The cost of hiring a real estate agent to buy or sell a home may soon change, along with decades-old rules that have helped determine broker commissions.
The policy changes could help spur price competition for agents’ services and lower the cost for sellers who now typically cover the commission for the buyer’s agent, as well as that of their own.
In turn, more homebuyers could face pressure to pay for their agent’s commission out of pocket. That could be a challenge, especially for buyers already stretching financially to make a down payment and cover other upfront costs involved in buying a home.
Still, housing market watchers say it can’t be immediately determined how significantly any changes that potentially shift the cost of hiring an agent to a homebuyer will affect home sales. An adjustment period is likely as buyers, sellers and agents figure out how to navigate what comes next.
“I just think it’s too soon to tell,” said Greg Kling, an associate professor at the University of Southern California Marshall School of Business who has taught and written about real estate taxation. “We’re going to either see prices are going up for buyers, or the market is going to correct itself.”
WHAT’S DRIVING THIS?
As part of a settlement announced Friday, the National Association of Realtors agreed to make some policy changes in order to resolve multiple class-action lawsuits brought on behalf of home sellers across the U.S.
The trade group agreed to change its rules so that brokers who list a home for sale on any of the databases affiliated with the NAR are no longer allowed to include offers of compensation for a buyer’s agent.
This change is meant to address a central assertion in lawsuits brought against the NAR and several major real estate brokerages: that homeowners are being forced to pay artificially inflated agent commissions when they sell their home.
The trade group also agreed to require agents, or others working with a homebuyer, to enter into a written agreement with them. That is meant to ensure homebuyers know going in what their agent will charge them for their services.
If the court signs off on the settlement, the NAR would implement the rule changes in mid-July. Meanwhile, several real estate brokerage operators, including Anywhere Real Estate and Keller Williams, have reached separate settlement agreements that include provisions for more transparency about agent commissions for homebuyers and sellers.
“The residential real estate marketplace will take some time, perhaps several years, to fully process the implications of this settlement,” said Stephen Brobeck, senior fellow at the Consumer Federation of America. “But over time more, agents will feel free to offer different types of compensation and more consumers will comparison shop and negotiate commissions in a more transparent marketplace.”
WHAT THIS COULD MEAN FOR HOMEBUYERS
The key potential change centers on who foots the bill for real estate agents who represent homebuyers.
Currently, an agent or broker representing a home seller typically splits a commission — often around 5% to 6% of the home’s sale price — with the agent working on behalf of the homebuyer. Such an arrangement is known in the industry as “cooperative compensation.”
Under the proposed NAR settlement, a broker who represents a seller would no longer be allowed to include a blanket offer of cooperative compensation to a prospective buyer’s agent when they advertise the property on NAR-affiliated Multiple Listings Services, where a majority of U.S. homes are listed for sale. This is meant to remove any incentive from a buyer’s agent to steer their client away from home listings that don’t include a cooperative compensation offer.
However, the proposed rule change leaves it open for individual home sellers to negotiate such an arrangement with a buyer’s agent outside of the MLS platforms, essentially creating a loophole for agents to keep things as they are now.
Homebuyers could also ask the home seller for a concession that includes money to help cover the buyer’s agent compensation.
What happens if a seller doesn’t want to offer to pay the buyer’s agent commission? Homebuyers would be on the hook to shop around for an agent they can afford. They’d also have to sign a contract with an agent before they enlist their services, spelling out how much the agent’s compensation will be.
Having to factor in another expense into their homebuying budget could be challenging for homebuyers without a lot of savings or financial flexibility, making it tougher for them to navigate the housing market.
Still, many variables are at play when it comes to buying or selling a home, not the least of which is how motivated each party is to close the deal.
“If I’m a buyer and I know this seller is not going to reimburse my agent, then I may make a lower offer,” said Kling. “Now, obviously in a hot market, that strategy’s not going to work. But then in a hot market, I would have paid over listing price anyway.”
HOW MIGHT THIS AFFECT HOME SELLERS?
