The way we buy and sell homes is about to change, big time, as the National Association of Realtors (NAR) reached a settlement for $418 million. This will completely change the entire real estate industry, promising lower agent commissions when people buy a home. Soon, people may avoid using an agent altogether.
The Lawsuit
A recent lawsuit hit the NAR pretty hard, with a jury ruling that the NAR and a couple of big brokerages were charging commission prices too high. The lawsuit claims these commission prices were way higher than they needed to be, leading to a $1.8 billion penalty. To avoid this, along with other issues, the NAR agreed to settle and make some changes.
The Settlement
The NAR settled for $418 million, which will be given to any people who have recently sold their homes. Currently, it’s unclear what the criteria will be for receiving this settlement, but around 50 million people may get this money. It’s also unclear when this payout will happen, although the changes in rules will start in July.
New Rules
Starting soon, home listings won’t specifically tell potential homebuyers how much the buyer’s agent gets paid. This means that you can talk with your agent directly to negotiate a fee. Supporters of this bill argue that these changes will make things fairer and perhaps even cheaper for everyone involved.
More Rights for Buyers
These new regulations would allow buyers to have a real say in what they pay their agents. They could even handle some of the logistics of buying a property themselves and only pay their agents for the bits they really need help with, like making an offer or reviewing the inspection report. This could really help out buyers with limited funds.
Clearer Deals With Agents
Agents and buyers now need to be clever about what they’re offering and what it’ll cost, which could clear up any confusion. Now, neither party will have to deal with any nasty surprise fees at the last minute. Buyers can discuss exactly what they want from their agent and agree on a fair price for just those services.
Less Commission
These new regulations could change how much people pay in commission, and lower fees would mean more money in people’s pockets. The overall costs of buying a home could become more affordable for many people. This may force agents to be more competitive by proving their worth to buyers.
Supporters of the Rules
Many advocacy groups, such as Cohen Milstein, have been fighting for lower real estate costs for a while, and they’re pretty happy about this new legislation. They argue that the old methods stopped buyers from getting a good deal on agent fees. They believe that these changes are a step in the right direction.
Supporters Speak
Benjamin Brown is one of the leading officials of Cohen Milstein. He said, “Buyers were cut out pretty much entirely from negotiating commissions, and I think this will invite them under that tent.” Milstein also released a statement claiming the new rules “could lead more buyers to forgo using agents altogether, which has the potential to drive down commission rates.”
NAR’s Side of the Story
Of course, the NAR isn’t exactly happy about these new rules, though they have agreed to do as they are told. NAR officials claim that their old rules benefitted people who couldn’t afford to pay an agent upfront. Now, NAR is trying to keep options open for buyers while also protecting their agents.
NAR Statement
In a statement, Nykia Wright, the NAR’s Interim CEO, said, “NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals. […] Ultimately, continuing to litigate would have hurt members and their small businesses.”
The Outcome
Wright continued, “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances. It provides a path forward for our industry, which makes up nearly one-fifth of the American economy, and NAR. For over a century, NAR has protected and advanced the right to real property ownership in this country, and we remain focused on delivering on that core mission.”
The Cost of Change
The NARA doesn’t have to pay off the settlement fee immediately, as they’ve been given four years to complete the payment. This $418 million is a big part of their budget, but Kevin Sears, the NAR’s president, has remained positive. He said. “NAR is focused firmly on the future and on leading this industry forward.”
A Time for Change
He continued, “We are committed to innovation and defining the next steps that will allow us to continue providing unmatched value to members and American consumers. This will be a time of adjustment, but the fundamentals will remain: buyers and sellers will continue to have many choices when deciding to buy or sell a home, and NAR members will continue to use their skill, care, and diligence to protect the interests of their clients.”
Fewer Agents
Since buyers may not use agents as much, this could force some realtors into finding a different occupation. This could lead to a big drop in NAR memberships and fewer agents, as people may not need them anymore because they can deal with buying and selling themselves. This might force agents to either lower their fees or find another way to give value to clients.
Negative Consequences
Some people are concerned that these changes might be too much, too fast, and they’re worried that these changes could have negative consequences for the future of real estate. They believe these changes to the market are happening too quickly for people to adjust. They argue this could affect the industry’s health and lead to less professional advice for buyers and sellers.
First-Time Buyers
Similarly, other people are concerned about the effect on first-time buyers, as coming up with agent fees might be difficult for them. Ryan Gable of Starting Point Realty, for example, said, “I think you are going to have first-time buyers that are just going to say, ‘I just can’t afford to pay you.’ Those are the people that need us the most, and a lot of them don’t have the money to pay us right away.”
Working in Hot Markets
In places where people are selling their homes pretty quickly, sellers might not want to cover agent fees anymore. This could cool down these markets by removing what has essentially been a hidden cost. Buyers will need to factor these potential extra costs into their budgets or negotiate a good deal.
Slow and Steady Changes
Don’t expect everything to change overnight, as some sellers may stick to the old rules for a while. But over time, we could see some new and cheaper ways to buy homes. This could lead to more creative business models in real estate, similar to those we’ve seen in other industries. Any changes that do happen will probably not be until June or July.
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