- Tesla shares fell again on Monday as investors reacted to another wave of price cuts.
- ARK Invest has a $2,000 price target on Tesla, implying a 1,300% stock price increase by 2027.
- Tesla reports earnings after the bell on Tuesday.
With Tesla reporting earnings on Tuesday, even the biggest Tesla bulls are expecting some letdown.
“I wouldn’t be surprised about some short-term upsets,” Tasha Keeney, ARK Invest’s Director of Investment Analysis, told CNBC’s Last Call on Monday. “But I think the long-term story is EVs are here to stay.”
ARK Invest’s current price target for Tesla stock is $2,000 by 2027. This aggressive projection implies an upside of 1,300% from Tesla’s closing price of $142 on Monday.
The electric vehicle maker’s shares fell for the seventh consecutive session on Monday after cutting prices on several models, sending the stock to a 15-month low.
“Tesla’s prices are so competitive,” Keeney said. “It’s going to be very hard for any other company to catch up to them at this point.”
Keeney emphasized that ARK Invest is focused on the long-term innovations Tesla is poised to capitalize on — like robotaxis.
“It’s single-handedly pushed forward the electric vehicle industry. I think it’s going to do the same for autonomous driving,” Keeney said. “So that’s what we’re focused on — that long-term story.”
Representing innovation and connectivity, the commercial real estate (CRE) market is influencing urban ecosystems and most investors are eager to capitalise on opportunities it presents.
According to Mordor Intelligence, the India CRE market size is at $40.71 billion in 2024 and is expected to reach $106.05 billion by 2029, with a CAGR of 21.10 per cent in this time-frame. Experts are predicting growth of 7 per cent to 8 per cent in the CRE sector, thanks to the growth of global capability centres.
While investing in CRE demands significant capital, it is possible for retail investors seeking shopping opportunities to explore this sector. Developers strategically employ tactics like ‘leverage’ to maximise returns from their CRE assets. By leveraging borrowed funds, investors can access higher-value CRE assets that would otherwise be out of reach. It proves to be a suitable investment option for risk-averse investors looking for a stable source of income and minimal exposure to market volatility.
Debt is a rising investment choice for diversifying portfolios. It means investing in real estate companies’ debt rather than buying properties directly. Investors act as lenders, earning a fixed return secured by the property. This minimises risk as the property serves as collateral, in case of default. While equity investments offer higher returns, debt is attractive for its stable income and lower risk.
Debt financing alternatives
Real estate projects require substantial funds, and there are various ways to raise debt funding. One of the popular options is lease rental discounting (LRD), where financial institutions provide loans to property owners by leveraging future rent receivables. Another option is to raise funds through loan against property (LAP), where properties serve as collateral. Non-Convertible Debentures (NCDs) in real estate are high-return investments that are usually deposited with high-net-worth individuals. Compulsory convertible debentures (CCDs) are debentures that must be converted into equity over time. Each funding option has its unique advantages and considerations, depending on the specific requirements and financial goals of the real estate project or investment opportunity. Therefore, it’s important to evaluate each option carefully before making a decision.
Debt investments in CRE are becoming increasingly popular among investors due to the stable returns they offer. Furthermore, assets serving as collateral provide a level of security, enhancing investor confidence. Lenders can also invest across various segments, providing ample opportunities for risk management and portfolio diversification.
However, it’s important to note that no investment is without risks. Investors may face challenges such as borrower defaults, which can impact the timely receipt of payments. Additionally, if the sales proceeds of the property are not enough to cover the principal amount, the investor may not receive complete returns.
Investing in debts can be illiquid in nature, meaning that the principal amount is locked in once you have committed to funding the real asset. This can make it challenging to access your investment funds in case of emergencies.
To mitigate these risks, it’s important to plan carefully and select the appropriate debt instrument that aligns with your investment objectives. This includes conducting thorough research on the property, its location, and the borrower’s financial stability. It’s also important to have a contingency plan in place to address any potential issues that may arise during the investment period. Investors should be aware of the potential risks involved and take steps to mitigate them through careful planning and due diligence.
