When selling your home, you can choose to work with a real estate agent or sell it yourself. For sale by owner, or FSBO, isn’t very common, but it can save you money on the listing agent commission and it gives you complete control over the selling process.
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According to the National Association of Realtors (NAR), FSBOs accounted for only 7% of home sales in 2023. Sellers who choose this route mainly do so to save on the listing agent’s commission. For real estate agents, commissions are typically between 5% and 6% of the sale price, although this could change depending on a recent NAR settlement which may see commissions drop, Yahoo Finance reported. On a $500,000 home, the agent commissions could cost $25,000 to $30,000. This money is typically taken from the proceeds of the sale.
Interested in selling your home without a real estate agent? Follow these steps and (hopefully) save money in the process.
Set the Listing Price
One of the most difficult tasks for FSBO sellers is getting the price right. The NAR’s 2023 Profile of Home Buyers and Sellers found that 15% of FSBOs have trouble setting the listing price.
Normally, a real estate agent will conduct a comparative market analysis (CMA) to price your home. A CMA estimates a home’s price based on similar, recently sold properties in the same area. Real estate agents put this information together in a CMA report to help sellers set competitive listing prices.
Sellers can perform a CMA themselves or hire a professional real estate appraiser to provide an objective and unbiased estimate of the property’s value.
Learn More: 5 Types of Homes That Will Plummet in Value in 2024
Prepare the Home for Sale
Once you set the listing price, you will need to start preparing the home for listing and showings. This can include making necessary repairs, cosmetic updates, a fresh coat of paint, landscaping and other small improvements to boost your home’s curb appeal and make it more appealing to buyers.
You will also need to take pictures to help your home stand out in online listings. You can either take the photos yourself or hire a professional photographer.
List and Market Your Home
Homeowners will need to create a listing and market their home to attract prospective buyers. According to NAR data, the most common FSBO methods used to market a home are through friends, relatives or neighbors, yard signs and through a third-party aggregator. However, you’ll get more visibility by listing your property on the multiple listing service (MLS).
According to U.S. News & World Report, you can typically list your home on the MLS for a $200 to $500 flat fee, but you’ll likely need to pay a 2% to 3% commission to the buyer’s agent.
Respond to Buyers
Buyers or their real estate agents will start calling or emailing you directly about the property. You’ll need to be responsive and set up showings around your schedules. If you wait too long to respond, they may move on to the next property.
Negotiate
FSBO sellers should be prepared to negotiate the price with buyers. When an offer is made, you’ll typically have two to three days to respond. Keep in mind that the highest offer isn’t always the best. The offer may come with contingencies, which could impact the sale of the property. Contingencies are clauses that buyers include when making an offer. They allow them to back out of the sale if the clauses aren’t met.
Hire a Real Estate Attorney
Federal and state law require sellers to meet certain legal requirements when selling property. Some states, including New York and Georgia, even require the sale to be overseen by a real estate attorney, according to U.S. News & World Report. If your state doesn’t require it, a real estate attorney can ensure you’re following the correct procedures and offer guidance.
Attorney fees vary, but many charge a flat fee or on an hourly basis.
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This article originally appeared on GOBankingRates.com: Housing Market 2024: How To Sell Your Home Without a Real Estate Agent (and Save Money)
A landmark settlement is shaking up the real estate industry.Last week, the National Association of Realtors settled multiple lawsuits, agreeing to do away with decadeslong policies that set agent commissions.NAR agreed to pay $418 million in damages, effectively ending the standard 6% commission.”They were focused on sellers and buyers not understanding who’s being compensated in a transaction,” Mike Ruzicka, the president of the Greater Milwaukee Association of Realtors, explained.He said practices in other states vary greatly from real estate transactions in Wisconsin.”The state takes a great deal of effort in making sure consumers know what’s going on in a transaction,” Ruzicka said.There are two main new provisions of the settlement.The NAR can no longer require a broker listing a home on the MLS to offer any upfront compensation to the buyer’s agent.Also, agents must enter into a written agreement, including a negotiated commission and fees, with the homebuyer.We asked a Marquette University Law professor who specializes in property if this means lower home prices.”In the short term, no. What drives the real estate market currently is lack of supply,” Kali Murray said.”It’s not going to impact home prices at all. Prices are determined by buyer and seller, when they agree on the price,” Ruzicka added.Both experts say whether you’re looking to buy or sell, you need to pick the right person to help.”I would talk to more than one buyer agent,” Murray said.”Contact an expert that knows what they’re talking about when you want to sell or buy a house,” Ruzicka said.
A landmark settlement is shaking up the real estate industry.
Last week, the National Association of Realtors settled multiple lawsuits, agreeing to do away with decadeslong policies that set agent commissions.
NAR agreed to pay $418 million in damages, effectively ending the standard 6% commission.
“They were focused on sellers and buyers not understanding who’s being compensated in a transaction,” Mike Ruzicka, the president of the Greater Milwaukee Association of Realtors, explained.
He said practices in other states vary greatly from real estate transactions in Wisconsin.