The biggest change for homeowners looking to sell is they could push back against paying for buyer-agent commissions, which could translate into considerable savings.
Consider a seller who agrees to pay a 3% commission for their listing agent — instead of potentially twice that to cover the buyer’s agent, too — and sells their home for February’s national median sale price of $379,100. That homeowner would save roughly $11,373 paying only their agent’s commission.
“The settlement will also encourage more sellers to negotiate the compensation of their listing agents,” said Brobeck.
Still, sellers may still face some pressure to cover buyer-agent commissions.
The NAR built in an exception to its proposed rule change that would allow a buyer’s agent to see offers of cooperative compensation on home listings being advertised by their own brokerage.
That workaround could tempt buyer agents to “steer” clients away from any listings that don’t come with an upfront compensation offer, which could prompt sellers to offer more competitive commissions to be split between their agent and the buyer’s, analysts with Keefe, Bruyette & Woods wrote in a research note Monday.
“So long as steering incentives still exist, home sellers may be compelled to offer supracompetitive commissions to buyer agents in order to avoid steering,” the analysts wrote.
HOW MIGHT THIS CHANGE THE REAL ESTATE INDUSTRY?
One concern is that by making it easier for sellers to opt out of making a cooperative compensation offer to buyer agents, some buyers will opt against hiring an agent or only doing so toward the end of the process after they’ve gone through most of the home hunt themselves. That could end up weeding out some “lower-performing brokers,” Kling said.
Another scenario is that alternative types of real estate business models will become more popular. This includes using discount brokers that will list a home for a flat fee of $500.
“They don’t offer any compensation to the buyer agent because the buyer agent negotiates their own conditions if they want more,” said Mike Downer, a broker associate with Coldwell Banker Realty in Naples, Florida. “That business model has been around for a long time.”
American homeowners may have been unfairly tarred with the NIMBY brush, with new research showing that wind turbines have a far smaller effect on house prices across the country than previously feared.
Using data from 300 million home sales and their proximity to 60,000 wind turbines, researchers found an impact of just 1% in value for houses that have a view of turbines within 6 miles.
The study, published today in the Proceedings of the National Academy of Sciences (PNAS) shows that only houses within 1.2 miles of a turbine saw their value significantly affected, at up to 8%. Beyond 1.2 miles, the impact rapidly tailed off.
The researchers note that fewer than 250,000 buildings in the U.S. sit within 2.5 miles of a wind turbine, with 8.5 million homes and structures within 6 miles of one.
“Our research responds to some arguments of local opposition against wind turbines, the classic ‘not in my backyard’ problem that is a hot topic not only in the U.S. but also in Europe and Germany,” says Leonie Wenz, a co-author of the study from the Potsdam Institute for Climate Impact Research (PIK), who suggests the findings could also be used as a basis for compensating affected homeowners.
“Our study also underlines that these impacts have been small in the last two decades, and that we can expect them to become even less of an issue in the future,” she adds.
The U.S. is investing heavily in renewable energy generation, with the Department of Energy describing wind power as “one of the fastest growing and lowest-cost sources of electricity in America.” But even as the Inflation Reduction Act helps incentivize the development of clean energy generation across the country, negative perceptions about wind turbines have in some areas led to strong local opposition to wind projects, causing them to be abandoned.
Notably, the study is the first of its kind to take into account not just of the proximity of homes to turbines, but whether the turbines were within sight of those homes. That’s significant, as Wei Guo of the Italian Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC), and a co-author of the study, explains.
“Unlike previous studies, we did not only consider proximity, but also the actual visibility of wind turbines,” Guo says. “We calculated whether you can see the turbine, or whether there is a mountain in the way, for example, and if so, how the house value changes compared to other houses in the same area where residents cannot see the wind turbine.”
That consideration reveals an important detail: any negative economic effect of a wind turbine was found to decrease rapidly as distance from the turbine increased. Furthermore, the researchers say, the effect diminished over time, with any reduction in value peaking at three years following the installation of the turbine, and subsequently falling away.
