes would help consumers.

“I would say the better thing for home buyers and sellers is if commission rates were to go down over time,” she said.

It remains unclear whether the cost of buying and selling homes in the US will immediately become cheaper for most people, though.

“I suspect somebody out there will eventually say, ‘let’s compete on price.’ If it’s a big firm, that could cause a revolution,” the University of San Diego’s Miller said. “But when would that happen? I don’t know.”

In the short-term, Miller believes mortgage rates will have a larger impact on home affordability than any particular rule change.

The rate for an average 30-year fixed mortgage recently hit 6.49%, still elevated compared to recent history but near the lowest levels in more than a year.

“That has a whole lot more effect on affordability than anything we’re talking about here,” said Miller. “If mortgage rates come down further, rule changes will just be noise in the equation, compared to that.”



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The Realtors settlement is already changing the way some Americans buy and sell homes | CNN

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The seismic settlement announced by the National Association of Realtors earlier this month has not yet been approved, but it is already sending shockwaves through the real estate industry.

The mere prospect of a future settlement has already caused some Americans to change their behavior when buying and selling their homes. Some prospective homebuyers said they plan to restart their housing search after the new rules are in place in hopes of finding lower home prices, while some homesellers aren’t waiting for the new rules to take effect in July to lower — or even eliminate — the commission they offer to buyers’ agents.

Housing experts say the $418 million settlement will effectively demolish the current real estate business model, in which home sellers pay both their agent and their buyers’ agent, which critics say inflated housing prices.

If approved by a judge, the settlement comes with new rules for Realtors.

“This is unchartered territory,” said Debra Dobbs, a Realtor in Chicago, of the potential new rules.

The new rules could help lower home prices, experts say.

That’s what Jeremy Cannon, a 34-year-old teacher in Corona, California, hopes.

Last year, Cannon and his wife tried to buy their first home, putting in offers for multiple properties.

“All of our offers got denied because other people were bidding higher than us,” Cannon said. “We were already trying to bid above asking price for pretty much every place.”

At the time, Cannon decided to hit pause on his dream of owning a home. But, to Cannon, the new rules established by the NAR settlement could potentially clear what felt like an intractable hurdle for him: the high cost of housing.

Sales commissions, traditionally shared between a buyers’ agent and the agent who lists a home on the market, are usually between 5% and 6% of a home’s selling price. The median price of a home in the US is $417,000, according to census data, meaning the average seller could be paying more than $25,000 in brokerage fees.

Groups of sellers brought lawsuits against the NAR for this practice, alleging it was a violation of antitrust laws.

Under the proposed settlement terms, sellers’ agents will no longer be required to offer to share their commission with buyers’ agents, uncoupling commissions from home prices and opening the door to a more competitive housing market.

Many experts believe commission costs have been baked into home listings prices. Lower commissions could mean lower home prices.

“I think it could be helpful,” Cannon said. “I hope it might be cheaper and bring the prices of houses down more.”

He now plans to restart his home search this summer.

A price drop would be a much-needed reprieve for Cannon and others looking to buy a home: the median sales price of a new house has surged 21% since January 2020, according to census data.

The new rules also require agents to enter into written agreements with their buyers. Many agents plan to stipulate that if a home seller does not agree to pay their commission, their buyer is on the hook for that money.

But Cannon said if buying a home becomes more affordable, he would be willing to pay out-of-pocket for an agent, as long as it is “someone who has my interests in mind.”

Matt Hanley, a 49-year-old who works in insurance in Minnesota, has lived in his home since 2007. He was reacquainted with how real estate transactions work when he recently purchased a new home.

“We were confused,” he said. “I’m like ‘wow, I’m surprised the seller has to pay my agent’s commission.’ It seemed like a conflict of interest.”

Hanley now plans to list his home in April. After the NAR settlement was announced, though, he changed course: Instead of offering to pay a commission that would be split between his agent and his future buyers’ agent, he asked his agent to write “0%—negotiable” as the buyers’ agent commission on his home’s listing page.

“Why wait for the settlement? This is common knowledge now,” Hanley said. “I’m going to try to be at the start of this bell curve.”

