The National Association of Realtors (NAR) announced Friday that it has finally reached a settlement with a homeowners association that has been embroiled in a lawsuit with the association since 2019. The $418 million settlement effectively ends the current NAR brokerage fee model, the homeowner claimants claim. forced them to pay exorbitant fees.
If, as expected, a federal court approves the results of this landmark case, it could lead to the biggest shake-up in the housing market yet. The fee rule changes agreed to by NAR could restructure the entire real estate buying and selling process, and could also cause a potential decline in home prices across the country.
Here we explain the changes at a glance and what they mean for both investors and agents.
End of 6% commission structure
The most fundamental change introduced by this settlement is the elimination of the current NAR fee-sharing structure.
This is how it always works. As a real estate agent, a real estate agent is required to provide a portion of the commission to the buyer’s agent, if one is present, during the transaction. Plaintiffs argue that given NAR’s preponderance in agency designations throughout the United States, this would effectively create an industry standards committee and violate antitrust laws. Become.
NAR guidelines Clearly state that commission rates are negotiable and that “commission rates are set by the market.” But in reality, commission rates are always set by the listing agent, and most often range from 5% to 6%. For a home selling for $400,000, this equates to a $24,000 fee payment.
The main argument is that because sellers pay commission fees, home prices go up to compensate. On the face of it, there is a good chance that home prices will fall now that the settlement has been reached.
Ultimately, listing agents will no longer have to offer commissions to buyer agents, and sellers will face increased competition among agents for the lowest commissions.
No one knows how much commission real estate agents will charge in the future, but some economists We believe we could see up to a 30% reduction.
End of MLS Subscription Requirement
This brings us to the second sweeping change introduced by this judgment. Real estate agents will no longer need to register with local real estate agents. Multiple listing service (MLS). The MLS itself will no longer include information about commissions provided at the time of sale. The change would eliminate the practice of “steering” where buyer agents select more expensive properties and pay higher commissions. Additionally, the new rules eliminate the requirement for a real estate agent to be a member of the MLS in order to perform his services.
This does not mean that real estate investors no longer need to develop relationships with local agents. Agents will create their own databases of homes for sale, but this will still be an important resource for investors, and any agent may continue to charge a fee. But with an element of open competition built into the process, agents are also likely to go the extra mile to find properties that buyers and investors are interested in purchasing.
One unanswered question is how all these new intermediary-buyer relationships will be regulated, if at all. The NAR settlement requires brokers participating in MLSs to enter into written contracts with buyers “understanding exactly what services and value will be provided and at what price.” We can only speculate whether buyer-broker agreements that do not involve MLS access will become the norm.
NAR Chairman Kevin Sears said: statement: “NAR exists to serve our members and the American consumer, and while a settlement would be costly, we believe the benefits NAR brings to our industry are worth the cost. Masu.”
These changes, if approved by a federal court, are expected to take effect in July 2024.
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