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What an interesting twist in the real estate industry. The National Association of Realtors has opted to eliminate long standing policies governing agent commissions, aiming to address lawsuits alleging these regulations artificially inflated selling costs for homeowners. As part of the announced agreement, the National Association of Realtors has committed to a $418 million payout to provide compensation to home sellers across the United States. The settlement could mark a significant change for buyers, sellers, and real estate agents. It’s uncertain how real estate markets will make the transition between now and mid-summer when the settlement is due to go into effect. NAR is a trade association with more than 1.5 million members working in the real estate industry. The association said the revised rules would affect anyone who uses the Multiple Listing Service, a database of properties for sale in a geographic area — regardless of whether they are licensed Realtors, which is the designation for real estate agents who are members of NAR. The settlement is not final; it is still going to be reviewed by the Department of Justice. There are only two main changes (so far) that are slated to take place at some point in the future, maybe as early as July. 1) A buyer will need a signed representation agreement to view homes, and 2) the buyer-side commission cannot be published on the MLS. This doesn't mean a seller still cannot offer compensation to a buyer's agent. All of the sales comps currently include real estate agent commissions in the value of the home (commissions are *usually* paid based on the sale price). It is not just the seller paying the buyer's agent. The buyer is paying to buy the house, which includes the commission. A seller will need to price their home with this factor in mind if they are not offering a buyer-side commission as part of the sale price. A buyer can also structure their offer to ask that the buyer's agent commission be included in the sale price. This will likely be harmful for first-time home buyers as lenders currently do not allow the commission to be financed separately from the sale price. VA and FHA lenders do not allow buyers to pay a buyer's agent commission so if it isn't part of the sale price, these buyers are going to have a really hard time. The lawsuits challenge NAR’s cooperative compensation rule, which requires seller’s agents to make “blanket unilateral offers of compensation” to buyer’s agents. To list a home on an MLS, the seller must make this “blanket unilateral” offer to pay buyer’s agents, who influence which houses their clients consider. How does this nationwide change impact the Santa Cruz County/Central Coast housing market (which we know is one of the highest-priced housing in California with the lowest inventory of houses for sale)? We know that our local governments are under tremendous pressure to increase housing production at all income levels during the next eight-year Regional Housing Needs Assessment (RHNA) cycle that the state is mandating to cities and counties. A lot of the consumer confidence in selling or buying a home is based on market trends in a specific geographic region. Here is a local perspective for more clarity on the subject: Beyond the Headlines. Will that $1.2 million home in Santa Cruz see any significant drop in pricing because of the commission change? Will the local real estate industry use the nationwide standard (whatever that commission percentage is) to meet local housing costs? Let’s wait and see how the Department of Justice weighs in. Just food for thought in our tight housing market.
What an interesting twist in the real estate industry.
The National Association of Realtors has opted to eliminate long standing policies governing agent commissions, aiming to address lawsuits alleging these regulations artificially inflated selling costs for homeowners. As part of the announced agreement, the National Association of Realtors has committed to a $418 million payout to provide compensation to home sellers across the United States.
The settlement could mark a significant change for buyers, sellers, and real estate agents. It’s uncertain how real estate markets will make the transition between now and mid-summer when the settlement is due to go into effect. NAR is a trade association with more than 1.5 million members working in the real estate industry. The association said the revised rules would affect anyone who uses the Multiple Listing Service, a database of properties for sale in a geographic area — regardless of whether they are licensed Realtors, which is the designation for real estate agents who are members of NAR.
The settlement is not final; it is still going to be reviewed by the Department of Justice. There are only two main changes (so far) that are slated to take place at some point in the future, maybe as early as July. 1) A buyer will need a signed representation agreement to view homes, and 2) the buyer-side commission cannot be published on the MLS.
This doesn't mean a seller still cannot offer compensation to a buyer's agent. All of the sales comps currently include real estate agent commissions in the value of the home (commissions are *usually* paid based on the sale price). It is not just the seller paying the buyer's agent. The buyer is paying to buy the house, which includes the commission.
A seller will need to price their home with this factor in mind if they are not offering a buyer-side commission as part of the sale price. A buyer can also structure their offer to ask that the buyer's agent commission be included in the sale price. This will likely be harmful for first-time home buyers as lenders currently do not allow the commission to be financed separately from the sale price. VA and FHA lenders do not allow buyers to pay a buyer's agent commission so if it isn't part of the sale price, these buyers are going to have a really hard time.
The lawsuits challenge NAR’s cooperative compensation rule, which requires seller’s agents to make “blanket unilateral offers of compensation” to buyer’s agents. To list a home on an MLS, the seller must make this “blanket unilateral” offer to pay buyer’s agents, who influence which houses their clients consider.
How does this nationwide change impact the Santa Cruz County/Central Coast housing market (which we know is one of the highest-priced housing in California with the lowest inventory of houses for sale)? We know that our local governments are under tremendous pressure to increase housing production at all income levels during the next eight-year Regional Housing Needs Assessment (RHNA) cycle that the state is mandating to cities and counties. A lot of the consumer confidence in selling or buying a home is based on market trends in a specific geographic region.
Here is a local perspective for more clarity on the subject: Beyond the Headlines.
Will that $1.2 million home in Santa Cruz see any significant drop in pricing because of the commission change? Will the local real estate industry use the nationwide standard (whatever that commission percentage is) to meet local housing costs? Let’s wait and see how the Department of Justice weighs in. Just food for thought in our tight housing market.