“The state takes a great deal of effort in making sure consumers know what’s going on in a transaction,” Ruzicka said.
There are two main new provisions of the settlement.
The NAR can no longer require a broker listing a home on the MLS to offer any upfront compensation to the buyer’s agent.
Also, agents must enter into a written agreement, including a negotiated commission and fees, with the homebuyer.
We asked a Marquette University Law professor who specializes in property if this means lower home prices.
“In the short term, no. What drives the real estate market currently is lack of supply,” Kali Murray said.
“It’s not going to impact home prices at all. Prices are determined by buyer and seller, when they agree on the price,” Ruzicka added.
Both experts say whether you’re looking to buy or sell, you need to pick the right person to help.
“I would talk to more than one buyer agent,” Murray said.
“Contact an expert that knows what they’re talking about when you want to sell or buy a house,” Ruzicka said.
A change to the real estate commission structure is shaking the industry — and homebuilders and consumers appear to be the winners.
This week, Compass (COMP) agreed to pay $57.5 million to settle antitrust claims related to commissions. It’s the first major brokerage to announce a settlement since the National Association of Realtors (NAR) agreed to pay $418 million as part of a lawsuit alleging the industry conspired to inflate agent fees.
Experts say the NAR settlement — which essentially decouples buyer and seller agent fees — is a win for consumers because it will create transparency around how commissions are set and paid and ultimately lower costs.
“This will reshape the housing market in the greatest fashion we’ve seen in over 50 years,” KBW analyst Ryan Tomasello told Yahoo Finance Live (video above).
US Realtor commissions have ranged from 5% to 6% since the 1950s, and are usually split between the seller’s and buyer’s agents, with the home seller footing the entire bill.
Increased transparency will make it easier for buyers to negotiate fees or bypass the use of agents entirely. Buyer agent usage in most countries is uncommon, averaging 33% compared to the US’s rate of nearly 90%.
For buyers who decide to use an agent, advocates say fee costs are likely to substantially decline. Right now, US commission rates are among the highest in the world. Commissions on a $500,000 home sold in the US would be about $25,000 to $30,000 — compared to roughly $6,500 in the UK.
As a result, the total commission pool, currently $100 billion nationally, could be slashed to $70 billion, according to KBW’s analysis.
Read more: How to sell your house without a Realtor
A ‘major boost’ for homebuilders
Changes resulting from the NAR settlement are a “major boost” for homebuilders, who typically paid the buyer agent’s commission.
In a note to clients, Evercore ISI’s Stephen Kim wrote that agent commissions have been a “significant drag” to builders’ profitability, therefore a “shift in broker fees represents a significant positive for builder margins.”
“This would disproportionately advantage large homebuilders, who have their own salespeople and robust online shopping environments; it is far easier to buy a new home without a buyer’s agent than an existing home,” wrote Kim.
Homebuilder stocks have already been on the rise as high mortgage rates continue to limit the supply of used homes for sale. A reduction in commissions could help further drive demand, National Association of Home Builders CEO Jim Tobin told Yahoo Finance Live.
“As commissions come down, I hope we will see costs to builders come down as well,” Tobin said. “That translates into lower home prices for consumers.”
Shares of Lennar (LEN), Toll Brothers (TOL), and PulteGroup (PHM) have rallied to record highs this year, powered in part by the NAR settlement but also on the prospect for Fed rate cuts. Toll Brothers is up about 25%, while Lennar and PulteGroup are up 12% and 14%, respectively.
Brokerage models ‘at risk’
While homebuilder stocks have clocked gains in the past week, investors dumped shares of Zillow (Z), Redfin (RDFN), and Compass (COMP) on fears a change to agent fees will be costly for major brokerages.
Analysts warn of downside risk ahead, arguing the shift in cost structure is only partially priced in at current levels.
In a note to clients, Morgan Stanley’s Matt Cost wrote that while there is a “credible bull case where commission levels remain stable”, shares of Zillow, RE/MAX, and Compass “could decline further to the extent the market fully prices in material downside to commission rates going forward.”
Cost emphasized Compass as the brokerage most at risk, given “substantially all of its revenue is tied to broker commissions.”
But the new changes don’t signal doom and gloom for all listing platforms. In an environment where more buyers will do the house hunting themselves, platforms that help sellers advertise their listings have room to grow.
KBW’s Tomasello thinks that CoStar Group (CSGP) is a “winner” and “key beneficiary” because it caters to seller agents — a focus he expects other platforms to pursue.
“Real estate portals that have historically relied more on the buy-side piece of this commission pool for their revenue models, [such as] companies like Zillow, Realtor.com, may need to reconsider the role that they play in the housing market and potentially shift that focus more to the sell side in terms of advertising homes,” Tomasello said.
CoStar shares rallied 8% after the NAR settlement was announced last Friday. Shares are up 12% year to date.
Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email seanasmith@yahooinc.com.
Existing-home sales jumped unexpectedly in February to the highest monthly increase recorded in a year, according to the National Association of Realtors (NAR).
