Last week, the National Association of Realtors, an organization that represents the interests of professionals working in real estate, decided to make a huge change in how people who sell houses get paid. Instead of always charging a certain percentage, now they’ll have to talk it out and agree on the amount. This is a big deal because it could make selling houses more like a fair game, with new companies and ways of doing things shaking up an industry that’s been doing things the same way for a long time.
Imagine if selling a house got cheaper like when buying stocks online made trading cheaper. This change could mean people selling houses could keep more money from the sale, but it’s a bit more complicated for buyers.
Right now, when someone sells a house, they usually pay a fee that’s between 5% and 6% of the house’s selling price. This fee is split between the agent helping to sell the house and the agent helping the buyer. But there’s a catch: this setup could make it seem like the buyer’s agent is really working for the seller because the seller always ends up paying for the buyer’s agent’s fee, which some people think isn’t fair (though the agents say they’re doing their best for buyers).
A big part of how this works is through a database where agents list houses for sale, which includes how much the buyer’s agent will get paid. This setup could make agents prefer houses that pay them more, even if it’s not the best deal for the buyer. With the new changes, this part of the listing will go away, meaning the way buyer’s agents get paid might change a lot.
Some ways this could happen include the buyer paying a flat fee, a percentage of the sale price, or an hourly rate for their agent’s help. Or they might not use an agent at all. While sellers could still end up paying for the buyer’s agent, it would need to be agreed on separately from the start.
So who benefits from all this? People selling houses could end up with more money in their pocket. New online and discount real estate services could also win big. But for first-time buyers or those without a lot of money, it might get tougher because they’ll have to pay for an agent themselves, making it harder to save for things like down payments.
Experts think that the fees for real estate agents will drop significantly, maybe to as low as 1% to 1.5% on each side of the deal. However, don’t expect things to change overnight. It will take time for the real estate market to adjust to these new rules, and there might be some pushback from within the industry.
This article is based on the following article:
https://www.axios.com/2024/03/18/nar-settlement-home-buying
Background Information
With this background, readers can better grasp the significance of the settlement and its potential to transform the real estate industry, making it more competitive and possibly reducing costs for consumers.
1. Real Estate Agents and Realtors
- Real Estate Agents are professionals who assist in buying, selling, or renting properties. They are licensed to represent buyers and sellers in real estate transactions.
- Realtors are real estate agents who are members of the National Association of Realtors (NAR), adhering to NAR’s code of ethics. Not all real estate agents are Realtors, but all Realtors are real estate agents.
2. How Commissions Work
- Commission-Based Payment: In real estate, agents typically get paid through commissions. This means they receive a percentage of the property’s sale price as their payment. It’s common for a total commission to be around 5% to 6% of the sale price, which is then split between the buyer’s agent and the seller’s agent.
- Seller Pays the Commission: Traditionally, the seller of the property pays the commission, which is split between their own agent (the listing agent) and the buyer’s agent. This cost is often factored into the sale price of the home.
3. The Lawsuit and Settlement
- Lawsuit Against NAR: The lawsuit mentioned in the article was brought by sellers against the National Association of Realtors. The sellers argued that the standard commission model, effectively set by NAR rules, made commissions non-negotiable and inflated the costs of selling a home.
- Settlement Implications: The settlement means that the way commissions are paid could change, potentially leading to more negotiation on commission rates and how they’re distributed. This could introduce more competition and lower costs in the real estate industry, similar to how online platforms have reduced fees in stock trading.
4. Implications of the Settlement
- Potential for Lower Commissions: With the settlement, there’s an expectation that commission rates could become more negotiable, potentially lowering the cost of selling a home.
- Impact on Buyers and Sellers: Sellers might save money on commissions, which could make selling a home less costly. Buyers might see changes too; for instance, they might need to negotiate agent fees or pay their agent directly.
- Emergence of New Business Models: The settlement could lead to the growth of online and discount brokerages, offering lower commission rates and different service models.
5. Understanding Market Competition
- Tightly Controlled Market: Before the settlement, the real estate market was described as tightly controlled, with little room for negotiation on commissions. This limited competition among agents and brokerages.
- Opening Up the Market: The settlement is seen as a way to open up the market to genuine competition, allowing for new players and business models to emerge. This could make the real estate industry more dynamic and consumer-friendly.
Debate/Essay Questions
- It seems that the traditional role of real estate agents needs to evolve in response not only to the change discussed in this article, but also to technological advancements and changing consumer expectations. How should it change?
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