The Impending Revolution in the US Housing Market: What Does the $418 Million Settlement Mean for Homebuyers and Sellers?
The upcoming transformation of the entire US housing market is creating ripples of excitement, particularly among homebuyers and sellers. This shift, brought about by a historic $418 million settlement between the National Association of Realtors (NAR) and several groups of homesellers, has the potential to result in a significant perk: more affordable home prices.
This settlement, which is yet to be approved by a judge, signals the elimination of the long-standing standard 6% commission paid by the seller. However, it’s important to note that these fees are often incorporated into the listed price of a home. Therefore, lower commissions could potentially lead to reduced home prices, according to real estate experts.
Amidst soaring housing costs that are contributing significantly to inflation across the country, reining in home prices could be a critical step in bringing price increases back to pre-pandemic levels. Yet, this change won’t occur overnight.
First and foremost, the settlement needs a judge’s approval and would introduce several new rules. For instance, buyers’ agents who show homes listed on multiple listing services (MLS) will no longer have prior knowledge of the commissions they’ll receive if their clients purchase those properties. The NAR, which represents over a million agents, declined to comment on whether home prices will decrease as a result of the settlement. However, Kevin Sears, the NAR’s president, stated, “The benefits it will provide to our industry are worth that cost.”
The settlement comes several months after a federal jury in Missouri found the NAR and two brokerages accountable for $1.8 billion in damages due to conspiring to keep agent commissions artificially high. The NAR was the last of the three parties to settle.
The decoupling of commissions from home prices will enable them to be negotiated down, potentially lowering both housing prices and overall consumer costs. Stephen Brobeck, a senior fellow at the Consumer Federation of America (CFA), an umbrella organization for non-profit consumer groups, estimates that in a typical year, Americans pay around $100 billion in commission fees. Homebuyers could potentially save between a quarter to half of this amount if the settlement is finalized.
However, even if the settlement is approved by a judge, the industry may employ informal mechanisms to maintain commission rates of 5-6%. Listing agents could continue to persuade sellers that their homes will sell faster if they pay for the buyer’s agent’s fee. This would result in the listing agents receiving more compensation since the total fee is then split between both parties. Additionally, buyers’ agents could simply refuse to negotiate their commission.
Despite these potential challenges, Tomasz Piskorski, a real estate professor at Columbia University, is skeptical that the settlement will significantly impact home prices. He considers it a step in the right direction for enhancing transparency for homebuyers who may have limited understanding of how sellers determined their listing prices due to commissions hidden behind the scenes.
Nevertheless, factors such as housing inventory, mortgage rates, and consumer savings rates will likely play more prominent roles in determining the future course of home prices.