Total existing-home sales — which includes previously owned single-family homes, townhomes, condominiums and co-ops — increased 9.5% from January to a seasonally adjusted annual rate of 4.38 million in February. But sales are still down 3.3% from last year, when 4.53 million were recorded for February 2023, a NAR report released Thursday said.
“Additional housing supply is helping to satisfy market demand,” said NAR chief economist Lawrence Yun. “Housing demand has been on a steady rise due to population and job growth, though the actual timing of purchases will be determined by prevailing mortgage rates and wider inventory choices.”
While Americans may want to buy houses, scarce supply, inflated prices and high mortgage rates have made home ownership unaffordable for many. Housing inventory in 2022 dipped to its lowest point since the Federal Reserve began tracking the data in 2016, while housing costs reached record highs.
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Home prices and associated costs have followed the same inflationary trend as the rest of the economy since President Biden assumed office in January 2021.
Compared to three years ago, the median price for existing-home sales has increased 25%, from $307,400 in January 2021 to $384,500 in February 2024, according to NAR data.
Existing home sales were 6.6 million when Biden took office and have since fallen to 4.38 million, according to Thursday’s report — a 34% decrease.
Not only are house prices up and supply down — home loan costs have skyrocketed. As of February, the monthly mortgage payment on an existing home was $2,001, according to NAR. That compares to a January 2021 reading of $1,009 and represents a walloping 98% increase.
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Mortgage rates, which were an average 2.79% in January 2021, are now 6.78%.
For those who can’t afford a home or don’t wish to purchase one, rent is also more expensive. The average monthly rent for a two-bedroom apartment in the U.S. was $1,132 in January 2021. Now the average rent for an apartment that size has climbed 20% to $1,363 per month, according to data from apartmentlist.com.
Housing costs are expected to keep rising so long as there is strong demand and limited supply.
“Home sales dipped in February compared to a year earlier because not enough homes were on the market to meet demand,” explained Holden Lewis, a home and mortgage expert with NerdWallet.
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According to the NAR report, total housing inventory at the end of February — the number of homes listed for sale — was 1.07 million units, a 5.9% increase from January and 10.3% surge from 970,000 units one year ago.
“Just 1.07 million existing homes were for sale at the end of February. In the same month five years earlier, before the pandemic, there were 1.63 million homes on the market. Consequently, many more homes were sold back then,” Lewis said. “Because demand exceeds supply, buyers are competing with each other and driving up prices.”
Regional sales climbed in the West, South and Midwest, but remained unchanged in the Northeast, the report said. Year-over-year sales declined in all regions.
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Housing became more expensive in all major U.S. regions as well, according to NAR. The median existing-home price for all housing types in February was $384,500, an increase of 5.7% from February 2023, according to NAR.
“Due to inventory constraints, the Northeast was the regional under-performer in February home sales but the best performer in home prices,” Yun said. “More supply is clearly needed to help stabilize home prices and get more Americans moving to their next residences.”
Original article source: How it Started… How it’s Going: Home sales down, housing prices, mortgage rates up since Biden took office
Things are about to get weird for homebuyers and sellers.
I wrote late last year that 2024 would mark the beginning of a great experiment in real estate that would upend the way homebuyers and sellers pay their agents. Well, the experiment officially got underway Friday when the National Association of Realtors agreed to a $418 million settlement to bring to an end a series of class-action lawsuits over agent commissions.
The settlement came after a yearslong battle in which hundreds of thousands of sellers claimed that they were forced into paying unfairly high commissions to real-estate agents. In addition to the monetary penalties, the agreement could enable more buyers and sellers to start negotiating those commissions, which for decades have hovered between 5% and 6% of the sale price. The deal could also push more buyers to forgo hiring an agent or work out an alternate payment structure.
These changes, spread out over millions of transactions a year, have the chance to reshape the housing market. Some industry observers have predicted that the new commission rules could lead to a drop in both home prices and commissions. Buyers could even save as much as $30 billion every year, a recent working paper from the Federal Reserve Bank of Richmond estimated. But there’s also the possibility that the Department of Justice decides this settlement doesn’t go far enough, which could set up a showdown between the NAR and the DOJ. In other words, while the real-estate revolution is underway, this thing is far from over.
To grasp the scope of the settlement, it helps to understand how agents are paid. In most home sales, the seller uses a chunk of the final sale price to pay out the agents on both sides of the transaction. When a seller lists their home on the multiple-listings service — a database of local homes for sale where agents go to find homes to show clients — they advertise how much they’re willing to pay the buyer’s agent. For decades, sellers have generally offered buyers’ agents 2% to 3% of the final sale price, even though they can technically offer as little as $0. That’s because sellers fear that if they offer less than the industry standard, buyers’ agents will direct their clients away from their homes, a practice called “steering.” Don’t offer the standard rate; don’t get seen. To fix this issue, the plaintiffs in the lawsuits and the Department of Justice have pushed for a practice called “decoupling,” in which buyers and sellers just pay their agents separately. They argue that this would eliminate steering and push down commissions, saving people money and perhaps forcing many subpar agents out of the industry. A lot of agents are already barely scraping by — if their earnings fall, they might decide to exit the business altogether.
