One of my favorite “Modern Family” episodes depicts the hilarity and nonsense of a real estate agent’s daily life as Phil Dunphy rattles off deed restrictions and the proper pronunciation of the word “Realtor” (real-TOR).
A registered trademark of its originator, Realtor is a title only real estate agents who pay membership to the National Association of Realtors (NAR) are allowed to boast.
Today, after more than 10 years as one myself, the “Realtor” prestige has lost its allure.
Just when it felt like NAR was bouncing back after a sexual harassment scandal in 2023, we real estate agents and brokers now find ourselves in the aftermath of this month’s multimillion dollar NAR settlement.
While I am nervous about what these NAR settlement changes mean for my residential real estate business and community, I am pleased that we’re all turning our eyes and ears to a company whose pockets have gotten too big and too dark for too long.
But enough about NAR.
Brokers, their agents and our local associations are scrambling to decide how to restructure serving residential buyers fairly without undervaluing our work. It feels a bit like a bomb just went off, and we’re running up to each other screaming, “Can you hear me talking? Are you talking? What are we going to do about this?!”
We have only until mid-July to figure it out.
Here’s what we know now: Buyer broker compensation is no longer allowed to be included on the Multiple Listing Service (MLS). And buyers are now required to sign a Buyer Representation Agreement, which includes the buyer broker’s compensation.
Real estate agents are worth it. So how do we get paid?
Buyer services are harder and more unpredictable, I think, than seller services (even in a buyer’s market!). Some buyer clients take years to find a property, while others take only a few weeks.
The stories we agents could tell would make anyone roll with laughter or cry – probably both. Being a real estate agent is like a reality TV show. How will we divide our whole job into billable hours? Billable tasks?
As an agent, I’m not only giving advice about market data and negotiating terms for sale. I’m also an on-call therapist, a babysitter, an interior designer, a cleaner, an exterminator … agents gladly do an endless list of tasks for our clients. Just ask your favorite agent what she keeps in her car for emergencies!
One thing I can predict with much certainty: Buyers will have to do more work to buy a property in the future. Private tours will be less common and replaced by 3D tours, video tours and open houses. Buyers might also have to meet with their inspectors, contractors and others without their agent.
Maybe buyers really will do it all themselves without losing money.
Buying a house?Don’t go it alone. A real estate agent can make all the difference.
If you’re hoping to buy in the next three months, my recommendation would be to close by July 1. Most first-time homebuyers have no idea what has happened or how it will affect their ability to negotiate.
In the past week, I’ve had to explain the NAR settlement to every friend, neighbor and client outside the industry. I can only tell you that we’re all racing to get it figured out by the time it does affect everyone.
NAR settlement explained: How will this impact home sellers and real estate prices?
Seller-paid buyer broker commissions were created with equitable rights to good representation in mind. Specifically, so that first-time buyers could afford to have a fair negotiation, instead of being swept under the rug by a seller’s agent signed to protect the seller (a law in most states).
My heart breaks for those sellers who were swindled into commissions. As much as I’d like to blame NAR, this error is also on agents, brokers and local boards who clearly violated our ethical code. It’s maddening to watch agents and brokers feed right into the stereotype that real estate agents are lazy and just in it for the biggest paychecks.
So, who will pay the buyer’s agent now, and how will this affect home prices?
Real estate prices:Will home prices fall after Realtor lawsuit settlement? You shouldn’t count on it.
It’s commonly acknowledged that the 5-6% sales commission was “baked into” the sales price. Investor agents and builders have been using low-to-zero percent buyer broker commissions as leverage for years.
While I do think that 5-6% sales commissions will be a thing of the past, there is a chance that sellers will find a way to simply advertise buyer broker commissions through a different medium. This compromise walks a fine line with the new restriction.
Seller-paid “buyer credits” is my favorite idea bumping around. Buyer credits would be offered on the listing, and could be distributed as the buyer sees fit at the closing table. The buyer could use the funds for themselves, their broker or both.
If buyers are responsible for the buyer broker commission on top of other purchasing costs, the sales prices will have to come down. Lower sales prices should not affect the sellers’ net proceeds in this instance, since the sales price deficit should roughly mirror the now absent buyer broker’s commission.
In short, even though most sellers think they should be celebrating now, these new rules probably won’t affect sellers much, if at all, once the dust settles.
What does the NAR settlement mean for buyers?
Gone are the “Let’s go tour this house for fun!” days.
A signed Buyer Representation Agreement is now required before a property showing. This has always been best practice. For some states this will be a big change.
