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What changes are expected to occur if the proposed settlement National Association of Realtors The bill’s approval will benefit buyers, sellers and real estate agents, the Consumer Federation of America, a nonprofit watchdog group, said in a new report released Thursday.
Report touches on some of the core issues that concern real estate agents Still parsing What the proposed settlement means for them, the industry and the customers they serve.
The report replicates research by the CFA and other researchers who believe commissions will fall now that the NAR has agreed to overhaul it by July. But it’s also filled with a silver lining—and keep trying— Edge industries.
Steve Brobeck | Consumer Federation of America
“Any additional costs to homebuyers are likely to be modest and relatively short-term, and will be offset by long-term savings and improved quality of service,” said CFA senior fellow Stephen Brobeck, who authored the report. “With all homebuyers and sellers receiving Any transition costs are likely to be dwarfed by the long-term benefits of independent commissions.”
The timing of any possible changes after the NAR agreed to reforms in a landmark settlement may depend on answers to questions that quickly arise after the details are released. Settlement Agreement Released.
Realtors who spoke to Inman expressed concern that first-time homebuyers will be disadvantaged if sellers do not proactively pay buyers’ commissions, and sellers’ agents will no longer be allowed to advertise on the Multiple Listing Service to buyer’s agents. commission. broker.
“I feel bad for buyers, especially first-time buyers,” said Margaret Belmont, founder and broker of Leading Edge Real Estate. “I feel bad for the VA (buyers) because they can’t afford the fees.”
The CFA wrote in its report that the short term may include sellers continuing to provide help to buyers paying agent commissions. Until the industry adapts or makes other changes.
call on finance committee
While the CFA often attracts the ire of agents who dispute its findings, the regulator agrees with many in the industry who have called for reforms to the mortgage industry to allow buyers to fund part of their agents’ commissions.
This will ensure buyers who don’t have the cash to pay broker fees can still compete, Brobeck wrote in the report.
“Such a solution would reduce upfront closing costs for buyers requiring cash, which is the focus of most critics of decoupling,” Brobeck wrote.
Currently, Fannie Mae, Freddie Mac and the Federal Housing Administration do not allow buyers to roll commissions into their mortgages. Pressure to allow such financing will increase, Brobeck wrote.
Stephen Cooley
In fact, real estate agents say they expect buyers would welcome the opportunity to fund their agents’ salaries, if they so desire and have the opportunity.
“They don’t know how to pay an agent,” said Stephen Cooley, a broker with Stephen Cooley Real Estate. “I believe buyers still want to use their buyer’s compensation money toward the purchase of the home.”
The CFA suggested the commission was already built into the house price, pointing to statements from university professors and the Ministry of Justice that sellers had factored in some or all of the expected buyer’s agent commission.
It concluded that buyers’ mortgages had been used to pay their agents’ commissions in the form of higher house prices. Increased competition can lower commissions, thereby reducing the amount of home financing a buyer will need.
The CFA said if commissions fell, it would take some time for house prices to fall. But the process would be faster if the federal government, Fannie Mae and Freddie Mac all prioritized funding the compensation.
The group proposed a framework that would allow lenders to distinguish between loans in which the buyer pays the agent themselves and loans in which the seller provides credit to pay the buyer’s agent and adds it to the final sale price.
When the process is complete, first-time homebuyers can ask the seller to make concessions to cover additional closing costs.
Agency flexibility
Anticipated pressure on buyers to pay decoupled commissions may lead agents and brokerages to offer greater flexibility in their services, the CFA wrote.
“We would not be surprised if, for example, a pool of agents emerged to serve the first-time homebuyer market,” the CFA wrote. “These agents would have detailed knowledge of all government and non-profit subsidy programs and would charge lower rates in anticipation of higher sales.”
Buyers who find the home they want to buy “will pay significantly less than a buyer who needs an agent to search dozens of properties over several months,” the CFA wrote.
On the other hand, sellers who overprice their property will pay agents to work hard to find a buyer.
“Experienced agents who know how to effectively facilitate the sale or purchase of a property will be able to charge higher fees than agents who have recently been licensed,” the CFA writes. “But the latter typically charge less and are therefore involved Consumers who have a relatively simple sales transaction may choose to work with them.”
Fixed-fee and discount brokerage businesses are likely to thrive in this environment, the report said.
CFA writes that even if mortgage financing is not available as compensation, most first-time homebuyers will be able to absorb the additional closing costs by paying an agent commission directly.
“All these consumers will benefit from a lower-cost and transparent market in which prices are more aligned with service quality,” the CFA wrote.
Brobaker writes that buyers are less likely to work directly with a listing agent if they can afford the commission.
commission compression
The CFA believes that effectively ending shared remuneration and creating a competitive market could reduce commissions.
Even conservative estimates suggest commissions will fall by at least 20%Researchers including the Federal Reserve Bank of Richmond estimate that consumer costs could fall by 20% to 50%.
What’s more, if buyer’s agents don’t offer flexibility in compensation, more buyers will work directly with listing agents, CFA writes.
“The extent to which buyer agents are willing to be flexible in their compensation will have a significant impact on the number of buyers who bypass these agents and work directly with listing agents,” the regulator wrote in the report.
The CFA said that in this case, dual-listing agents would have to charge a commission of less than 5% to 6%.
“However, if the buyer can easily compensate the broker with a mortgage that is no larger than the current loan, then these sales are less likely to occur and the buyer’s brokerage business is more likely to be retained.”
The CFA also said commissions remain high because barriers to entry for real estate agents are low, resulting in 1.56 million people being licensed and competing to sell about 5 million homes each year.
“As a result, under the current system, most agents lack experience selling properties, earn relatively little, and feel pressure to maintain high commission rates,” the CFA wrote.
indeed, a recent study Research, also from the CFA, found that 49% of real estate agents either sold a home last year or none at all.
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