The newly announced settlement doesn’t go quite that far. While sellers will no longer be required to say how much they’re offering a buyer’s agent when they list their homes on the MLS, they’re not expressly prohibited from offering that compensation somewhere else — it just can’t be anywhere on the MLS. There will likely be “a thousand work-arounds,” Bret Weinstein, the founder and CEO of the Denver brokerage Guide Real Estate, told me. A buyer’s agent could just call up the seller’s agent and ask what commission they’ll get, or the listing agent could advertise the commission tied to the home on their website. In theory, a seller might still offer compensation to a buyer’s agent because they want to get as many offers as possible on their home. If you’re a seller and you don’t offer anything, then any buyer who wants your home will have to pay their agent out of pocket, and a lot of cash-strapped buyers simply can’t do that. In some cases, sellers might still feel pressured to offer the going rate, so the agent’s commission could end up looking pretty much the same as it does today.
On the other hand, we’re likely to see both sellers and buyers negotiating on commissions in ways they simply haven’t before. If sellers are in a desirable market, they might start offering less commission to buyers’ agents, or none at all. On a $1 million home, a seller may save $30,000 if they don’t promise anything to the agent on the other side of the deal. This would force buyers’ agents to get more creative. They could work for a flat fee or cut their commission rate to attract price-sensitive clients. Some might offer varying levels of service for different prices — the white-glove treatment still goes for 3%, but just setting up a few showings is a cheaper rate. Other buyers might choose not to hire an agent at all or just get a lawyer to review contracts and make sure the transaction doesn’t go off the rails.
As for home prices, I’m not convinced they’ll actually drop as a result of this settlement. It’s hard to imagine a seller shaving 3% off their listing price just because they’re not offering a commission to the buyer’s agent, especially if a comparable house down the street is selling for a similar amount. Sales have slowed down with higher mortgage rates, but the seller still has the upper hand in most parts of the country.
The NAR will pay out a staggering amount of money to the class-action members (and their lawyers), but that $418 million pales in comparison to the billions of dollars in damages that the NAR and other major brokerages were facing as part of these lawsuits. In the first case to go to trial, in October, a jury slapped the NAR and its codefendants with $5.3 billion in damages. The settlement also doesn’t mean that the organization is off the hook just yet: One of the biggest remaining questions is what the Department of Justice will think of this proposed settlement, which still needs approval from a federal judge. Earlier this year, the department threw its support behind the idea of decoupling, or just having both sides pay their agents separately. It has made it clear that it doesn’t want sellers offering compensation to buyers’ agents. Instead, it proposed an alternative in which sellers don’t promise anything but buyers can still make offers that are contingent on getting some money back so they can pay their agent: “I’ll pay you $500,000, but you give me back $15,000 so I can cut a check to my broker.” The key difference is that the amount requested is negotiated between the buyer and their agent, not set by the seller.
So it seems like the newly announced settlement could fall short in the eyes of the department. But even if the DOJ isn’t able to push for more changes, this settlement could usher in a new era for the industry — one in which buyers and sellers no longer default to the standard commission rates that have prevailed for decades.
This settlement isn’t the end of this saga. The experiment is just beginning.
James Rodriguez is a senior reporter on Business Insider’s Discourse team.
A powerful real estate trade association has agreed to pay $418 million and change its rules to settle lawsuits claiming homeowners have been unfairly forced to pay artificially inflated agent commissions when they sold their home.Under real estate rules used for decades, when a home is sold, the seller uses a portion of the proceeds, typically about 6 percent, to pay both their own real estate agent and the buyer’s agent.But in more than a dozen lawsuits across the country, sellers sued the National Association of Realtors saying it’s unfair to force them to pay agents on both sides of the deal and that doing so drives up prices.”It’s one of the only areas in our country where you’re actually paying somebody who was actually working on the opposite side of a transaction. That’s no longer going to be the case. Now when you go to sell a home, you’re not required to do that,” said Michael Ketchmark, plaintiffs’ attorney.The National Association of Realtors said Friday that its agents who list a home for sale on a Multiple Listing Service, or MLS, will no longer be allowed to use the service to offer to pay a commission to agents that represent potential homebuyers. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms, however.Video: Massive settlement changing real estate businessSome real estate experts predict they could lead to homebuyers and sellers negotiating lower commissions, and therefore, cheaper housing. But a former president of the Massachusetts Association of Realtors predicts the impact will be limited.”I think that people have been forever involved in home purchases. The realtors are going to have to be a little more defined about the process. But I think with the proper training, everybody’s going to be just fine,” said Laurie Cadigan, Barrett Sotheby’s International Realty. NAR also agreed to create a rule that would require MLS agents or other participants working with a homebuyer to enter into written agreement with them. The move is meant to ensure that homebuyers know going in what their agent’s service will charge them for their services.The rule changes, which are set to go into effect in mid-July, represent a major change the way real estate agents operate.The NAR faced multiple lawsuits over the way agent commissions are set. In October, a federal jury in Missouri found that the NAR and several large real estate brokerages conspired to require that home sellers pay homebuyers’ agent commission in violation of federal antitrust law.The jury ordered the defendants to pay almost $1.8 billion in damages — and potentially more than $5 billion if the court ended up awarding the plaintiffs treble damages.The NAR said the settlement covers over one million of its members, its affiliated Multiple Listing Services and all brokerages with a NAR member as a principal that had a residential transaction volume in 2022 of $2 billion or less.The settlement, which is subject to court approval, does not include real estate agents affiliated with HomeServices of America and its related companies, the NAR said.Video: Mass. real estate prices starting to drop in sought-after towns
A powerful real estate trade association has agreed to pay $418 million and change its rules to settle lawsuits claiming homeowners have been unfairly forced to pay artificially inflated agent commissions when they sold their home.