Debt investments offer predictable income but come with risks, like market volatility, borrower default, and uncertainties, that investors should consider. To balance these risks, strategic planning is necessary.
One way to mitigate the risks associated with debt investments is by opting for senior tranche debt investments. These investments have priority in case of default by the borrower, thereby providing capital repayment to the investor. On the other hand, mezzanine tranche debt investment is a hybrid of debt and equity financing that offers the investor an option to convert the debt to an equity interest in the company if a default occurs after the senior lenders are paid.
Apart from these investment options, leveraging loan origination platforms can also help investors connect with borrowers and access a wider variety of CRE options that would not have been possible through traditional means. Investing in institutional-grade, high-quality properties that offer a relatively lower risk of non-payment of rent can also be a good option for investors.
Small investors can use a real estate crowdfunding platform to pool their resources to fund large projects and get access to unique projects. Regularly monitoring real asset performance is crucial to assess investment viability and make informed decisions.
To unlock capital appreciation and passive income potential, define your investment goals and explore alternative real estate investment options. Investors can seek help from real estate advisory platforms to make wise choices and tap into the unexplored potential of the Indian CRE market.
(The writer is Founder and CEO, Assetmonk)
(Published 14 April 2024, 21:17 IST)
According to Lakkad, salary increments will range from 4.5% to 7% based on performance, with high-performers receiving double-digit hikes. The company aims to hire around 40,000 freshers this year, with most already on-boarded from previous cycles, states an ET report.
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TCS saw a decrease in hiring during the last quarter of the fiscal year. The company’s headcount dropped by 1,759 employees, bringing the total to 601,546 at the end of the year. This follows a previous decline of 5,680 employees in the third quarter. Despite this, TCS ended the fiscal year with 13,249 fewer employees compared to the previous year, while registering a 3.5% growth in revenue.
Also Read | TCS Q4 results: Tata Consultancy Services reports PAT of Rs 12,434 crore; beats estimates
“The reduced attrition at 12.5%, enthusiastic response to our campus hiring, increased customer visits and employees returning to the office have resulted in great vibrancy in our delivery centres and elevated morale of our associates,” Lakkad said.
TCS is actively recruiting from priority campuses and conducting national qualifier tests to bring in a significant number of new hires, according to Lakkad.
Additionally, TCS said that its chief operating officer, N. Ganapathy Subramaniam will be retiring, after 40 years of service. His responsibilities will be redistributed among senior colleagues as TCS does not plan an immediate replacement for the COO role.
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As per Teamlease Digital, the IT sector is likely to witness a flat or negative net addition in the current fiscal year, aligning with the trend seen across major IT companies.
TCS Workforce FY 2023-24 Highlights:
- Employee Headcount: 601,546
- Diversity: 152 nationalities; 35.6% women
- IT Services Attrition (LTM): 12.5%
The company reported a revenue of Rs 61,237 crore, which is a 3.5% year-on-year growth. According to the TCS press release, the growth was led by India (+37.9%), UK (+6.2%), and Manufacturing (+9.7%). While the net income beat analyst expectations according to an ET report, the revenue came in below expectations said Reuters.
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The Board proposed a final dividend of Rs 28 per share. TCS recorded a 2.2% revenue growth in constant currency terms. The company closed the quarter with record deals worth $13.2 billion, and the total contract value for the fiscal year 2024 stood at a record $42.7 billion.
TCS shares have seen an approximately 6% increase year-to-date, contrasting with a 1.4% decline in the broader IT index. Meanwhile, the blue-chip Nifty 50 index has recorded a 3.6% gain.