For example, I usually complete a buyer consultation and one or two property tours before requiring a buyer’s agreement. I do this to be sure we’re a good match for each other. A successful client-agent squad requires a lot of trust and a common communication style.
Take the tours off the table, and I think things will get awkward. Now I spend one hour with a potential buyer and then prompt, “So do you trust me to guide you through your biggest life purchase? Sign here.” I’m sure thankful many of my clients are referrals.
How will the commission change impact real estate agents in 2024?
The part-time agents and small brokerages will likely diminish over time, which will either be great or horrible for the industry. Agents will have to do more with less, and our 60 to 70 hour work week will feel impossible without high sales volume.
Once in escrow, the brunt of the work usually lands on the buyer’s agent, too. If there are more transactions without buyer’s agents, then the seller’s agent will have to pick up the slack.
I often joke that as a 1099 real estate agent, I’m either overpaid or underpaid on each property. Still, my annual income mashes up into a worthwhile sum despite the work-life balance.
Without that 2-3% buyer’s commission propping up half my income, I am not sure the 11:30 p.m. phone calls, 6 a.m. texts, missing my daughter’s basketball game for an impromptu showing, and never having paid time off or maternity leave will be worth it.
Maybe I ought to go back to copywriting.
It feels like most brokers and Realtor associations are strategizing how to make the buyer agent obsolete with new technologies. I think they’re focusing on the wrong solution, but that’s a story for another day.
Emily Ross has been a real estate agent in Austin, Texas, for 10 years and a writer for much longer. Her background is in copywriting and editing, and she holds a master’s degree from Arizona State University’s Walter Cronkite School of Journalism.
A landmark settlement in an antitrust challenge to the National Association of Realtors’ standards for real estate agent commissions has understandably been celebrated as a victory for homebuyers. At around 5.5%, average commissions in the United States are some of the highest in the world, and if the NAR settlement results in lower commissions (and if sellers, who typically pay the fees, incorporate the savings into their listing price), prospective homebuyers could save thousands of dollars.
Any such savings would be welcomed, and for good reason. But homebuyers shouldn’t expect fundamental changes to the brutal U.S. housing market.
First, it’s unclear just how much they’ll benefit from the settlement because it doesn’t address the other, and arguably bigger, anticompetitive facet of the U.S. real estate agent market: occupational licensing regulations.
All states require real estate brokers to obtain a license, and 44 states license real estate salespeople (who must work for a licensed broker). In many states, this system creates a high barrier to entry into the profession and severely limits competition.
Colorado, for example, demands 168 hours of education from a state-approved real estate school (or college equivalent), passage of the state licensing exam, fingerprinting and background check, a sponsoring broker, errors and omissions insurance and $485 broker licensing fee. All told, the process can take more than a year to complete and cost more than $1,000. Once licensed, brokers must annually complete another 24 hours of continuing education at a substantial additional expense.
Licensing leads to higher costs for consumers
Research has consistently found that by limiting competition, occupational licenses like these increase consumer costs while providing few, if any, benefits in terms of quality, health or safety. For home buyers and sellers, this probably means paying higher commissions for no good reason.
Consider, for example, the United Kingdom, which doesn’t license real estate agents and enjoys average commissions of just 1.3%. Even after this month’s settlement, U.S. homebuyers can only dream of such rates.
In a free market, providers should be able to offer any service at whatever price they want, and if consumers don’t like it, a competing provider can – and almost certainly will – offer it for less. But this is no free market. And until state laws that create local real estate cartels are reformed or eliminated, we should expect commissions to remain higher than they’d otherwise be.
How much should it cost to sell a house?Your real estate agent may be charging too much.
Even then, however, homebuyers wouldn’t be spared from the most important problem in the U.S. real estate market today: home prices and rents increasing at a pace that far exceeds overall inflation. That trend has nothing to do with cartels or commissions and almost everything to do with the limited supply of housing, particularly in high-growth metro areas.
Building more homes will slow price increases
Research has repeatedly shown that the most effective check on skyrocketing home prices is simply to build more homes. One survey of the literature found that new construction of market-rate units in several U.S. cities moderated the prices of all typesof nearby housing, both high- and low-priced.
Housing shortage squeezes budgets:Rising home prices create an enormous burden. So why aren’t we building more houses?
Recent experience shows much the same: places that have seen housing construction at rates above national or regional averages – Austin, Phoenix, Atlanta, Raleigh, Minneapolis and more – have enjoyed slower rent and home price appreciation.
Unfortunately, regulation is a big problem here too, severely restricting the construction of market-rate housing across the country and thus boosting prices. The biggest impediments, studies show, are local zoning and land use regulations that dictate home sizes, yard sizes, parking and more, while giving politicians and residents an effective veto over anything that might deviate from these strict terms.