Under real estate rules used for decades, when a home is sold, the seller uses a portion of the proceeds, typically about 6 percent, to pay both their own real estate agent and the buyer’s agent.
But in more than a dozen lawsuits across the country, sellers sued the National Association of Realtors saying it’s unfair to force them to pay agents on both sides of the deal and that doing so drives up prices.
“It’s one of the only areas in our country where you’re actually paying somebody who was actually working on the opposite side of a transaction. That’s no longer going to be the case. Now when you go to sell a home, you’re not required to do that,” said Michael Ketchmark, plaintiffs’ attorney.
The National Association of Realtors said Friday that its agents who list a home for sale on a Multiple Listing Service, or MLS, will no longer be allowed to use the service to offer to pay a commission to agents that represent potential homebuyers. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms, however.
Video: Massive settlement changing real estate business
Some real estate experts predict they could lead to homebuyers and sellers negotiating lower commissions, and therefore, cheaper housing. But a former president of the Massachusetts Association of Realtors predicts the impact will be limited.
“I think that people have been forever involved in home purchases. The realtors are going to have to be a little more defined about the process. But I think with the proper training, everybody’s going to be just fine,” said Laurie Cadigan, Barrett Sotheby’s International Realty.
NAR also agreed to create a rule that would require MLS agents or other participants working with a homebuyer to enter into written agreement with them. The move is meant to ensure that homebuyers know going in what their agent’s service will charge them for their services.
The rule changes, which are set to go into effect in mid-July, represent a major change the way real estate agents operate.
The NAR faced multiple lawsuits over the way agent commissions are set. In October, a federal jury in Missouri found that the NAR and several large real estate brokerages conspired to require that home sellers pay homebuyers’ agent commission in violation of federal antitrust law.
The jury ordered the defendants to pay almost $1.8 billion in damages — and potentially more than $5 billion if the court ended up awarding the plaintiffs treble damages.
The NAR said the settlement covers over one million of its members, its affiliated Multiple Listing Services and all brokerages with a NAR member as a principal that had a residential transaction volume in 2022 of $2 billion or less.
The settlement, which is subject to court approval, does not include real estate agents affiliated with HomeServices of America and its related companies, the NAR said.
Video: Mass. real estate prices starting to drop in sought-after towns
The National Association of Realtors has reached a $418 million settlement over agent commissions, The Wall Street Journal reported on Friday. As part of the settlement, the powerful trade group has agreed to eliminate its rules on sales commissions, meaning that the 6 percent commission, the decadeslong standard for anyone selling a home in this country — is no more. Industry types all seem to agree that this will likely have far-reaching implications for the real-estate industry and homeowners — the New York Times writes that housing experts expect it “could trigger one of the most significant jolts in the U.S. housing market in 100 years.” But what, exactly, can we expect?
In October, a federal jury ruled that the National Association of Realtors had conspired to artificially inflate commissions and ordered the powerful trade group to pay damages of $1.8 billion. The ruling was the result of an anti-trust suit brought by a group of Missouri home sellers in 2019, which argued that the industrywide practice of requiring the seller to pay both the seller’s and buyer’s agent commissions, and setting a nationwide standard of 5 to 6 percent, which is much higher than in many other countries, violated anti-trust laws.
While NAR initially vowed to appeal the ruling, the group has undergone internal tumult with a sexual-harassment scandal and a series of leaders departing in quick succession. There were other compelling reasons to settle: Because the case involved anti-trust violations, the plaintiffs could have been eligible for triple damages of $5.4 billion, the Times reported. And separate litigation in Chicago expected to go to trial this year could have threatened a damages award of more than $40 billion, according to The Wall Street Journal.
In addition to the suit against NAR, there are more than a dozen copycat class-action suits against the country’s largest brokerages. Some have settled their suits — Anywhere Real Estate, which includes the Corcoran Group, Sotheby’s International Real Estate, Coldwell Banker, and Century 21, paid $83.5 million in September. Others, notably Warren Buffett’s HomeServices of America, have not.
The most immediate impact is expected to be a drop in commissions — economists who spoke with the Times estimated that they could fall by 30 percent — as a result of home sellers being able to negotiate fees with their agents. And buyers, who must now pay their own agents, may elect to forgo one altogether, or opt for pared-down services, like having an agent prepare an offer and a contract, while conducting home searches, inspections, and other parts of the sales process alone. Whether that’s a good thing or a bad thing is debatable: While sites like Zillow and Redfin have made it easier to find homes, brokers argue that buyers benefit from representation, and if they must pay agents out of their own pockets, many will opt not to use one — to their detriment.