Hanley’s experiment may be premature, though. The new rules will prohibit agents’ compensation from being included on centralized listing portals, which some critics say led agents to push more expensive properties on customers. But, for the time being, buyers’ agents will still be able to see that Hanley isn’t offering them compensation, potentially disincentivizing them from showing his home to clients.

But Hanley pointed to favorable conditions in his market as a reason that he believes buyers may still consider purchasing his home, even if they have to pay their realtor out-of-pocket.

“We’ve got everything going for us. We have no inventory in our area and we’re selling at peak time, so we said, ‘Let’s try it,’” he said. “If someone really wants it, they’re going to come up with their buyers’ fee.”

“They should be reporting to their agents, we should be reporting to ours,” he added.

Mariya Letdin, an associate professor of business at Florida State University, said this settlement has helped raise awareness that people have a right to negotiate. Even so, Letdin said it’s possible that the status quo is maintained.

“It’s up to the consumers on both the seller side and the buyer side to bring this to wide use,” she said. “I think it will take more than just a ruling. I think it will take consumers advocating for themselves and not being passive.”

“They now have a legally protected voice, and they should use it if we want to see change happen,” Letdin said.



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Should you sell your home now or wait for the Realtor settlement this summer? | CNN Business

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CNN
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Listing your home in the spring used to be a no-brainer. But a major real estate shakeup is complicating the equation.

That shakeup is coming from a $418 million settlement the National Association of Realtors announced last week with groups of homesellers that could go into effect as early as July. The settlement will eliminate the long-standing standard 6% commission paid by the seller, which could ultimately make it cheaper to sell your home post-settlement.

But is it worth waiting to list your home and potentially risking a sale?

Would you rather be unloading boxes from a moving truck in a potential snowstorm or heatwave as opposed to when it’s a pleasant 60-degree day?

That’s one of the main reasons spring has been the most popular season to buy a home.

For families with children, it’s also an ideal time to close on home because it would allow them to stay in the same school.

By springtime, people are also more likely to have paid off any debt they took on over the holidays, said Phil Crescenzo Jr., the southeast division vice president at Nation One Mortgage Corporation.

The settlement could present a major downside to homebuyers.

Under the current system, the buyer’s agent’s commission is baked into the total they pay for a home. That meant buyers could pay that added cost over the entire length of their mortgage.

But after the settlement is finalized, many may have to pay flat fees upfront to agents. That would add to the financial burden for homebuyers – especially first-timers. And that’s on top of coming up with all the money they need for a home downpayment, closing costs, a lawyer and all the other fees associated with buying a home.

Buyers, therefore, may have more of an incentive to close on a home sooner rather than later.

There’s also no guarantee a federal court will sign off on the settlement as is. The unknowns associated with that are enough of a reason not to wait to list your home, said Crescenzo. From conversations he’s had with real estate agents, he said he’s not seeing any signs that the NAR settlement is delaying listing activity.

“There is no reason to wait,” Mike Downer, a broker associate with Coldwell Banker Realty in Naples, Florida. “The seller does not currently need to provide any compensation to the buyer’s agent.”

The biggest advantage of waiting to list your home until the settlement is finalized is being able to negotiate an agent’s commission down more than they otherwise would’ve been able to. On top of that, they may be able to avoid having to pay the buyer’s agent’s commission.

That could allow them to pocket thousands of dollars more on the sale of their home.

If selling your home boiled down to a business decision, Mike Downer, a broker associate with Coldwell Banker Realty in Naples, Florida, said he’d try to list it as soon as possible.

“If I am trying to test the market, there would be no need to list it 1723291007,” he added.

But in his view, the NAR settlement shouldn’t be a major consideration when it comes to timing.

“An agent who provides value will always be worth more than an agent who does not provide value,” because they can help you net more money for the sale of your home, he said.



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The way Americans buy and sell homes is about to get turned on its head | CNN Business

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The way Americans buy and sell homes is about to get turned on its head.

