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Homebuyers' High Hopes Dampened by Realities of Realtor Settlement Impact
Ticker Tea
March 25, 2024
📝 SUMMARY: The National Association of Realtors’ (NAR) recent class-action settlement over agent commissions, hailed by figures like President Joe Biden and former Treasury Secretary Larry Summers for its potential to offer substantial savings to homebuyers, faces skepticism from experts regarding its actual impact. The settlement arrives amidst a tough housing market, characterized by high mortgage rates and historically low affordability, particularly affecting first-time buyers. Despite optimistic projections, such as Biden's example of $10,000 savings for homebuyers and Summers' prediction of $100 billion in savings over time, the reality may be less rosy.
Experts caution that lower commissions resulting from the settlement might not necessarily translate into lower home prices. Sellers, accustomed to a commission structure that sees them paying 5% to 6% to their agents—who then share it with the buyer’s agent—may not be inclined to reduce prices, even if their costs decrease. The NAR asserts that agent commissions have always been negotiable and dismisses the idea that they significantly impact affordability.
The settlement, which includes a $418 million payout by the NAR and changes to commission disclosure rules, aims to encourage more competition and potentially lower commissions. However, the impact on home prices is expected to be modest, according to Moody’s Analytics Chief Economist Mark Zandi. The adjustment process to the new commission structure is anticipated to be gradual, with sellers likely reaping most of the benefits rather than buyers seeing substantial savings.
Furthermore, the settlement has spurred discussions among real estate professionals about the future of commission sharing and how agents can demonstrate their value to consumers. While some industry players foresee minor adjustments, others predict a more profound shift in how real estate transactions are conducted. Nevertheless, the consensus among experts and observers is that significant changes to the industry’s commission-based model will unfold slowly, leaving consumers to navigate a landscape filled with uncertainty and incremental reforms.
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