There is a widespread hope that a reduction in commissions, which are baked into sales prices, may cause home prices to fall, but that remains to be seen.
Besides less money, at least for some, it’s widely believed that it will lead to a winnowing of the industry — The Wall Street Journal reports that the shake-up could drive out hundreds of thousands of agents.
The settlement will also have implications for Multiple Listings Services across the country, the dominant way that agents outside New York City list their properties. (In New York, the Real Estate Board of New York, REBNY, which is not affiliated with NAR, has its own real-estate listings service.) Previously, getting a listing in the MLS — a necessity of selling in many markets — required joining NAR and following its rules. If that’s no longer necessary, “you’re going to see innovation,” says Jason Haber, a Compass agent who recently launched an alternative broker-trade group, the American Real Estate Association.
It’s hard to say this early on. Some have likened the fallout to the demise of travel agents and the rise of online booking sites like Expedia and Kayak. One thing is certain, though: Expect more tech start-ups to try to get a piece of the action. We’ve already had emails from several. What remains to be seen is whether the increased competition will actually lead to lower prices or improve buyers’ and sellers’ experiences.
New York agents aren’t part of NAR, so while the settlement doesn’t directly impact things here, the consequences are expected to reverberate throughout the industry. Many of the brokerages operating in the city have already reached separate settlements over agent commissions, and in October REBNY implemented new rules prohibiting listing brokers from paying buyers’ agents.
No, the changes only apply to seller and buyer commissions. Renters still have to pay commissions, which once averaged 12 percent but have increasingly crept up to 15 percent and, in some cases, much more. Last year, City Councilmember Chi Ossé introduced a bill that would require whoever hires the rental broker — in most cases, the landlord — to pay the fee. It didn’t pass, but a few weeks ago, Ossé reintroduced it.
The National Association of Realtors (NAR) is set to cough up $418 million in damages and eliminate commission rules in a landmark deal experts say will significantly shake up the real estate industry.
“This will blow up the market and would force a new business model,” Norm Miller, a professor emeritus of real estate at the University of San Diego, told The New York Times.
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The NAR agreed to settle after a series of lawsuits accused the organization of conspiring to artificially inflate home sale commissions.
Ryan Tomasello, an analyst for investment banking firm Keefe, Bruyette & Woods, published a report in October prior to the settlement. In it, he predicted changes to the commission structure could lead to a 30% reduction in the $100 billion Americans pay in real-estate commission fees each year.
What’s more, Tomasello says, it could drive more than half of the nation’s 1.6 million realtors out of the industry.
The end of the 6% commission fee?
Real estate agents across the U.S. typically charge a commission between 5-6% — one of the highest rates in the world — that is often divided equally between the buyer’s agent and the seller’s agent.
However, recent lawsuits argued the NAR stifled competition among real estate brokers and violated antitrust laws by requiring the seller’s agent to make an offer of payment to the buyer’s agent and implementing rules that led to steep standard commission fees.
This settlement means the NAR can no longer set any rules that would allow a seller’s agent to set compensation for a buyer’s agent. The association’s Multiple Listing Service (MLS) — which buyers and sellers use to view for-sale properties — will no longer feature any fields offering broker compensation either.
Experts say the agreement — and potential slide in commission fees — could revive the sluggish housing market.
“This will be a really fundamental shift in how Americans buy, search for, and purchase and sell their housing. It will absolutely transform the real estate industry,” said Max Besbris, an associate professor of sociology at the University of Wisconsin-Madison, according to The New York Times.
However, others warn the possibility of lower commission fees and demand for buyer agents could deter folks from pursuing careers in the real estate industry.
Read more: Generating ‘passive income’ through real estate is the biggest myth in investing — here’s how you can do it in as little as 5 minutes
DOJ still investigating
The Department of Justice’s antitrust division is continuing to investigate NAR practices — particularly whether the organization’s rules have led to price-fixing on commission fees and whether MLS databases have been constraining competition.
The Realtor group continues to deny any wrongdoing.
“Ultimately, continuing to litigate would have hurt members and their small businesses,” Nykia Wright, the interim CEO of NAR, said in response to the lawsuit agreement.
“While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”
The agreement must still receive approval by a federal judge before it can take effect.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Much to the chagrin of would-be homebuyers, property prices just keep rising. It seems nothing — not even some of the highest mortgage rates in nearly 23 years — can stop the continued climb of home prices.
Prices increased once again in January, according to the National Association of Realtors (NAR), which reports that median existing-home prices were up 5.1 percent over last year — the seventh month in a row of year-over-year jumps. In another reflection of ongoing increases, the S&P CoreLogic Case-Shiller home price index had increased for nine consecutive months before finally inching down in November, and the drop was only a minuscule 0.2 percent.