An earth-shattering, multibillion-dollar antitrust ruling against the National Association of Realtors late last year led to a settlement on Friday that will loosen the powerful trade group’s stranglehold on America’s housing market. The $418 million settlement with a group of homebuyers is expected to take effect sometime around July, pending a judge’s approval. It would transform a number of rules and guidelines set by the NAR that critics say have kept housing prices artificially inflated.

The TL;DR: 6% commissions, split between the buyer’s and seller’s brokers, will no longer be the norm. Agent commissions are expected to fall — in some cases, dramatically — because they will be competitive and negotiable, and sellers will be able to shop around for better rates. And other broker tactics that critics say are anticompetitive, such as a rule that made sellers’ agents set compensation for buyers’ agents, will be prohibited.

It’s not all good news: Buyers may have to pay their broker directly in the future, which could be tough for buyers accustomed to financing that commission as part of their mortgage. And some buyers could choose to forgo using a broker altogether. Also, a bunch of brokers are probably about to quit.

But the biggest takeaway for homebuyers is undoubtedly welcome: The overall cost to buy a home should fall by thousands of dollars on average.

For decades, Americans have paid a standard commission of around 6% when selling a home, split between the seller’s broker and the buyer’s broker. The National Association of Realtors and its 1.5 million agents say those fees are negotiable. But certain NAR rules have kept commissions significantly higher than in other countries, where they can average around 1% or 2%.

After the settlement, those commissions will be fully competitive, meaning brokers can advertise their rates to prospective sellers, and people can shop around for bargains.

Real estate commissions are expected to fall between 25% and 50% because of the new rules, according to TD Cowen Insights.

Without the guidelines that buyers’ and sellers’ brokers split commissions evenly, homebuyers may have to change they way they pay their own agents.

Typically, the 6% commission (typically 3% for the seller’s broker and 3% for their own agent) was passed on to the buyer in the overall cost of the home, which buyers can pay off over decades in their mortgages.

But after the settlement is finalized, buyers may end up paying their agents in new ways; including, perhaps, a flat fee. A separate new rule will require buyers’ brokers to enter into written agreements with their buyers.

Although that will add transparency to the homebuying process, it could become burdensome — particularly for first-time buyers, many of whom already have difficulty coming up with all the money they need for a down payment, closing costs, a lawyer and all the other fees associated with buying a home.

One rule that particularly irritated NAR critics is going away: The requirement that sellers’ brokers advertise the commission they will pay brokers’ agents. The NAR now prohibits brokers from advertising that compensation.

That rule had led to two bad outcomes for buyers, affordable housing advocates claim: The first is that it kept commissions artificially high. Second, it led buyers’ brokers to push more expensive homes on buyers, so their payout would be higher.

The ultimate question: Will buying a home get cheaper? Industry experts almost universally expect the answer to be yes. As brokers grow competitive on rates, commissions could fall significantly.

For the median-priced American home for sale — $387,000 — sellers are paying more than $23,000 in brokerage fees. Those costs are passed on to the buyer, boosting the price of homes in America. That fee could fall by around $6,000 to $12,000, according to analysis from TD Cowen Insights.

In aggregate, that will save people a ton of money: Americans pay around $100 billion in commission fees each year, and homebuyers could stand to save between a quarter to half of that once the settlement is finalized, according to Stephen Brobeck, a senior fellow at the Consumer Federation of America, an umbrella group of nonprofit consumer organizations.

The new reality could be tough on brokers, particularly people who don’t sell a lot of homes.

US home purchases dropped to nearly a 30-year low in 2023 as supply has dried up, mortgage rates have surged and home prices continue to rise in most areas of the country. Although falling commissions could persuade some buyers and sellers to get back into the market, Norm Miller, professor emeritus of real estate at the University of San Diego, said the settlement could lead to a mass exodus of brokers from the industry.

Potentially half of the 2 million or so agents in America could quit, Miller predicts, as the new rules become unworkable for many brokers.

In a sign of how nervous this ruling has already made the industry, stocks of real estate companies like Zillow (Z), Compass (COMP) and Redfin (RDFN) were down 13%, 14% and 5%, respectively, Friday, and Zillow and Redfin fell further Monday.

CNN’s Matt Egan contributed to this report.



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