A recent settlement by the National Association of Realtors (NAR) has been hailed as a win for homebuyers and sellers, but some experts warn that it could have unintended consequences for certain vulnerable populations. The $418 million settlement will eliminate long-standing rules on broker commissions and potentially increase price transparency in the real estate market.
The process of buying a home has seemingly never been simpler: Find a property on a listings website like Zillow, Redfin or Trulia; reach out to the listing agent; tour the property; and make an offer. However, for years behind the scenes, experts say consumers have not been fully aware of the ultimate cost and potential conflicts of interest when searching for a home.
Under NAR's new deal annual commissions could fall more than 30%, KBW predicted. One trend that could likely come out of this is that sellers would rarely pay buyers’ agent commissions, leaving that responsibility to homebuyers. With less business to go around, buyer agents will have to compete for buyers by lowering commissions.
However, some vulnerable segments of the population, including veterans who are prohibited from paying fees or commissions charged by a real estate agent under VA loan rules, could be left worse off. Jason Sharon, a US Navy veteran and owner of Home Loans Inc., said his gut reaction was: 'It is going to abandon veterans.'
The NAR settlement requires that a buyer sign a formal contract with a broker laying out what services they will be receiving and for how much. Alternatively, a homebuyer could decide not to hire a broker and instead put their search costs toward someone else with knowledge of the housing market.
While the settlement may not directly affect New York City buyers and sellers, its impact is expected to ripple across the nation. Earlier this year, REBNY rolled out new rules on how it will govern agent commissions on home sales. But it's far from clear - even to REBNY affiliates - how the developments will alter the industry.
REBNY was founded in 1896 and seceded from NAR in the 1990s. The organization, which oversees licensing requirements and sets rules and regulations in New York City real estate, represents more than 15,000 local real estate professionals and more than 800 different brokerages. REBNY also operates the Residential Listing Service (R.L.S.), which gives members access to exclusive listings.
But this doesn't mean REBNY and its members won't be impacted by the NAR ruling. 'Everyone is going to be affected by the ruling because they're going to be worried about being sued in the same way,' said Sonia Gilbukh, an assistant professor of real estate at CUNY Baruch College, Zicklin School of Business.
The settlement could present a major downside to homebuyers. Under the current system, the buyer’s agent’s commission is baked into the total they pay for a home. That meant buyers could pay that added cost over the entire length of their mortgage. But after the settlement is finalized, many may have to pay flat fees upfront to agents. That would add to the financial burden for homebuyers - especially first-timers.