So much for the idea that a “housing recession” would reverse some of the outsized price gains in homes. The U.S. housing market had finally started slowing in late 2022, and home prices seemed poised for a correction. But a strange thing happened on the way to the housing market crash: Home values started rising again.
— Lawrence Yun, Chief Economist, National Association of Realtors
NAR data shows that median sale prices of existing homes are near record highs. January 2023’s median of $379,100 is off the all-time-high of $413,800, but it’s the highest January median on record. (Seasonal fluctuations in home prices make late spring the highest-priced time of the year — the all-time-high was reached in June 2022.)
Now, home prices are rising more quickly than wages, a reality that intensifies affordability challenges, says Lawrence Yun, NAR’s chief economist. “Any time home prices outpace people’s incomes, that is not good,” Yun told reporters Feb. 22.
Home values held steady even as mortgage rates soared to 8 percent in October 2023, reaching their highest levels in more than 23 years. (They have since dipped, falling below 7 percent before averaging 7.13 percent in Bankrate’s weekly survey released Feb. 21.) The main culprit is a lack of housing supply. Inventories remain frustratingly tight, with NAR’s January data showing only a 3.0-month supply.
“You’re not going to see house prices decline,” says Rick Arvielo, head of mortgage firm New American Funding. “There’s just not enough inventory.”
Skylar Olsen, chief economist at Zillow, agrees about the supply-and-demand imbalance. Her recent forecast says home prices will keep rising into 2024 — welcome news for sellers but not so great for first-time buyers struggling to become homeowners. “We’re not in that space where things are suddenly going to be more affordable,” Olsen says.
In fact, the trend is quite the opposite. According to Realtor.com’s January 2024 Housing Market Trends Report, high mortgage rates have increased the monthly cost of financing the typical home (after a 20 percent down payment) by 5.4 percent since last year. That equates to $108 more in monthly payments than a buyer last January would have seen.
Taking all this into account, housing economists and analysts agree that any market correction is likely to be a modest one. No one expects price drops on the scale of the declines experienced during the Great Recession.
Is the housing market going to crash?
No. There are still far more buyers than sellers, and that means a meaningful price decline can’t happen: “There’s just generally not enough supply,” says Mark Fleming, chief economist at title insurer First American Financial Corporation. “There are more people than housing inventory. It’s Econ 101.”
Dave Liniger, the founder of real estate brokerage RE/MAX, says the sharp rise in mortgage rates has skewed the market. Many would-be buyers have been waiting for rates to drop — but if mortgage rates do decline meaningfully, it could send new buyers flooding into the market, pushing up home prices.
“You’ve got an entire generation of pent-up demand,” Liniger says. “We’re in this fascinating position of tremendous demand and too little inventory. When interest rates do start to come down, it’ll be another boom-and-bust cycle.”
NAR’s Yun notes that some once-hot markets have seen small declines in prices. In Austin, Texas, for instance, prices are off about 5 percent from their peak. But he sees little chance of falling prices on a broader scale. “Prices will remain firm and will not decline on a national level,” he says.
Key housing market statistics
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According to Bankrate’s weekly national survey of large lenders, the average mortgage interest rate on a 30-year loan was 7.13 percent as of February 21.
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Existing-home sales rose 3.1 percent from December 2023 to January 2024, the National Association of Realtors says. However, volumes experienced a 1.7 percent decline since January of last year.
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The nationwide median sale price in January was $379,100, per NAR.
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January saw a 3-month supply of housing inventory, still below the 5 to 6 months needed for a healthy, balanced market — one that favors neither buyers nor sellers.
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Realtor.com’s January Housing Market Trends Report showed that the number of homes for sale in the country’s 50 largest metro areas was up 7.9 percent year-over-year.
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A total of 33,270 U.S. homes had foreclosure filings — default notices, scheduled auctions or bank repossessions — in January, according to the latest numbers from ATTOM Data Solutions. That’s up 5 percent from a year ago. Delaware had the highest foreclosure rate of any state in January, at one foreclosure filing for every 2,269 housing units, followed closely by Nevada with one for every 2,272 units.
Back in 2005 to 2007, the U.S. housing market looked downright frothy before home values crashed, with disastrous consequences. When the real estate bubble burst, the global economy plunged into the deepest downturn since the Great Depression. Now that the recent housing boom has been threatened by skyrocketing mortgage rates and a potential recession — Bankrate’s most recent expert survey puts the odds at 45 percent — buyers and homeowners are asking, when will the housing market crash?
However, housing economists agree that it will not crash: While prices could fall, the decline will not be as severe as the one experienced during the Great Recession. One obvious difference between now and then is that homeowners’ personal balance sheets are much stronger today than they were 15 years ago. The typical homeowner with a mortgage has stellar credit, a ton of home equity and a fixed-rate mortgage locked in at a low rate — in fact, according to a December Realtor.com report, two-thirds of all current mortgages have rates below the 4 percent mark.
What’s more, builders remember the Great Recession all too well, and they’ve been cautious about their pace of construction. The result is an ongoing shortage of homes for sale. “We simply don’t have enough inventory,” Yun says. “Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely.”