TCS Q4 results: Highlights
- Revenue at Rs 61,237 crore, +3.5% YoY (CC: 2.2%)
- Growth led by India (+37.9%), UK (+6.2%), and Manufacturing (+9.7%)
- Operating Margin: 26.0%; YoY expansion of 150 bps
- Net Margin: 20.3%; YoY expansion of 100 bps
- Net Income: Rs 12,434 crore, +9.1% YoY
- Strong Cash conversion: Operating Cash Flow 100.4% of Net Income
- Final Dividend per share (proposed): Rs 28
K Krithivasan, Chief Executive Officer and Managing Director said that the company is very pleased to close Q4 and FY24 on a strong note with the highest ever order book and a 26% operating margin. According to K Krithivasan, this validates the robustness of TCS business model and execution excellence. “In an environment of global macro uncertainty, we are staying close to our customers and helping them execute on their core priorities with TCS’ portfolio of offerings, innovation capabilities and thought leadership,” he said.
Commenting on the results, N Ganapathy Subramaniam, Chief Operating Officer and Executive Director of TCS said, “Our Q4 performance is robust, with broad based deal wins across industries and geographies. Our products and platforms business sparkled with the mega deal win at Aviva and emerging markets had another stellar growth quarter demonstrating the power of TCS’ diversified portfolio.”
Though minor, the inflation uptick has thrown into doubt widely held expectations that the Fed would roll back interest rates sharply this year. It’s unclear how much relief, if any, consumer and business borrowers will get. That complicates the outlook for the economy and President Biden’s reelection campaign.
The news: The CPI increased at a 3.5 percent annual pace in March, up from 3.2 percent in the previous month, the Bureau of Labor Statistics said on Wednesday. So-called core CPI, which excludes more volatile food and energy prices, was unchanged at 3.8 percent.
Driving the pickup were shelter costs, which climbed 5.7 percent over the past year. That accounted for more than 60 percent of the increase in the core index. Rents for primary residences rose 5.7 percent while owners’ equivalent rent, a proxy for how much homeowners would pay to lease their home, jumped 5.9 percent.
What’s happening: The Fed’s anti-inflation fight hasn’t played out in textbook fashion. The goal was to curb consumer demand so that companies would moderate price increases. But it turned out much of the inflation problem was being caused by COVID-related supply constraints. Once the logistics were smoothed out, prices on goods fell.
Meanwhile, consumer spending remained healthy, thanks to a strong job market. Prices for services — everything from car insurance to medical care — continued to expand.
And shelter costs were actually pushed higher by rate increases. Home sales dried up as potential sellers were handcuffed by their existing low mortgage rates. Bidding on the relatively few homes on the market sent prices up. And a dearth of reasonably priced housing, compounded by a rate-induced slowdown in construction, has kept rents from falling quickly.
Step back: Shelter is the biggest component of the CPI, accounting for 36 percent of the index in March. Excluding owners’ equivalent rent, or OER, the core index rose just 1.9 percent year-over-year in March, according Mark Zandi, chief economist at Moody’s Analytics.
“OER growth will continue to moderate, but only slowly due to measurement issues due in part to the affordable housing shortage,” he said.
Why it matters: Wall Street started the year with a consensus view that policymakers would drop the benchmark federal funds rate up to six times this year for a total of 1.5 percentage points, starting as early as March. (The rate now ranges from 5.25 percent to 5.5 percent.)
A decline of that size would almost certainly keep the economy humming. Consumer mortgages and auto loans would get cheaper, as would business loans for expansion. Tech and biotech startups would find it easier to raise money.
But after three straight months of disappointing inflation data, investors now fret that the Fed won’t act until September, and will reduce rates just twice. Last month, Fed officials indicated in their own projections that they would cut rates three times this year, for a total of three-quarters of a percentage point.
However, Fed chair Jerome Powell has said they won’t cut rates until inflation is firmly on track to return to their 2 percent target.
“They will not start to reduce interest rates until inflation starts moving down again, and that’s going to be a while,” said Claudia Sahm, a consultant and former Fed economist.
It’s important to note that the Fed focuses more closely on another measure, the Personal Consumption Expenditures Index, which isn’t so heavily weighted toward housing. PCE for March won’t be released for two weeks. But core PCE rose 2.8 percent on an annual basis in February.