The restrictions’ effect on prices is significant: One recent study examined 24 different metropolitan areas and calculated a “zoning tax” of up to $500,000 per quarter-acre in cities with onerous land-use regimes – a finding consistent with previous research.
In case after case, in the U.S. and abroad, the lesson is always the same: new housing supply lowers prices; land use regulation discourages new supply; and homebuyers suffer as a result.
Other policies do further damage. Federal tariffs on construction materials, hard caps on immigration, high local permitting and building fees, and property and other taxes increase American homebuilders’ costs and thus discourage the construction of smaller starter homes with lower profit margins. National housing subsidies and city building codes preference traditional, “stick-built” homes over less expensive manufactured housing. And the U.S. government’s ownership of large amounts of land, particularly in the West, makes it unavailable for development and acts as hard barrier to the expansion of neighboring localities.
Combine state-sanctioned Realtor cartels with a witches’ brew of federal, state and local regulation, and it’s no surprise that home prices are skyrocketing today. Unfortunately, there’s no settlement amount that will change this troubling reality.
Scott Lincicome is vice president of general economics and trade at the Cato Institute.
A financial cliff may await Florida condo owners at the end of the year, as new regulations may cause association maintenance fees to skyrocket. Condo owners can take matters into their own hands to avert being shoved off the edge — but the window of opportunity is rapidly closing.
Florida has been in a state of reckoning over the last two years, after the collapse of Surfside’s Champlain Towers in 2021 set off a slew of new regulations. In the aftermath, lawmakers realized that the condominium law that allows associations to defer critical maintenance and not hold reserves for future repairs and maintenance may lead to more tragedy.
A lesson from Surfside?Underground assault from sea-level rise puts coastal structures at risk
Structures built in the 50s, 60s, and 70s have been slowly deteriorating and have become more difficult and expensive to maintain. Roofs and other components of these older buildings, meant to last 20-30 years, have been pushed beyond their lifespan. Senate Bill 4D, enacted during the 2022 session, created new standards for condo buildings over three stories tall.
Under SB4D, condo developments over 30 years old — two-thirds of all condos in Florida — must undergo inspections and immediately address critical defects. SB4D also eliminates the ability of COAs to waive reserve contributions, instead requiring that they collect the annual cost needed to repair and replace certain elements by the end of their life span, as determined by a 10-year Structural Integrity Reserve Study (SIRS).
The deadline to complete these inspections is Dec. 31, 2024. As inspection results come in, many condo associations and owners will realize the scale of the problem. Many associations may face repair costs in the millions. Even after allocating those costs among all unit owners, many owners in older buildings may not be able to afford the increased maintenance fees and special assessments to make immediate repairs.
Condo owners need to understand: they’re going to be on the hook. The state legislature is committing budget and resources to ensuring enforcement; avoidance will not be possible.
What happened in Surfside?Miami condo collapse: Damage photos, wreckage, search and rescue from Surfside devastation
Their monthly association fees will increase as the building works to replenish deficient reserves.
For millions of condo owners in Florida, the next year is going to be filled with painful choices. For many buildings, there is a silver lining – the land under their building is usually very valuable, so for most, the best chance of escaping the economic fallout will be to unite and sell the condo property to a bulk buyer rather than suffer under liens, credit hits and foreclosure.
Selling the units individually may not be an option for the majority of owners if their condos become distressed due to many owners being unable to pay their fees, as mortgage lenders are no longer willing to lend on condos in distressed buildings. The same factors that are pushing unit owners to sell will keep away buyers who can likely get property in a newer build for the same cost.
Developers, on the other hand, are likely willing to pay more for the valuable site. Of course, selling to a developer does require a fair amount of coordination. In order to get the best market value for owners, either an association needs to be united or owners need to organize to bring their property to market.
Association board members have the fiduciary duty to be proactive in bringing a proposal forward to owners, and raising the alarm about what’s to come if they believe that their condo building will not be financially viable in the future. If the value of the land that the condo complex sits on is greater than the value of the complex itself, associations need to alert owners: It is likely they’re past the point of no return.
Owners have options. They have the ability to shop for the best deal, and work out details that can be the difference between having a place to live next year and not.
But this window of opportunity won’t last forever. Once the structural studies are factored in, associations are looking at what’s likely to be a domino effect, as things like liens and foreclosures make it significantly more difficult to find a willing buyer.
Come Jan. 1, associations need to have a solution — which means that these boards need to start engaging legal counsel immediately to help understand the scope of their options, and what needs to be done in order to get owners the best deal.
