The technique of buying a house has apparently never been easier: discover a property on an inventory site like Zillow, Redfin or Trulia; contact the listing agent; tour the property; and make a proposal.
But experts say that for years behind the scenes, consumers have not been fully aware of the ultimate costs – and potential conflicts of interest – when looking for a house.
Now, groundbreaking agreement with the National Association of Realtors is prepared to turn this model the other way up. According to consumer advocates and even some real estate agents, it is a win for home buyers and sellers.
“Price transparency is a good thing, increased competition is a good thing, and this will increase both,” said Mariya Letdin, an associate professor in the College of Business at Florida State University. “I’m really happy about this change.”
When someone is in search of a house today, most often they’re intercepted by a realtor who has access to a few of the listings and who works with the buyer upfront, freed from charge, to help them get into the home.
But therein lies a standard misconception, say experts interviewed by NBC News. Although a house owner who puts their property on the market must hire professionals to market their home, they typically factor this cost into the final price paid by the buyer.
“The buyer submits the entire purchase price,” Letdin said. “And after the judgment is issued, the seller can keep a little more of it.”
As a part of the recent settlement, the buyer ought to be fully informed prematurely about any potential fees and commissions that he’ll ultimately have to pay.
This is because the contract requires the buyer to sign a proper agreement with the broker specifying what services they may receive and for a way much.
Alternatively, a house buyer may determine not to hire an agent and as a substitute allocate search costs to an actual estate attorney, appraiser or other person conversant in the housing market, experts say.
The seller may even offer to cover the costs of the buyer’s team as an incentive to attract more buyers.
Of course, in the case of a property that’s in high demand, such buyer incentives are unlikely to be included.
In the months following the reopening of the Covid-19 pandemic, the hottest U.S. real estate markets have tilted decisively in favor of sellers.
But now that home price growth is slowing, the playing field can also be leveling out, which experts say is causing more buyers to take the reins.
“Now you can hire a lawyer for $1,500 instead of paying $50,000 in fees,” said Doug Miller, a Minnesota real estate attorney who helped launch the effort that led to the settlement with NAR.
Regardless of who a prospective buyer chooses to represent in the homebuying process, the NAR settlement formally prohibits a seller from promoting commissions for buyer’s representatives on a multiple listing site.
For its part, the NAR maintained that the free market had all the time set commission levels, which were all the time negotiable and even useful.
“Compensation offers help increase the availability of professional representation, reduce the costs for homebuyers to secure these services, increase fair housing opportunities, and increase the pool of potential buyers for sellers,” NAR said in a March 15 statement announcing the agreement.
However, most often, the difference in the amount of those commissions offered in a given market was small – normally around 3%.
This is because any attempt to offer a buyer’s agent a lower commission will likely motivate them to steer the client away from that property.
Miller called the behavior inappropriate and said that in lots of cases buyers were unaware of it.
“The future is that buyers will now be in the driver’s seat,” Miller said. “Instead of this [commission] the money goes to their agent… it could possibly now go directly to the buyer. It’s the same sum of money, but now the buyer gets the money as a substitute of the middleman and may determine what to do with it.”
What’s more, more competition for purchasers will likely drive down costs overall, said Ryan Tomasello, an actual estate analyst at the financial firm Keefe, Bruyette & Woods.
“When you bring a lot of transparency to a market that has lacked it in the past, any economist will tell you that it reduces the costs of friction, i.e. commissions, and these are some of the highest in the world,” Tomasello said. “So the total cost of buying and selling a home will theoretically go down.”
Many experts, including other real estate professionals, agree that the settlement will effectively thin the ranks of ad hoc agents who served as middlemen – a phenomenon that has intensified during the pandemic housing boom.
“A lot of people parachuted in in 2020-2021 to try to make some easy extra money by acting as a buyer’s agent and taking 3%,” said Phil Crescenzo Jr., vp of Southeast Division at Nation One Mortgage Corp .
“But they didn’t bring in 3% value – not even close.”
Crescenzo compared it to money-making mortgage brokers who helped fuel the real estate bubble in the mid-to-late 2000s.
“When they changed the compensation rules, the dominant professionals rose to the top, the bottom disappeared, and the industry improved,” Crescenzo said.