The political angle: The economy is robust and unemployment has been below 4 percent for more than two years. But Americans give Biden low marks for his handling of the economy.
Prices remain high, even if increases are not as large as they were in the past. Moreover, groceries and gasoline are two regular purchases that play an outsize role in consumers’ views of the economy. Energy prices expanded 2.1 percent in March, the first annualized increase since February 2023. The food index rose 2.2 percent.
“Today’s report shows inflation has fallen more than 60 percent from its peak, but we have more to do to lower costs for hardworking families,” Biden said in a statement.
Final thought: The Fed is in a bind.
Shelter costs are a big reason it doesn’t yet feel comfortable cutting rates. But the best way to make housing more affordable is to cut rates.
“The Federal Reserve is caught between a rock and a hard place,” said Brian Bethune, an economist at Boston College.
The question now: Will the Fed decide that getting the housing market moving again is worth the risk of cutting rates soon?
Larry Edelman can be reached at larry.edelman@globe.com.
Pictured here is a real estate project under construction in Huai ‘an city, Jiangsu province, China, on April 8, 2024.
Future Publishing | Future Publishing | Getty Images
BEIJING — China needs to convince people that home prices are on their way up in order for economic activity to pick up, Richard Koo, chief economist at Nomura Research Institute, told CNBC’s Steve Sedgwick last week.
Business and consumer appetite for new loans have had a tepid start to the year, while home prices dropped at a steeper pace in January than in February, according to Goldman Sachs’ analysis.
In other words, as Koo warned last year, China may be entering a “balance sheet recession,” similar to what Japan experienced during its economic slump.
“For them to come back and borrow money, we need a narrative that says, okay, this is the bottom of the prices, the prices will start going up from this point onwards,” Koo said.
But it’s not clear whether prices have reached an actual bottom yet. Koo and other analysts have pointed out that in China’s policy-driven economy, house prices have not fallen as much as expected given declines in other aspects of the property market.
Chinese officials have said that real estate remains in a period of “adjustment.” The country has also been emphasizing new growth drivers such as manufacturing and new energy vehicles.
Real estate and related sectors have accounted for at least one-fifth of China’s economy, depending on analyst estimates. The property market began its latest slump after Beijing cracked down on developers’ high reliance on debt in 2020.
That coincided with the shock from the Covid-19 pandemic.
It also comes as China’s population has started to shrink, Koo pointed out — a big difference with Japan, whose population didn’t start to fall until 2009, he said.
“That makes this narrative, that the prices have fallen enough, you should go out and borrow and buy houses, even more difficult to justify because [the] population is now shrinking,” Koo said.
China’s economy officially grew by 5.2% in 2023, the first year since the end of Covid-19 controls. Beijing has set a target of around 5% growth for 2024.
However, many analysts have said such a goal is ambitious without more stimulus.
Chinese authorities have been reluctant to embark on large-scale support for the economy. Koo said an underlying reason is that Beijing views its prior stimulus program as a mistake.
About 15 years ago, in the wake of the global financial crisis, China launched a 4 trillion yuan ($563.38 billion) stimulus package that was initially met with skepticism — and a 70% drop in Chinese stock prices, Koo said.
“It was heading toward balance sheet recession, almost,” he said. “One year later, China had 12% growth.”
But Beijing kept up its stimulus package even after the country had achieved rapid growth, which led to an overheating of growth and speculation, on top of corruption, Koo said. “That’s one of the reasons why this government, Mr. Xi Jinping, is still reluctant to put [out] a large package because so many people think the previous one was a failure.”
Looking ahead, Koo said China should stimulate its economy to avoid a balance sheet recession, and that it should cut that support once growth reaches 12%. “Once the borrow[ing] is coming back, then you can cut, but not before.”
The NAR’s multiple listing service, or MLS, used at a local level across areas in the U.S., facilitated the compensation rates for both a buyer’s and seller’s agents.