“What really surprised me is that the house value bounces back to the original price over the years,” says Maximilian Auffhammer, a professor of agricultural and resource economics at the University of California, Berkeley, and a study co-author, who also notes that for turbines installed after 2017, any negative effect was “indistinguishable from zero.” In sum, Auffhammer says, the findings show that “the impact of wind turbines on house prices is much smaller than generally feared.”
Ontario home prices stabilized in February, ending a five-month fall that began last summer, according to new numbers released by the Canadian Real Estate Association
Ontario home prices stabilized in February, ending a five-month fall that began last summer, figures released by the Canadian Real Estate Association Monday show.
On a year-over-year basis, the average single-family home in the province sold for $947,000 in February, up 2.5 per cent from the average of $923,800 they sold for in February of 2023.
The numbers are seasonally adjusted and do not take inflation into account.
Inflation, depending on what measure you choose, is running at between 3.4 and 3.7 per cent.
“It’s looking like February may end up being the last relatively uneventful month of the year as far as the 2024 housing story goes,” CREA senior economist Shaun Cathcart said in a news release.
“With so much demand having piled up on the sidelines, the story will likely be less about the exact timing of interest rate cuts and more about how many homes come up for sale this year.”
The Waterloo Region Association of Realtors says home sales were sluggish in February with only 485 homes sold through the Multiple Listing Service, representing an increase of 9.7 per cent compared to the previous year and a decline of 19.0 per cent compared to the previous 10-year average for the month.
The average price of a detached home in Kitchener, Waterloo and Cambridge was $889,280.
This represents a 0.5 per cent increase from February 2023 and a decrease of 2.2 per cent compared to January 2024.
The average sale price for all residential properties in Waterloo Region was $755,934.
Townhouses went for an average $629,734, representing a 2.2 per cent decrease from February 2023 and a decrease of 1.8 per cent compared to January 2024.
The average sale price for an apartment-style condominium was $459,455. This represents an increase of 0.2 per cent from February 2023 and an increase of 3.1 per cent compared to January 2024.
The average sale price for a semi was $673,638. This represents an increase of 1.0 per cent compared to February 2023 and an increase of 4.2 per cent compared to January 2024.
On a provincewide basis, prices for condos in a year-over-year comparison were essentially unchanged, at a .02 per cent decrease, and townhouses were up 2.5 per cent, similar to single-family houses.
“After two years of mostly quiet resale housing activity there’s a feeling that things are about to pick up,” said CREA chair Larry Cerqua.
On a national level, the number of transactions came in 19.7% above February 2023, but CREA cautioned that sales in that month were exceptionally low.
Within Ontario, sales in the north continued to show much stronger growth than those elsewhere in the province – single-family homes in the Soo were up 8.8 per cent year-over-year, and those in Sudbury were up 15.5 per cent.
Locally in Cambridge in February, single-family house prices were up 1.8 per cent, condos were down 1.4 per cent, and townhouses were up 2.7 per cent compared to February of 2023, using seasonally adjusted numbers unadjusted for inflation.
Use the interactive below to explore your region.
The ownership of Uptown Tower has filed a motion to sell the troubled property at 4144 North Central Expressway in Dallas.
The Houston-based investor that owns the office building, Whitestone Uptown Tower LLC, entered Chapter 11 bankruptcy protection on Dec. 1 as it was in the process of being foreclosed upon. Lenders targeted December for the building’s foreclosure after the ownership defaulted on mortgage payments.
The motion for sale from the ownership followed a motion from creditor RSS MSBAM2013-C13-TX WUT, LLC seeking to compel Whitestone Uptown Tower to file a sale motion and amend plan, among other actions.
Whitestone Uptown Tower seeks to move the 253,561-square-foot property with a 363 sale, a U.S. Bankruptcy Code process allowing potential buyers to assume assets free and clear of liens and other claims.
The ownership is asking for approval of a proposed bidding process, with initial bids due by 5 p.m. on May 17. Qualifying bids would be determined on May 22. If necessary, an auction would take place on June 4. A closing deadline of July 31 is suggested.
