By: Joseph Goldy, CFP®
The recent settlement between the National Association of Realtors (NAR) and various plaintiffs marks a significant turning point in the real estate industry.
This agreement, which resolves allegations of anti-competitive practices, took effect on August 17th and could substantially change how homes are bought and sold across the United States.
Key Changes from the NAR Settlement
Increased transparency in real estate commissions
Potential decoupling of buyer and seller agent commissions
More flexibility in fee structures and services offered by real estate agents
These changes aim to create a more competitive and consumer-friendly real estate market. However, they can have the potential to significantly alter the dynamics of the home buying and selling process.
Impacts on Home Sellers
Commission Negotiations
Sellers will likely find themselves in a new position regarding commissions. Traditionally, sellers have paid the commission for both their agent and the buyer's agent. With the new changes, sellers may have more flexibility in negotiating these fees and may not pay the buyer's agent's commission. This could lead to lower overall selling costs and require sellers to be more savvy in their negotiations.
Sellers might consider offering different commission structures to attract buyers' agents, potentially impacting how quickly and effectively their property is shown and sold. They'll need to balance the desire for cost savings with the need for effective marketing and representation.
Pricing Strategies
The potential for lower commissions could influence how sellers price their homes. Some may price their homes slightly lower, passing on the commission savings to buyers to make their property more attractive. Others might maintain higher prices, using the potential for commission savings as a negotiation tool.
Marketing Responsibilities
With the possibility of more varied service offerings from real estate agents, some sellers might opt for lower-cost, limited-service options. This could mean more responsibility for marketing their home, from staging to photography to hosting open houses. While this approach might save money, it also requires more time and effort from the seller.
Impacts on Home Buyers
Agent Selection and Compensation
Buyers may find themselves in unfamiliar territory when selecting and compensating their agents. If buyer agent commissions are decoupled from seller commissions, buyers might be responsible for paying their agent's fees. This could lead to more careful consideration of which services they need and are willing to pay for.
Buyers may need to budget for these potential out-of-pocket expenses, which could impact their overall home-buying budget. However, it might also give them more control over the quality and extent of services they receive.
Negotiation Dynamics
The changes could shift the dynamics of price negotiations. If buyers are responsible for their agent's commission, they might try to factor this cost into their offers. This could lead to more complex negotiations, with the total cost of the transaction (including commissions) becoming a more prominent part of the discussion.
Access to Information
One positive outcome for buyers could be increased access to information about commissions and services. This transparency might help buyers make more informed decisions about which agents to work with and what services they need.
General Market Impacts
Diversification of Services
We'll likely see a proliferation of service models in the real estate industry. Some agents might offer a la carte services, allowing clients to pick and choose what they need. Others might provide full-service packages at competitive rates. This diversity could benefit buyers and sellers by enabling them to tailor the real estate services to their needs and budget.
Emphasis on Value-Added Services
Real estate professionals may focus more on providing value-added services to justify their fees in a more competitive environment. This could include more comprehensive market analyses, advanced seller marketing strategies, or in-depth buyer neighborhood insights.
Potential for Lower Transaction Costs
While not guaranteed, the increased competition and transparency could lead to lower transaction costs in the real estate market. This might make homeownership more accessible for some buyers and help sellers retain more of their home's value.
Overall, the NAR settlement is set to usher in a new era in real estate transactions. While these changes aim to create a more transparent and competitive market, they also introduce new complexities for buyers and sellers. As the market adapts to these changes, we may see further innovations in how homes are bought and sold.
Both buyers and sellers will need to educate themselves about these changes. At HIGHLAND, we work with clients who may be buying or selling a home to ensure they understand the new dynamics of the real estate market and how these changes may affect their financial plans.
Joseph Goldy, CFP®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.