At the time of listing a property, the home seller negotiated with the listing agent what the compensation would be for a buyer’s agent, which appeared on the MLS. However, if a seller was unaware they could negotiate, they were typically locked into paying the listed brokerage fee.
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The proposed settlement would have the commission offer completely removed from the NAR’s system and home sellers will no longer be responsible for paying or offering commission for both the buyer and seller agents, said real estate attorney Claudia Cobreiro, the founder of Cobreiro Law in Coral Gables, Florida.
“The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation,” the NAR wrote in a press release.
“Commissions remain negotiable, as they have been,” the organization wrote.
However, some of these changes may take time to materialize, experts say.
If a settlement agreement is accepted within a lawsuit between two people, the court generally won’t look at the settlement. Yet, in a federal class-action lawsuit, one that affects a large number of people, there will be a period for the court and interested parties to review the settlement and offer commentary and feedback on the agreement, Cobreiro said.
“That’s the process that we’re about to enter, and that process can take some time,” she said.
As proposed, the settlement would have the NAR completely remove commissions from its MLS system by July. That may be optimistic, Cobriero said.
“It would be more realistic to see this being implemented later this year,” she said.
In the meantime, it’s “business as usual” for buyers and sellers, Cobreiro said. “There is nothing that agents should be doing differently currently in their ongoing transactions.”
A buyer or seller already in the market is probably not going to be affected by the settlement unless their property happens to be on the market a little longer than what’s customary, she said.
“The big gray area here is how will buyer [agent] commissions be handled moving forward,” said Cobreiro, as there is no finalized agreement yet that clearly indicates how that will be handled.
The settlement agreement doesn’t say that the buyer’s agent will not be paid nor that the buyer’s agent cannot charge fees.
“The big question here is who is going to pay for those services moving forward. Will it ultimately be a buyer that will have to get the buyer’s agent’s commission together, on top of closing costs and on top of down payment?” Cobreiro said.
While commission fees are negotiable between involved parties, knowing what cards you have on the table as a homebuyer will be more important now than before. Using an agent will still be a smart way to achieve that, experts say.
“A great local agent can give you a competitive advantage,” said Amanda Pendleton, a home trends expert at Zillow Group. That’s especially true as low-priced starter homes are expected to remain in demand, she said.
Here are two things to know about how the settlement could change the process of buying a home:
1. Buyers could be responsible for their agent fees: Historically, real estate commissions typically come out of the seller’s pocket, and are split between the buyer’s and seller’s agents.
As a result of the settlement, the seller will no longer be responsible for commission fees for a buyer’s agent. So this is a new potential charge buyers need to consider in their budget. Historically, if a buyer’s agent got half of a 5% or 6% commission, that equaled thousands of dollars.
For example: The median home sale price by the end of 2023 was $417,700, according to the Federal Reserve. That would mean commissions at a 5.37% rate — the 2023 average rate, according to Lending Tree — amount to roughly $22,430, about $11,215 of which might go to the buyer’s agent.
But bypassing an agent’s services may not lead to direct savings, especially for first-time buyers, experts say. You could put yourself at risk by leaving the homebuying process entirely to the seller and their agent, said Cobreiro.
Sometimes things show up in your home inspection report that merit a credit from the seller, but if you don’t have an agent, the seller’s agent may not volunteer that, said Cobreiro.
Doing so would be a breach of their fiduciary duty to the seller, and it affects their commission if the price of the property declines, she said.
“Signing the contract is the least of it; there’s so many things that happen throughout the transaction that really require the expertise and the navigation by someone who understands the process,” she said.
2. Buyers may be required to sign a contract early on: If buyers become responsible for their agent’s commission, you’re likely to see more agents asking buyers to sign a buyer-broker agreement upfront, before the agent starts helping them find a property.
Most brokerages have a buyer agency agreement, but it’s common for real estate agents to wait to present the contract.
“They want to win the person’s business, they don’t want to scare them with having to sign any contracts,” said Steven Nicastro, a former real estate agent who writes for Clever Real Estate.