The lender suggested $26 million be considered as the stalking horse bid for the process. The sum is also used as the minimum bid in the ownership’s proposed bidding procedures, which the ownership said indicates there is at least $8 million of equity in the property.
Dallas County lists the 1982-built Uptown Tower’s market value at more than $27.6 million. The ownership’s motion to sell states that its primary lender has filed a proof of claim with loan obligations of about $18.8 million after credit for escrow and suspense funds.
An emergency motion filed March 14 by the ownership to use collateral cash to keep up the tower’s regular operations said the building has a good occupancy rate of approximately 80% and “has begun to recover.” The Chapter 11 filing will enable the Whitestone to reorganize its debt to better match its projected cash flow, the emergency motion said.
There are far too many goods and services for which you can say Americans pay the highest prices in the world. One of those outliers was likely put to an end late last week, thanks to a remarkable settlement in a private antitrust case. The outcome shows that too many of America’s high costs are often a function of power, and that the tools to check that power and lower those costs cannot be unilaterally found at the Federal Reserve.
The National Association of Realtors (NAR) has agreed to end the age-old practice of 6 percent agent commissions for residential home sales, which are six times the level of the U.K. According to The New York Times, which first got the news, the settlement could drop U.S. commission costs by as much as 30 percent, which comes out to more than $8,000 on a home sale with the average purchase price of $417,000. It’s not going to suddenly make housing affordable, though the collusive arrangement did tend to drive home prices higher. And given that real estate commissions are a $100 billion-per-year business, we’re talking about $30 billion in savings, a not-incidental amount at a time when housing costs are a primary driver of inflation.
The end of the 6 percent commission is another example of the intelligent design of the Sherman Antitrust Act, with its private right of action. NAR is a powerful lobby that would have never let this happen if they had the wherewithal to stop it. But it had no politicians or regulators to persuade in this case; a group of Missouri homeowners and their legal team were the chief antagonists.
TYPICALLY IN A REAL ESTATE SALE, sellers pay a commission to their agent to manage creating the listing, making the home available for viewing, accepting offers, and closing the deal. But there’s a form of collusion involved: The buyer’s agent gets a share of that commission. That’s true despite the fact that it’s hard to understand why two agents are essential to a real estate sale. In the past, a buyer’s agent would find listings for clients, but in the age of Zillow and Redfin, purchasers have no problem doing that themselves. Worldwide, buyer agents are involved in only one-third of all sales; in the U.S., it’s about 89 percent.
This persisted because of a cartel-like scheme, coordinated through NAR and major real estate brokers. In the 1990s, NAR set a rule for their agents, known as the cooperative commission rule, requiring that any home listed for sale on a multiple listing service (MLS) include the commission rate that the seller will give to the buyer. Large brokers copy the NAR rule. These rates were allegedly negotiable, but in reality were mandatory. They are also based on percentages of the sale, so if home prices go up, so did the agent’s fee. That gives an incentive to the middlemen in the system to uplift listing prices and buyer offers.
Without getting on the MLS, few prospective homebuyers would see the listing; that’s how you’re finding those homes on Zillow and Redfin. This locks in the commission on both sides of the transaction. The sellers must compensate the buyer’s agent, and they coordinate their compensation to keep those rates standard, without negotiations. The buyer’s agent knows what houses will draw the standard commission. That way they can steer clients away from “For Sale by Owner” listings or other arrangements where the commission amount isn’t specified. This also tends to push prices upward.
Other services attempting to enter the real estate market, like a startup called Trelora that promised lower buyer commissions, were prevented from getting MLS data by large brokers and NAR. There was next to no escape from this agent commission cartel.
Commissions are folded into the sale price. They make houses a little bit more expensive through a concealed form of price-fixing. For 30 years, buyers and sellers endured this, until advocates and class action lawyers determined it was illegal, and sought to prove that in court.
Commissions are folded into the sale price. They make houses a little bit more expensive through a concealed form of price-fixing.
