Seismic Definition: seismic shift in the real estate market

Seismic Definition: seismic shift in the real estate market Now

The real estate industry may undergo substantial changes as a result of a significant settlement that the National Association of Realtors (NAR) and home sellers reached on Friday.
It’s still unclear what the $418 million settlement will actually mean for the US housing market.
However, a significant cost that Americans incur when selling their homes will be reduced thanks to NAR’s decision to abandon long-standing regulations controlling broker commission fees.
According to Vasi Yiannoulis-Riva, a partner in the Withers law firm’s New York real estate team, “it’s totally upended the current system as we know it,” as reported by The Hill.
The deal resolves four antitrust cases that the influential real estate association was involved in, alleging that it collaborated with brokerage houses to create regulations mandating buyer broker fees from house sellers, leading to exorbitant prices.

Currently, the majority of home sellers split commission fees between their own broker and the buyer’s broker, amounting to roughly 5 to 6 percent.
This could result in fees of $50,000 to $60,000 for a $1 million home.
When a seller first lists a property, they are obliged by the recently repealed NAR rules from the 1990s to cover the cost of the buyer’s broker and to offer a commission to the buyer’s broker.
The Realtor Association, which refuted any misconduct, contended that these regulations “assist in increasing fair housing opportunities, decreasing costs for home buyers to secure these services, and increasing the potential buyer pool for sellers.”
But since buyer brokers would be more likely to show homes with higher fees to prospective buyers, the lawsuits claimed that this encouraged sellers to offer higher commission fees to buyer brokers.
Professor of real estate at Columbia Business School Tomasz Piskorski stated that buyers and sellers lose some money as a result of having to pay these agent fees that would otherwise be waived.

Polunsky Beitel Green principal Marty Green stated that buyer broker fees are likely to be “more heavily negotiated” and lowered after the settlement.
Piskorski predicted that broker commission fees may decrease by 20 to 30 percent as a result of the NAR’s decision to do away with these regulations.
According to Yiannoulis-Riva, this might also cause a “pretty seismic shift” in the way home buyers negotiate commission costs with brokers or decide not to work with one at all.
Since there is a lot of work involved in getting a house ready for sale and marketing, it is easier to see the value that a broker adds, she said.
“I think on the sell side, you’re still going to see sellers entering into agreements with selling agents,” she said.
Piskorski observed that with the introduction of new technology, buyers are finding homes more and more independently, bypassing real estate agents in the process.
He remarked, “It’s very difficult to argue that these fees should be as rigid as they are.”

Although he believes the change will help consumers by bringing down the cost of homeownership, Piskorksi stated he does not anticipate a “dramatic change in home prices.”
“It’s definitely good for consumers because the $20–30 billion that real estate agents get paid annually might end up staying with the homeowners,” he stated.
However, Piskorsksi continued, “I don’t think it will address the purported affordability issue in the United States.
“I don’t see it as a game changer in this regard, but I think it will increase liquidity, may encourage housing turnover, and maybe a little bit more listings.”
Since the start of the pandemic, housing costs have increased dramatically, which has slowed new construction while increasing demand due to low interest rates.
According to NAR data, the average cost of an existing single-family home in January was $379,100, which represents a 5.1% increase from the same month last year.
In the fourth quarter of the previous year, home prices increased in 85% of American cities, with double-digit increases recorded in 15% of those cities.
In the last two years, the Federal Reserve has raised interest rates to a two-decade high, which has caused mortgage rates to rise above 7%.
Piskorski and Greene both emphasized that the NAR settlement changes won’t occur “overnight.”

According to a statement from Green, “the industry will be in transition as everyone digests the settlements and market forces begin working.”
Following the discovery by a federal jury in October that the realtor group had colluded with brokerage firms to inflate commission fees, Green stated that the settlement was probably the “only viable resolution” for NAR.
It was ordered to pay $1.8 billion in damages, which under antitrust law could have been tripled to over $5 billion.
“A global settlement including NAR was the only viable resolution, as has been evident since the jury in Kansas City delivered a multi-billion dollar verdict, after barely a few hours of deliberations,” according to a statement from Green.
“In my opinion, NAR made the right decision in settling the claims because, despite being incredibly costly, the settlement offers a way for NAR to assist the industry in moving toward a new commission structure that is more negotiable,” he continued.
In a statement released on Friday, Nykia Wright, the NAR’s interim CEO, stated that pursuing the lawsuit would have ultimately “hurt members and their small businesses.”
“This agreement is the best result we could achieve under the circumstances, even though there could never be a perfect outcome,” she stated.
“It offers a way forward for NAR and our industry, which accounts for almost one-fifth of the US economy.”