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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.”



This article was originally published by a www.cnn.com . Read the Original article here. .

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Home sale commissions are getting a shake-up this weekend

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Changes to realtor commissions taking effect this weekend could give home sellers a lot more negotiating power — and for buyers, potentially some more paperwork.

Starting Saturday, realtors will be barred from offering compensation on multiple listing services (MLS), making it harder for buyers’ agents and sellers’ agents to negotiate fees on their own, as they’ve done for decades.

Until now, home sellers traditionally had to pay commissions, commonly in the range of 5% to 6%, to their agents, who then split that fee with the buyer’s agent upon making a sale. The new rules, which follow a historic $418 million settlement with the National Association of Realtors in March, leave more room for sellers to negotiate those fees down and make it more appealing for buyers to forgo agents entirely.

“It’s the biggest change probably in the history of real estate,” said Mike McCann, a realtor in Philadelphia. “It has created a lot of fear, a lot of anxiety” within the industry, he said.

The changes to broker commissions come in the midst of a cooling U.S. housing market.Loren Elliott / Getty Images

With the MLS no longer serving as a forum for negotiation, it remains to be seen how agents, buyers and sellers will choose to cover commission costs. While sellers could pass on any savings on the commission to the buyer in the form of a lower home price, it’s also possible that sellers could increasingly choose to ask the buyer to cover some or even all of the costs.

To ensure buyers know the compensation that they may be on the hook for, the NAR is implementing a change, also effective Saturday, requiring agents to enter into written agreements with buyers before showing a home.

Jan Jaeger is a client of McCann’s and says the new rules add more work to the experience of homebuying, which she’s going through now in Philadelphia after selling her house there earlier this month.

“It’s just another step in already a very difficult process, and I only say that because I have bought and sold many homes in the past, and what’s happening today is very different. It used to be fairly simple,” Jaeger said.

The settlement that triggered the shake-up stemmed from a class-action antitrust lawsuit that alleged brokers were steering clients to listings on the MLS offering better commissions. The NAR denied wrongdoing and reaffirmed its “commitment to requiring that MLS Participants must not limit the listings their client sees because of broker compensation.”

The NAR has also clarified that even though offers of compensation are prohibited on the MLS, offers “could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals.”

The changes come in the midst of a cooling housing market, where high home prices and high mortgage rates have caused sales of existing homes to slide since the pandemic-era homebuying frenzy.

For first-time homebuyers already concerned about affordability, the possibility of being on the hook for commissions adds more potential costs.

“People are saving, they’re paying rent, they don’t have the money,” McCann said of younger buyers looking for their first homes. “How are they going to pay the commission? That’s my biggest concern.”

Still, experts say the big takeaway is that fees could decline further. Real estate listing site Redfin noted in a report earlier this month that commissions for buyers’ agents have already been on a yearslong decline.

“It’s also possible that news of the settlement made consumers more aware they can offer any commission to a buyer’s agent or none at all, contributing to the decline since March,” the report said.

In the end, the new changes should at least give homebuyers and sellers more transparency into how they compensate brokers.



This article was originally published by a www.nbcnews.com . Read the Original article here. .

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Real estate industry braces for shake-up as new rules roll out – Washington Examiner

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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.

CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER

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. .

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Biggest shakeup in a century set to hit real estate agents this week: Here’s how they’re

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CNN
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Realtors across the US are bracing for a seismic shift in the way they do business. Starting August 17, new rules will roll out that overhaul the way Realtors get paid to help people buy and sell their homes.

The changes, which are part of a $418 million settlement announced in March by the powerful trade group the National Association of Realtors, eliminate informal rules that propped up the industry’s traditional payment structure, where home sellers were typically on the hook to pay a 5% or 6% commission, usually split between their agent and the agent representing their home seller.

In the months since the settlement was announced, Realtors across the country have been preparing for the change, attending trainings and poring over the details of new contracts they must sign with prospective homebuyers. Some agents predict the rules will pave the way for new business models and potentially drive many full-service Realtors to leave the industry, while others are more sanguine about the impending changes.