It took several years. NAR refused to settle a 2019 class action case alleging anti-competitive conduct, which went to trial before a federal judge in Kansas City. In October, a jury awarded the plaintiffs $1.8 billion in damages, just for home sellers in Missouri. (The sellers brought the case, saying that they shouldn’t be forced to pay out the buyers’ agents.) Because it’s an antitrust case, the judge was able to triple those damages to $5.4 billion if he wanted.
The same lawyers in the Missouri case quickly filed a national class action, and there were almost a dozen other lawsuits teed up. For context of the liability at play here, another case involving 20 large housing markets was set for trial shortly. If it were decided in the same manner as the Missouri case, damages could reach $40 billion. NAR had no available funds to even pay the Missouri damages, let alone other ones.
So they decided to settle. The fine of $418 million is in many ways the trivial part; NAR also agreed to eliminate the cooperative commission rule, end the requirement that brokers subscribe to the MLS, and mandate that all fee arrangements between buyers and agents be put down in writing. This should end most lawsuits over commissions, and come into effect by this summer. (The broker HomeServices of America, which is a Warren Buffett company, is still fighting this out in court, which should tell you something about America’s cuddliest billionaire.)
THIS WILL UNLOCK COMPETITION in a closed market. I’d expect services offering discounted rates or flat fees for real estate sales. And buyers may not have agents at all, simply someone to represent their interests at closing. You likely haven’t been to a travel agent in the last 20 years because you can do it yourself online. That’s what we could potentially see for homebuyers in the very near future.
Whatever results will require antitrust oversight. A large tech platform like Amazon or Google could undercut the entire market to gain share, and then recoup down the road when they’re the only option in town. Regulators will have to remain involved to ensure real estate agents don’t just shift from one cartel to another.
This will also likely lead to a mass exodus of agents from the real estate business, which for many was a side hustle of relatively easy money. Three million Americans have real estate licenses in America, compared to about 48,000 in the U.K., which has one-fifth the population. There are about 1.5 million active NAR realtors, and many of them will now have little reason to stay with the lobby shop. That’s good news for weakening the power of an organization that was influential enough in Washington to keep this collusive arrangement in place. And it means that other measures to improve the housing market for Americans, like incentives to add housing supply, won’t be subject to as powerful a lobby for the status quo.
(By the way, NAR’s past president, Kenny Parcell, resigned amid sexual harassment allegations last August; his replacement, Tracy Kasper, spent about four months in the top slot before resigning after being threatened with blackmail. It’s not exactly a tip-top operation poised to weather this storm.)
Nobody wants to see a million jobs or more incinerated. But an economy predicated on middlemen isn’t beneficial or stable. Real estate agents didn’t really get rich from the commission arrangement, because higher home prices lured more agents into the market. Fewer agents mean that the ones who are honest, hard-working, and good at their jobs will thrive, with lower rates but more activity. The brokers and NAR, who control the listing services, were the true beneficiaries of this cartel, and squeezing them out of the system will help everyone else.
An old settlement of a price-fixing case against NAR blocked the newly aggressive leadership at the Justice Department’s Antitrust Division from bringing an unfair competition case. (DOJ has been issuing strong briefs in private cases.) But “private attorneys general” helped right the wrongs in this market, thanks to the opportunity afforded under our antitrust laws. That will come in handy as even more hidden forms of price-fixing, embedded in algorithms and other forms of technology, proliferate.
We tend to think of inflation as the exclusive province of monetary policy, leaving it up to technocrats to twist dials on interest rates to manage prices. This settlement shows that cartel behavior is both rampant and often beyond the purview of central bankers. Strong oversight by the public, both through their elected representatives and through their own powers, is needed to counteract this growing area of overstuffed prices.
By Liangping Gao and Ryan Woo
BEIJING (Reuters) -China’s fragile housing market opened this year with slower declines in property investment and sales, buoyed by government efforts to arrest a protracted downturn in the sector, however, analysts were wary of calling an end to the downturn just yet.
Property investment in China fell 9.0% year-on-year in the first two months of 2024, compared with a 24.0% fall in December 2023, National Bureau of Statistics (NBS) data showed.