SB4D is a vital update to Florida’s condominium regulations, and will undoubtedly help prevent tragedy. But the short-term impacts are going to be severe for owners.
Ignoring the problem or pushing this decision off will only worsen the outcome. Condo owners still have control over their fate but only if they act quickly.
Joseph Hernandez is a partner at the Miami law firm Bilzin Sumberg.
Realtor commission fees consumers pay to buy and sell a house could soon change.
The National Association of Realtors, embroiled in legal battles over the real estate industry’s commission structure, has reached a settlement that could dramatically slash the fees paid to agents.
NAR said Friday that the settlement would lead to it put in place a new Multiple Listing Service rule, which would prohibit offers of broker compensation.
The association’s rules do not set commission rates, NAR said, which are negotiated between consumers and their agents.
However, the real estate industry has long worked under a model of a 5% to 6% commission paid by the seller and split between the seller’s agent and the buyer’s agent.
A federal case in Missouri that challenged that commission structure led to a jury deciding in October that NAR and large brokerage firms conspired to keep costs artificially high. The jury awarded $1.8 billion in damages, which could rise to more than $5 billion under antitrust rules.
What could happen to real estate commissions?
If the class-action case settlement announced Friday is approved, the changes could dramatically lower costs for those looking to sell their home.
The settlement must still get court approval. If it gets the okay, changes would go into effect in mid July, NAR said.
“This would mean that offers of broker compensation could not be communicated via the MLS, but they could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals,” NAR said in a press release. “Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers. They are also consistent with the real estate laws in the many states that expressly authorize them.”
Commission change is good for consumers
“This is a major win for consumers,” said Ryan Tomasello, a real estate industry analyst with Keefe, Bruyette & Woods, who has written several reports about the lawsuits challenging the industry’s fee structure and effects they could have on the industry.
“The first reason it’s a win is because this is going to add much needed transparency to the process for both sellers and buyers, particularly for buyers who historically have lacked the knowledge to be able to negotiate lower commissions that could ultimately benefit them in their home closing process,” Tomasello told USA TODAY.
A key question, Tomasello said, will be whether buyers will now be strapped with an additional cost to pay their agent, which they can’t afford, or whether there will be updated mortgage writing guidelines that would allow buyers to finance their commissions.
Sellers still have the option to offer to pay for the buyer’s agent commissions and so that would occur on a case-by-case basis, he said.
In a series of reports, Tomasello has predicted the lawsuits could result in a 30% reduction in the $100 billion paid in real estate commissions by Americans every year. Additionally, Tomasello thinks the legal decisions could result in 60% to 80% of the 1.6 million agents leaving the industry.
Commissions going away?:How much you pay to buy or sell a home may be about to change. Here’s what you need to know
According to survey data from his company, close to 75% of recent homebuyers didn’t know how their agent was compensated.
Tomasello’s firm’s research shows that overall commission prices in a home sale could come down by upward of 2% or more.
Stephen Brobek, a senior fellow at the Consumer Federation of America, has said elimination of the practice of a house seller paying fees to both the seller’s and buyer’s agent will be a watershed moment for the industry.
“This settlement over time will benefit home sellers and buyers greatly, eventually lowering agent commissions by tens of billions of dollars a year and helping align agent compensation and services rendered,” he said Friday.
The changes could eventually save consumers $20 billion to $30 billion in real estate commissions each year, he said. The Consumer Federation of America has predicted commission rates could decline from a range of 5% to 6%, to 3% to 4%.
First-time homebuyers could feel pinch
But changes to the existing commission structure could create an unfair disadvantage for first-time home buyers, especially people of color, said Gary Acosta, co-founder and CEO of the National Association of Hispanic Real Estate Professionals.
“The plaintiffs and proponents of these lawsuits claim they represent consumers but in reality, they have been nothing more than vicious attacks on first-time home buyers and small businesses,” Acosta said. “In the settlement, NAR made the right choice by prioritizing the protection of its members from unfair liability, and preserving the option of broker cooperation; which reduces the financial burden on minorities and first-time homebuyers.”
Other parts of the settlement
Another new rule that is part of the proposed settlement would require MLS participants working with buyers to enter into written agreements with those clients.
Additionally, NAR will pay $418 million over approximately four years as part of the class-action settlement.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. 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,” said Nykia Wright, Interim CEO of NAR said in a statement.
Added Kevin Sears, NAR president: “This will be a time of adjustment, but the fundamentals will remain: buyers and sellers will continue to have many choices when deciding to buy or sell a home, and NAR members will continue to use their skill, care, and diligence to protect the interests of their clients.”
