By Aarthi Swaminathan
"I hope that the presiding judge rejects the agreement," says the economist
Following a landmark deal reached by the country's largest real estate industry group, the housing market is on the brink of a major shift that is about to alter the way people buy and sell homes.
But the proposed new deal could quickly burden buyers with additional costs, one professor says.
The deal announced by the National Association of Realtors, which will go into effect in mid-July if approved, would require that listings on the NAR-run multiple listing service - a database of homes for sale - no longer show how much money buyers paid. 'Agents will earn commissions on the sale.
In other words, buyer's agents will not be offered upfront compensation.
Although real estate agent fees are technically negotiable, they typically range between 4% and 6% of a home's sales price, depending on local market customs. Home sellers traditionally pay these commissions, which tend to be split between the buyer's and seller's agents, while buyers pay nothing to the agent.
The deal is considered a victory for home sellers, as homeowners will no longer be required to offer a commission to the buyer's agent, saving thousands of dollars in fees.
But disrupting the status quo for homebuyers is "a Venus flytrap situation," Ken Johnson, a real estate economist at Florida Atlantic University, said in a statement.
The Venus flytrap is a carnivorous plant that traps and consumes insect prey. In Johnson's analogy, insects are home buyers.
While it may seem easy enough for buyers to approach home listing agents directly, "buyers are entering situations where they may not be equipped to get the best deal possible," Johnson said, and " they go directly to a sales agent. "Whoever represents a seller in the legal sense puts the buyer at an extreme disadvantage in terms of bargaining power and knowledge of the market."
More costs for buyers
While the new rules would not prohibit sellers from offering to pay the buyer's agent, many sellers may not do so. That would mean home buyers will have to foot the bill for their agents' fees themselves.
For a $400,000 home, paying a 3% commission to a buyer's agent would add $12,000 in additional expenses for an aspiring homeowner, who also has to cover the down payment, closing costs and other fees associated with purchasing a home. home.
Without a doubt, commissions have been and will continue to be negotiable. And while buyers may offer a much lower rate to their agent, the lower commission could also mean that buying a home takes much longer. "Buyers will almost certainly have to negotiate with more sellers before they find the deal they are happy with," Johnson said.
Buyers will also have to sign written agreements with their agents stipulating how much their services will cost, according to the proposed agreement. But that raises questions about who actually represents the buyer when an agent has conflicts of interest. "Yeah [a buyer works] with an agent exclusively, what happens when the selling agent is also engaged with other buyers? What happens when two of the selling agents' buyers want the same property?" Johnson asked.
Some real estate CEOs, like Redfin's Glenn Kelman, have said the proposed deal won't necessarily be a game-changer, but will lead to greater awareness about fees.
Ultimately, "this will just lead to a less efficient housing market without a reduction in costs," Johnson said. "I hope the presiding judge throws out the agreement."
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-Aarthi Swaminathan
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