Property sales by floor area logged a 20.5% slide in January-February from a year earlier, compared with a 23.0% fall in December last year.
Official property figures released last week showed the sector struggling to stabilise with home prices down 0.3% on a month-on-month basis in February, in line with a drop in January.
Hwabao Trust economist Nie Wen said real estate remains in a downtrend and that a smaller slowdown in investment is unlikely to change that with developers still struggling for cash flow.
“But the phase when property had the greatest negative impact on the economy should have passed, and it needs to be seen when the sector will bottom out,” Nie said.
China has been ramping up measures to reinvigorate its fragile property sector after a regulatory crackdown on developer leverage led to a snowballing liquidity crisis.
Authorities launched a so-called “whitelist” mechanism in January, channelling funds from state banks into local property projects identified by city governments as justifiable for financing support.
China last month announced its biggest reduction in benchmark mortgage rates to prop up the sector.
However, market participants mostly remain unswayed with home buying and financing and construction starts for real estate firms continuing to fall.
“The future of real estate depends on whether investment in the three major projects – affordable housing construction, urban village renovation and emergency public infrastructure construction – can offset the decline in property investment and the release of accumulated upgraded home buying demand,” said Nie.
Household loans, mostly mortgages, contracted 590.7 billion yuan ($82.08 billion) in February, according to Reuters calculations based on central bank data, after rising 980.1 billion yuan in January.
New construction starts measured by floor area plunged 29.7% year-on-year, after an 11.56% plunge in December 2023.
Funds raised by China’s property developers were down 24.1% on year after a 17.8% drop in December last year.
“More support for the property sector is still needed,” said economists at HSBC in a research note.
HSBC said further policies to remove home purchase restrictions in more cities and direct government support to boost public housing supply would help an eventual stabilisation in the sector.
($1 = 7.1970 Chinese yuan)
(Reporting by Qiaoyi Li, Liangping Gao and Ryan Woo; Editing by Sam Holmes)
Kenyan authorities have threatened to arrest and prosecute property agents practicing without permits in an ongoing campaign to net more taxes from the real estate sector.
The Estate Agents Registration Board has warned property owners against procuring services of unregistered agents to avoid disruptions in services at their property.
“In order for the EARB to continue protecting the interest of the public and enhance professionalism in the real estate sector, consumers are advised to deal with registered estate agents only,” Hellen Abuya, the board’s registrar, said in a notice.
The notice comes at a time when the Treasury has pledged more funds to facilitate enhanced registration of agents to help report landlords who are not remitting rental income tax to the Kenya Revenue Authority.
The Estate Agents Act requires practitioners to register with the board and be issued with an annual practicing certificate.
Registration of estate agents is open to full members of the Institution of Surveyors of Kenya practicing in valuation and estate management, building and land management, or a holder of a degree, diploma, or licence from a university or college recognised by the board.
The board can also list a member who does not have the aforementioned qualifications if it is satisfied that he or she is of good character and has not been convicted of fraud or dishonesty, amongst other qualifications.
A person practicing as an estate agent without requisite registrations faces a fine of as much as Sh20,000 or a jail term of up to two years or both upon conviction under the law.
The Treasury has sounded an alarm over low compliance levels among landlords in filing and remitting taxes to the KRA even after the process was “simplified”.
Residential property owners generating an average monthly income of between Sh24,000 and Sh1.25 million are under the “simplified” process required to pay tax at the rate of 7.5 per cent of the gross earnings.
The current rate took effect in January following changes in the Finance Act 2023 that lowered it from the previous 10 per cent.
“The simplification was introduced to enhance compliance. Though it has increased the number of taxpayers, it has not achieved the envisaged compliance [in remitting rental income tax],” Treasury wrote in the 2024 Budget Policy Statement.
“To address compliance challenges in rental income taxation, the government will enhance the registration of property agents, mapping of properties, and leveraging on technology. In this regard, and to ensure fairness and equity, the government will review taxation of residential rental income.”