There has been a lot of reaction in the real estate world regarding the lawsuit involving the National Association of Realtors (NAR). The NAR agreed to a settlement of 418 million dollars to be paid out over four years. The very short gist of the lawsuit is the act of a seller being responsible for the buyer's agent's commission. The question is then what impact does the NAR settlement have on future home buyers? The significance of the settlement is still in debate. However, home buyers will need to become aware of this evolving situation and how it impacts the home-buying process. We should see a greater level of transparency but there is also some potential downside for the process.
The main focus point of the NAR is centered on the area of buyer's agent commissions. Historically, the seller paid a percentage to the seller's agent and their brokerage. The brokerage splits the proceeds to the buyer's agents. Most often, that amount was around 5-6% of the selling price. However, the settlement may introduce changes to this longstanding practice, potentially opening the door for buyers to negotiate who bears the responsibility for compensating their agent. This shift could have significant implications for both buyers and sellers, as it may impact the overall cost structure of real estate transactions.
Some of the talk around the water cooler is that buyers are going to forgo having a buyer's agent. I do not see this happening due to the myriad of laws, regulations, and complex legalese, buyer's agents will still be in demand. Buyer's agents serve as advocates for their clients and their knowledge and expertise will still be sought after. Their knowledge of the local market, understanding of contractual obligations, and ability to negotiate effectively can make a substantial difference in the outcome of a transaction. Buyers will now be able to negotiate with their agent the fees and commission rate. In this way, I think this would be beneficial for the industry, as fair competition always leads to a stronger market.
There is some speculation that due to increased scrutiny of real estate transactions, some buyers may decline the option of having a home inspection. With potential higher out-of-pocket closing costs, buyers' pockets may be not as deep as having to pay for the agents' fees. Current regulations on some home loan programs prevent closing costs from being rolled into the mortgage. The average median home price in the United States is now over $400k. If the buyer is responsible for the agent's fees and assuming that the fee is 2.5-3%, that would be an additional $10-12k cost. This is an issue that the federal government may have to step in and resolve, as I could see this potentially being the event that could cause downward pressure on the real estate market in the United States.
A home inspection is a vital tool to provide a potential buyer with a more accurate view of the overall condition of the investment. Even the most honest of sellers who disclose the known defects may not be aware of some of the issues a home inspector may find. The average price of a home inspection in Central Florida is approximately $400, which is a small sum of the $400k sale price ( 0.1%). A thorough home inspection conducted by a qualified inspector like GH Solutions in Clermont, Florida can uncover hidden problems and provide buyers with essential information to make informed decisions. Contact us to discuss all of your real estate inspection needs.
There are other issues of the NAR settlement that were not discussed in this post. For more information, please check in with the National Association of Realtors news page as well as other places you may get your news from. It is as important as ever for a home buyer to be informed with as much information as possible to fully evaluate a real estate investment. Real Estate agents are not going to go away any time soon. There is just too much knowledge and experience to discount the services they offer. However, how an agent will be compensated will be dependent upon the buyer where traditionally the seller's agent's brokerage split the fee with the buyer's agent. Shortly, there will be a need to address how a buyer's agents' compensation structures and how this evolves into a stronger market for the real estate industry. The urge to try and save out-of-pocket expenses in this new market will surely lead to fewer home inspections. However, this could be a potentially bad mistake. The information a home inspector can provide, coupled with a strong buyer's agent can help navigate the murky waters of the real estate transaction. Here at Garner Home Solutions, we value our clients and we do not seek to "kill the deal" or punish sellers. We are advocates of providing accurate, thorough information for our clients to assist with the decision-making process.
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