The settlement by NAR resolves four class-action cases filed against the organization, according to Cohen Milstein Sellers & Toll, a firm representing plaintiffs in one of the legal actions.
“Consumers have really been locked out of the process of negotiating the price for their brokers when they’re on the buyer side of housing purchases,” said Benjamin D. Brown, managing partner of Cohen Milstein Sellers & Toll and co-chair of its Antitrust practice. “Once this relief goes into effect, I think that the industry is going to develop in a new direction where there are some innovative brokerages offering lower commissions for buyer broker services.”
Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at blinfisher@USATODAY.com or follow her on X, Facebook or Instagram @blinfisher. Sign up for our free The Daily Money newsletter, which will include consumer news on Fridays,here.
Family members, lower income bidders, tenants and community development corporations will have an easier time purchasing foreclosed homes after Gov. Phil Murphy signed a bill Friday that overhauls the sheriff’s sale process.
Under the Community Wealth Preservation Program (A5664/S4240), New Jersey homeowners experiencing foreclosure, their next of kin, or tenants living in a foreclosed property would have “the right of first refusal” — or first shot when the property goes up for auction — at the upset price, which is the minimum price a seller would accept. That typically includes the outstanding mortgage, interest, fees and other costs.
The law aims to give lower-income families a leg up against large investment companies buying and flipping single-family homes at a growing rate. It lets a foreclosed-upon family, their family members, or tenants of the property to put down 3.5% at the auction, as opposed to the 20% deposit usually required.
“Black and brown wealth is hemorrhaging through the loss of foreclosed property, and the people who live in the community often do not have deep enough pockets to even participate in the foreclosure process,” said state Sen. Britnee Timberlake, D-Essex, the lead sponsor of the bill.
More:Bill headed to Murphy would help low-income bidders buy foreclosed homes in NJ more easily
“This bill is a creative opportunity for families to save their wealth at the time of a foreclosure sale by using financing,” Timberlake said. “This legislation also levels the playing field for renters, affordable housing nonprofit developers and people who want to purchase an abandoned home to restore and live in or to create affordability. This is what equity in systems look like.”
In September 2022, Murphy conditionally vetoed a similar bill (A793/S1427), writing he “wholeheartedly” supported the overarching objectives of the bill, but that he had “serious reservations regarding the legality, practicality, and unintended consequences of several of the proposed mechanisms for achieving these goals.”
New bill after Murphy’s conditional veto
In the conditional veto, he asked lawmakers to rework language dealing with caps to auction prices, and properties that don’t sell at sheriff’s sales, among other things. He struck out a section of the bill that said the upset price — or minimum price accepted by a bank — must be capped at no higher than 50% of the outstanding mortgage, interest, fees or other costs owed.
Lawmakers reintroduced a new version of the bill, as opposed to voting to accept the language, or overriding the veto, and took out the 50% cap language.
More:Murphy conditionally vetoes bill to overhaul home foreclosure. What he wants changed
“That’s the key difference and that’s the reason our opposition was redrawn and we’re neutral on it,” said Michael Affuso, head of the New Jersey Bankers Association. “That was clearly problematic, that everyone could decide to default so they could get their principal reduced.
“When something like that could happen, government-sponsored entities like Fannie Mae and Freddie Mac could look and say, ‘Wait a second, every mortgage that we own in New Jersey is potentially worth significantly less than we think it’s worth, so we’re just not going to buy mortgages in New Jersey,'” Affuso said.
The bill Murphy signed on Friday also gave the right of first refusal to tenants of foreclosed-upon properties, which was not included in the previous bill, and required upset prices be made public at least four weeks before the sheriff’s sale, among other small changes.
How it works
For those who put down a 3.5% deposit at the auction, the rest would be owed within 90 days by cash, certified or cashier’s check, or wire transfer. They can pay with financing if they plan to use the home as their primary residence for at least seven years, and provide proof they have been pre-approved by a financial institution.
They must live in the home for at least seven years, though there are a handful of hardship exemptions for homeowners, like if the bidder or their spouse or child dies, the bidder becomes disabled or loses income.
A nonprofit community development corporation would have the second right of refusal if it agrees in writing to buy the property for the foreclosed upon family, their next of kin, or the tenant. The organization must negotiate an affordable lease for the family and give them the option to buy the property back from the organization.
“For too many, the dream of homeownership feels far out of reach,” Murphy said. “We are creating a new avenue to homeownership for individuals and families throughout New Jersey, giving many the opportunity to remain in the homes and communities they cherish while also protecting our neighborhoods from rapid investor-driven homebuying.”