Moving the contract talks to earlier in the process is a precaution to protect buyer’s agents in the market.
“That could lead to negotiations actually taking place at the first meeting between a buyer and the buyer’s agent,” Nicastro said.
Know you can negotiate the commission rate as well as the duration of the contract, which can span from three months to a year, Cobreiro said.
Westend61 | Westend61 | Getty Images
While inflation is 10 times higher now than 60 years ago, home prices are 24 times more expensive, a new study found.
If home prices increased at the same rate as inflation since 1963, the median price of a typical house in the U.S. would be $177,511, according to a new research report by Clever, a real estate data company.
While mortgage rates have contributed to high costs, supply and demand have also affected the price growth of homes in the U.S., Brannon said.
“When demand for other consumer products comes up, or when it increases, it’s usually not too hard for people to scale up supply,” Brannon said. “Whereas houses take months to build at a time.”
The average time to complete a newly built single-family home is about 9.6 months, according to the 2022 Survey of Construction conducted by the U.S. Census Bureau.
Zoning restrictions, along with prohibitive land costs, can also make it hard to even secure the opportunity to build a new home, Brannon said.
To increase housing supply, local policymakers would need to lower the barriers for builders by easing land-use and zoning regulations, which determine factors such as the maximum height of a building or the minimum size of a lot, C. Kirabo Jackson, an economist and member of the White House Council of Economic Advisers, previously told CNBC.
“Production can’t move as quickly in housing as it does in other industries,” Brannon said. “That often means the price goes up when there isn’t enough supply to meet demand.”
The affordability crisis for homes in the U.S. is a primary political issue for many Americans. More than half, 53.2%, of U.S. homeowners and renters say housing affordability is affecting their decision on who they plan to vote for in the upcoming presidential election, according to a Redfin-commissioned survey. Qualtrics conducted the research in February by polling 3,000 U.S. homeowners and renters.
Moreover, current housing affordability makes 64.2% of owners and renters have negative feelings about the economy, Redfin found.
In fact, affordable housing is a pressing topic for both liberal and conservative voters. The topic is ranked as No. 1 for liberals while it’s No. 3 for conservatives, according to a separate survey by the Real Estate Witch.
“It’s just something that doesn’t come up as often in polling … but when you do ask, it really resonates with people that think about how expensive housing is today,” Brannon said.
To address the issue, President Biden announced in early March as part of his budget for fiscal 2025 a plan to cut housing costs, boost supply and expand access to affordable housing.
Biden also called on Congress to pass a mortgage relief credit that would provide a $10,000 tax credit for first-time homebuyers and a similar tax credit of up to $10,000 to families selling their starter home.
“It’s encouraging that the administration is looking at a range of options to expand housing supply,” said Brannon in a statement. “Interventions like these are absolutely required if the U.S. wants to avoid an even worse reality regarding a lack of home affordability.”
In a separate action last month, the White House, the Federal Housing Administration and Ginnie Mae, the government-owned guarantor of federally insured home loans, announced an increase on loan limits and broadened lender requirements for the Title I manufactured housing lending program.
“Manufactured homes in this time of historical lack of affordability are a real option for many households,” said Susan M. Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania. “This change enables access to affordable financing for manufactured homes.”
Sturti | E+ | Getty Images
Buyers are typically looking to land a new home before their children’s new school year while a seller’s house benefits from the fresh flowers and renewed greenery post-winter.
“It’s sort of an ideal time for both buyers and for sellers, and that’s why we just see a lot more activity that time of year,” said Amanda Pendleton, a home trends expert at Zillow Group.
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However, sellers might benefit from waiting until June to put up their property for sale.
In 2023, homes listed in the first two weeks of June sold for 2.3% more, a $7,700 boost on a typical U.S. home, according to a new Zillow analysis.
“We’ve learned that real estate cycles don’t always happen [at this] time of year,” said Melissa Cohn, regional vice president at William Raveis Mortgage.
The typical spring home shopping season has been “flipped on its head” due to an unusual market over the past four years, Pendleton said.