“This is a grand social experiment in an industry at scale,” Leo Pareja, CEO of eXp Realty, one of the largest real estate brokerages in the US, said. “I’m bracing my agents for what I call the ‘messy middle.’ I fully expect a lot of confusion.”

In a statement, NAR’s president, Kevin Sears, said he was confident NAR members would adapt to the changes, which industry analysts have called the biggest change in America’s real estate market in a century.

“These changes help to further empower consumers with clarity and choice when buying and selling a home,” Sears said. As August 17 nears, “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.”

Historically, a seller’s agent charged homesellers a fee, often 5% or 6% of a home’s purchase price, that was intended to be shared with the buyer’s agent. That meant that homesellers could be on the hook for serious cash: A seller of a $1 million home might pay out $60,000 in commissions. Some experts have said that money was baked into homes’ listing prices, inflating the price of homes for sale.

A series of lawsuits alleged this standard practice violated antitrust laws, though the NAR has long argued that the commissions were always negotiable.

Along with a monetary payout, the NAR agreed to two key rule changes as part of an agreement to settle the lawsuits. Both take effect on August 17 and are designed — in theory­ — to shake loose the standard way of paying out commissions.

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

The first change prohibits agents’ compensation from being included on multiple listing services, which are centralized databases used by Realtors to share details about homes for sale. Compensation details can still be advertised elsewhere or communicated in person or over the phone, though.

The second change requires buyers’ agents to discuss their compensation upfront. Come August 17, agents working with a prospective homebuyer must now enter into a written buyer agreement before touring a property together. This agreement is designed to inform buyers that they are responsible for paying their own Realtors if a seller chooses not to cover the cost.

However, prior to the changes, Realtors in 18 states were already required to sign buyer agency agreements. Mary Schumann, a Realtor in Minnesota, said that to her, NAR’s changes seem manageable.

“I always tend to wait and see how things shake out before I panic,” Schumann said. “We already do buyers agreements here, and this doesn’t seem to be incredibly different.”

By some estimates, real estate commissions could fall between 25% to 50%, according to a March analysis by TD Cowen Insights. This could pave the way for real estate companies with alternative business models, like flat-fee and discount brokerages, to thrive.

Shelly Cofini, the chief strategy officer at Redy, said she believed the NAR settlement would benefit her company. Redy, which operates nationwide, is a marketplace that allows real estate agents to bid on home listings, meaning agents could pay homesellers for the opportunity to represent them, cutting into their own commissions.

“This is part of this notion of shifting how real estate is always done,” Cofini said. “Because agents are in control of the proposal process, they decide on the cash incentive they’ll offer and they decide on the commission structure they’re willing to offer.”

Companies are seeking to capitalize on the impending changes in other ways, too. Flyhomes operates as a traditional real estate brokerage, but earlier this summer, the company launched an AI chatbot designed to answer questions that a homebuyer might traditionally ask their Realtor.

“Consumers don’t know this is coming,” Flyhomes’ chief strategy officer, Adam Hopson, said of the NAR changes. “When they decide they want to buy a home and they find they have to sign a contract, they may say, ‘whoa, what is this?’ We think this will drive them to find information from other sources. We will be one of those sources.”

Under the old standard, buyers often got representation for free, since their agent’s commissions came from the homeseller’s pocket.

Many Realtors who spoke to CNN said they believe the new set of rules will reward more experienced Realtors and shut out younger agents, since homebuyers may be wary of signing a legally binding agreement that ties them to a more inexperienced Realtor.

At 19, Madison Mathias, a Realtor in Chapin, South Carolina, said she has had to work overtime to dispel preconceived notions about her age to prospective clients, often re-reading contracts at night to ensure she has the details memorized.

Mathias said she thinks some Realtors will leave the industry, but she doesn’t believe age will be a factor.

“I think more agents will fall off because some people don’t like change,” she said. “Being a new agent, I have had some people question me, but I’ve never had somebody not want to work with me because of my time in the business. It’s all about confidence and educating yourself.”

“I’m not really worried about it too much,” she added.



This article was originally published by a www.cnn.com . Read the Original article here. .

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