(CNN) — The billion-dollar antitrust ruling against the National Association of Realtors (NAR) late last year led to a settlement Friday that will loosen the powerful trade group’s control over the U.S. real estate market. Joined.
The $418 million deal with a group of home buyers is expected to take effect around July, pending judge approval. The agreement would replace a series of rules and guidelines established by the NAR that critics say keep housing prices artificially high.
Bottom line: 6% commission, split between buyer’s and seller’s agents, will no longer be the norm. Agent commissions are expected to drop dramatically in some cases, as they will be competitive and negotiable, and sellers will be able to shop around for better rates. And other agent strategies that critics say are anti-competitive would be banned, such as a rule that requires sales agents to set buyer agents’ compensation.
It’s not all good news: In the future, buyers may have to pay their agent directly, which could be difficult for buyers who used to finance that commission as part of their mortgage.
And some buyers may skip using the middleman altogether. Plus, a lot of agents are probably on the verge of quitting.
But the biggest benefit for home buyers is undoubtedly the welcome one. The total cost of purchasing a home should be thousands of dollars less on average.
Goodbye to 6% commission
For decades, Americans have paid a standard commission of about 6% when selling a home, split between the seller’s agent and the buyer’s agent. The National Association of Realtors and its 1.5 million agents say those commissions are negotiable. But some NAR rules keep commissions quite high compared to other countries, where they can average around 1% or 2%.
After the deal, those commissions will be fully competitive, meaning agents will be able to advertise their rates to potential sellers and people will be able to buy at cheaper prices.
According to TD Cowen Insights, real estate commissions are expected to fall between 25% and 50% due to the new regulations.
Buyers have to make payment to their agents only
Without guidelines requiring buyer’s and seller’s agents to split commissions equally, home buyers may have to change the way they pay their agents.
Typically, a 6% commission on the total cost of the home (usually 3% for the seller’s agent and 3% for their own agent) was passed on to the buyer, which the buyer could repay over the decades on their mortgage.
But once the deal is finalized, buyers may have to pay their agents in new ways; Perhaps, including a flat rate. Another new rule will require buyers’ agents to sign written agreements with their buyers.
While this will bring transparency to the home buying process, it can be costly, especially for first-time buyers, many of whom are already struggling to raise all the money needed for a down payment, closing costs, an attorney, and Are. All other expenses related to the purchase of the house.
New rules for agents
One rule that particularly irks NAR critics is being eliminated: the requirement for sales agents to declare the commission they will pay to the brokerage. NAR now prohibits brokers from advertising that compensation.
According to affordable housing advocates, this rule had two negative consequences for buyers. First, it kept the commission artificially high. Secondly, it induced purchasing agents to impose more expensive houses on buyers, so that their remuneration would be higher.
buying a house should be cheap
Final question: Will it become cheaper to buy a home? Almost all industry experts hope the answer is yes. As brokers become more competitive, commissions may drop significantly.
For the average price of a home for sale in the United States (US$387,000), sellers pay more than US$23,000 in brokerage commissions. These costs are passed on to the buyer, increasing the price of housing in the United States. Those fees could be reduced by between $6,000 and $12,000, according to an analysis by TD Cowen Insights.
Overall, this will save a lot of money. According to Stephen Brobeck, a member of the Consumer Federation of States Unidos, a group of nonprofit consumer organizations, Americans pay about $100 billion in fees each year, and home buyers get a quarter to a half of that amount after the deal closes. Can save part.
Brokers likely to step down
The new reality may be difficult for agents, especially those who don’t sell many homes.
US home purchases fall to a 30-year low in 2023 as supply shrinks, mortgage rates rise and home prices rise in most areas of the country.
Although the drop in commissions may persuade some buyers and sellers to return to the market, Norm Miller, professor emeritus of real estate at the University of San Diego, said the deal could lead to a mass exodus of brokers from the industry.
Miller estimates that half of the approximately 2 million agents in the United States could leave because the new rules would prove impractical for many brokers.
Indicative of how much this decision has already rattled the industry, shares of real estate companies like Zillow, Compass and Redfin fell 13%, 14% and 5%, respectively, on Friday, and Zillow and Redfin on Monday. Even more fell.
—CNN’s Matt Egan contributed to this report.
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