Trends started shifting when the country locked down in March 2020 at the start of the Covid-19 pandemic: “There was no market that year,” Cohn said.
Throughout 2021, buyers were purchasing homes no matter the month or season, given ultra-low mortgage rates and flexible remote-work policies that led many consumers to relocate. Then when March 2022 came around, the market stalled as mortgage rates began to rapidly increase, Pendleton explained.
While buyers were still holding back last year, there was a slight return to seasonal behaviors, she said.
While some experts may see a continued trend toward normalization, “the good old-fashioned spring selling season” hasn’t been seen in several years, Cohn said.
“I think people have become sort of more year-round in terms of their attitude towards real estate,” she added.
In fact, while there may be more buyers and sellers in the coming weeks, a second surge is anticipated in the summer — an “extended home shopping season,” Pendleton said.
With the Federal Reserve expected to begin cutting rates as soon as the summer, there could be a renewed surge in buyer demand, experts say.
“People are hoping the first rate cut will be at the beginning of June. That hopefully will ignite a summer selling season,” Cohn said. “The direction of mortgage rates over the course of the next two years is probably a downward one.”
However, when mortgage rates begin to come down, buyer demand will rise, Pendleton said.
“We could see a bit of a bump in terms of home prices with that added competition,” she added.
Meanwhile, home prices are still elevated.
The median U.S. home sale price is $412,778, up 6.6% from a year ago, according to Redfin data, which is not seasonally adjusted. The recent boost in supply isn’t enough to meet the pent-up demand in the market, according to Redfin.
Yet if you can afford to buy a property now, it may be smart to do so and refinance later. That allows you get in and out of the real estate market, Cohn said, “before the mad rush happens and rates really start to come down.”
The National Association of Realtors has agreed to a landmark settlement that would eliminate real estate brokers’ long-standing commissions, commonly of up to 6% of the purchase price.
Instead, home buyers and sellers would be able to negotiate fees with their agents upfront. If the $418 million legal agreement is approved by a federal court, consumer advocates predict the ranks of real estate agents will thin, further driving down commission prices.
“For years, anti-competitive rules in the real estate industry have financially harmed millions,” said Benjamin Brown, managing partner at the Cohen Milstein law firm and one of the settlement’s negotiators. “This settlement bring sweeping reforms that will help countless American families.”
The NAR acknowledged the pending settlement in a statement Friday and denied any wrongdoing.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” said Nykia Wright, interim CEO of NAR, whose previous chief stepped down late last year amid fallout from a federal lawsuit.
“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,” Wright said in the statement.
Currently, a home seller is essentially locked into paying a brokerage fee for listing their property on a multiple listing service, or MLS — usually 5% or 6% depending on their geographic area. Upon selling, half of the fee goes to a listing agent representing the seller, while the buyer’s agent gets the other half.
The practice — which has become standard in the real estate industry in recent decades — led to accusations that some buyers’ agents were steering prospects toward more expensive homes. In October, a federal jury found the NAR and some major brokerages liable for colluding to inflate commission fees, ordering the trade group to pay a historic $1.78 billion in damages.
“It’s a bribe,” Doug Miller, an attorney and longtime consumer advocate in the real estate industry, said of the commission-splitting arrangements. “You’re paying someone to negotiate against you. There’s no good reason for sellers to pay buyer-brokers.”
If the settlement is approved, brokerage commissions would be stripped from MLS sites and opened up to negotiation with sellers, among a series of other changes. Homebuyers, too, would be able to negotiate fees more easily if they choose to sign up with a broker — though experts say the new arrangement may incentivize more buyers to forgo brokers entirely.
The new brokerage-fee changes would begin to take effect within months of the settlement’s approval. A preliminary hearing to approve the deal is slated to take place in the coming weeks.
CORRECTION (March 15, 2023, 2:27 p.m. ET): A previous version of this article misstated when a federal jury found the NAR and some major brokerages liable for colluding to inflate commission fees. It was in October, not November.