What’s About to Change for People Buying and Selling Homes

IIt was big news at the time: the National Association of Realtors (NAR) agreed in March to pay US$418 million and make changes to the way the home buying process works in order to resolve a class-action lawsuit that alleged the industry conspired to raise agent commissions higher than necessary.

The provisions of the agreement come into force on August 17. For now, what consumers can expect is more paperwork and potentially more confusion.

“This is a great social experience,” says Leo Pareja, CEO of exp Realty, one of the largest real estate brokerages in the country. “None of us know what’s about to happen.”

Buyers now need to sign a contract

Here’s how the process worked: A seller’s agent would list a home on an MLS, or multiple listing service, which is a database of properties for sale. These listings would indicate that the seller of a home would pay a certain amount to compensate the buyer’s agent. This compensation used to be about 3% of the sales price, which was also what the seller’s agent would receive from the seller. (Average value varies between jurisdictions and even from sale to sale; some agents also received flat fees.)

Technically, these fees were negotiable. But most owners didn’t know this or think they could negotiate. Additionally, home sellers allege, real estate agents sometimes “steered” buyers to specific homes based on the amount of compensation they could receive. Starting Aug. 17, real estate agents cannot list any type of broker compensation when they list a home on multiple listing services, a change intended to eliminate the guidance.

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Additionally, both buyers and sellers are now required to sign a written agreement with their agent. before the agent shows them a property or assists with a transaction. The buyer side is more consequential – most sellers have signed these contracts in the past, but few buyers have. In a new buyers’ contract, sometimes called an “exclusive representation agreement,” the buyer agrees to work with the agent for a set period of time. Most importantly, the buyer and agent also agree on how the agent will be compensated, whether through a flat fee, a specific portion of the purchase price, or another method. Agents must also make it clear in this contract that broker commissions are fully negotiable, a change that consumer advocates hope will lower commissions — and prices.

Many real estate agents say the changes are positive, including Jennifer Stevenson, a real estate agent in upstate New York and regional vice president of the National Association of Realtors. “It makes the process better,” she says. “Clients will understand exactly what is expected of me and what I am offering them as a service.”

But others aren’t so sure the changes will be positive for consumers. Realtor associations across the country have released draft contracts that are extremely long and written in difficult-to-understand legal terms, says Tanya Monestier, a law professor at the University at Buffalo. The North Carolina Association of Realtors’ draft buyer’s contract, for example, is seven pages long.

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Monestier reviewed the California Association of Realtors (CAR) draft agreement for the Consumer Federation of America, and issued a report criticizing the agreement for being opaque – so opaque, in fact, that Monestier says he had difficulty reading the document. “No salesperson will read this monstrous document – ​​much less be able to understand it,” she concluded.

Not all new buyer forms are this dense. Monestier says he reviewed some forms that were clear; those from Exp Realty, for example, are just two pages long and explicitly explain the responsibilities of the buyer and seller. Exp has made these forms available to any company that wants to use them, says Pareja, the CEO.

Pay may be changing

Before the NAR agreement, it was standard for the seller to pay both the seller and the buyer’s agents. That may not be the case going forward.

In tight real estate markets, sellers may refuse to pay the buyer’s agent because they have too much interest in your home. Instead, broker fees may become a larger part of the negotiation when people buy homes. If a buyer really wants a home, for example, they might offer to pay the seller’s agent’s fees and include that provision in their offer letter. On the other hand, if a seller in a slow market is desperate to get rid of their home, they may offer to pay the buyer’s agent’s fees — although the agent may not disclose this in the listing.

Monestier says he also expects there will be more buyers who choose not to have an agent at all because they don’t want to be on the hook for agent fees. This could potentially lead to less work for many of the real estate agents out there.

Above all, the settlement could reduce compensation for both the buyer’s and seller’s agents. Academic articles have predicted that rates could decrease by 30-50% as a result, which would also end up reducing house prices.

Of course, it’s possible that old habits are hard to break and that little changes. Sellers are accustomed to paying brokerage fees to buyers and may continue to do so. Even if everyone involved knows they can negotiate.