Existing home prices
Economists have long predicted that the housing market would eventually cool as home values become a victim of their own success. After posting a year-over-year decrease in February 2023 for the first time in more than a decade, the median sale price of a single-family home has been on the rise again, with a 5.1 percent annual gain in January, according to NAR. That represents the seventh month in a row of year-over-year increases.
Overall, home prices have risen far more quickly than incomes. That affordability squeeze is exacerbated by the fact that mortgage rates have more than doubled since August 2021.
Experts say prices to hold strong
While the housing market is indeed cooling, this slowdown doesn’t look like most real estate downturns. Despite prices being high, the actual volume of home sales has plunged, and inventories of homes for sale have fallen sharply, too. Homeowners who locked in 3 percent mortgage rates a couple years ago are declining to sell — and who can blame them, with current rates more than double that? — so the supply of homes for sale is even tighter. As a result, the correction will be nothing like the utter collapse of property prices during the Great Recession, when some housing markets experienced a 50 percent cratering of values.
“We will not have a repeat of the 2008–2012 housing market crash,” Yun said in a statement last fall. “There are no risky subprime mortgages that could implode, nor the combination of a massive oversupply and overproduction of homes.”
Ken H. Johnson, a housing economist at Florida Atlantic University, says the housing market is being pulled in two competing directions. “I think we are in for a period of relatively flat housing price performance around the country as high mortgage rates put downward pressure on prices, while significant demand from household formation and an inventory shortage place upward pressure,” he says. “These forces, for now, should balance each other out.”
5 reasons there will be no housing market crash
Housing economists point to five compelling reasons that no crash is imminent.
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Inventories are still very low: A balanced market typically has a 5- or 6-month supply of housing inventory. The National Association of Realtors says there was a 3.0-month supply of homes for sale in January (back in early 2022, that figure was a tiny 1.7-month supply). This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.
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Builders didn’t build quickly enough to meet demand: Homebuilders pulled way back after the last crash, and they never fully ramped up to pre-2007 levels. Now, there’s no way for them to buy land and win regulatory approvals quickly enough to quench demand. While they are building as much as they can, a repeat of the overbuilding of 15 years ago looks unlikely. “The fundamental reason for the run-up in price is heightened demand and a lack of supply,” says Greg McBride, Bankrate’s chief financial analyst. “As builders bring more available homes to market, more homeowners decide to sell and prospective buyers get priced out of the market, supply and demand can come back into balance. It won’t happen overnight.”
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Demographic trends are creating new buyers: There’s strong demand for homes on many fronts. Many Americans who already owned homes decided during the pandemic that they needed bigger places, especially with the rise of working from home. Millennials are a huge group and in their prime buying years, and Hispanics are a growing demographic also keen on homeownership.
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Lending standards remain strict: In 2007, “liar loans,” in which borrowers didn’t need to document their income, were common. Lenders offered mortgages to just about anyone, regardless of credit history or down payment size. Today, lenders impose tough standards on borrowers — and those who are getting a mortgage overwhelmingly have excellent credit. The median credit score for new mortgage borrowers in the the fourth quarter of 2023 was an impressive 770, the Federal Reserve Bank of New York says. “If lending standards loosen and we go back to the wild, wild west days of 2004-2006, then that is a whole different animal,” says McBride. “If we start to see prices being bid up by the artificial buying power of loose lending standards, that’s when we worry about a crash.” Quite the opposite: A recent Federal Reserve survey of senior loan officers reveals that lending standards have actually tightened even further in anticipation of heightened demand when rates eventually drop.
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Foreclosure activity is muted: In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes. Lenders weren’t filing default notices during the height of the pandemic, pushing foreclosures to record lows in 2020. And while there has been an uptick in foreclosures since then, it’s nothing like it was.
All of that adds up to a consensus: Yes, home prices are still pushing the bounds of affordability. But no, this boom shouldn’t end in bust.
FAQs
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Actually, most industry experts do not expect it to. Housing economists point to five main reasons that the market will not crash anytime soon: low inventory, lack of new-construction housing, large amounts of new buyers, strict lending standards and fewer foreclosures.
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Probably not — or at least, not by much. Home prices did decrease year-over-year for a few months in early 2023, for the first time in more than a decade — but the decrease was relatively modest and prices have since risen sharply, reaching record highs. Greg McBride, Bankrate’s chief financial analyst, says a plateauing of prices is more likely than a steep fall, and other experts’ housing market predictions for 2024 align with that sentiment.
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It depends on many factors, including how much money you earn versus how much you pay out in debts and expenses each month — known as a debt-to-income ratio. Many financial advisors recommend the 28/36 percent rule of home affordability, which states that you should spend no more than 28 percent of your gross monthly income on housing expenses, and no more than 36 percent on total debt. Bankrate’s home affordability calculator can help you crunch the numbers.
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Different minimum credit scores are required by lenders for different types of mortgages. However, a score of at least 620 is typically required for a conventional loan — and if it’s as high as 740, all the better. Generally, the higher your credit score the lower the interest rate you will qualify for. Successful borrowers today tend to have outstanding credit, with a high median score of 770.