It seems like the process of buying a home has never been easier: Search for a property on a listings site like Zillow, Redfin, or Trulia; Contact the listing agent; Take a tour of the property; And make an offer.
But experts say that for years behind the scenes, consumers were not fully aware of the ultimate cost — and potential conflict of interest — when searching for a home.
Now, a landmark settlement with the National Association of Realtors is poised to upend that model. According to consumer advocates and even some Realtors, this is a win for homebuyers and sellers.
“Price transparency is good, increased competition is good, and this will increase both,” said Maria Litden, an assistant professor at Florida State University's College of Business Administration. “I really welcome this change.”
When someone is looking for a home today, in most cases they are intercepted by a broker who has access to certain listings and will work with the buyer at no upfront cost to help them land a home.
But experts interviewed by NBC News said there is a common misconception. Although a homeowner putting his property up for sale must hire professionals to market his home, he or she usually adds this cost to the final price the buyer pays.
“The buyer brings the full purchase price to the table,” Litden said. “The seller is entitled to keep a little of that after this ruling.”
As part of the new settlement, the buyer must now be fully informed in advance of any potential fees or commissions he or she will eventually have to pay.
This is because the agreement requires that the buyer sign a formal contract with a broker specifying the services he will receive and their price.
Alternatively, a homebuyer could decide not to hire a broker and instead pass on the search costs to a real estate attorney, real estate appraiser or someone else with knowledge of the housing market, experts say.
The seller can offer to cover the cost of the buyer's team as an incentive to attract more buyers.
Of course, for a property that is getting a lot of interest, these buyer incentives are unlikely to be on the table.
In the months following the COVID-19 reopening, the hottest U.S. real estate markets have been skewed squarely in favor of sellers.
But now, with home price growth stabilizing, the playing field has also leveled, putting more buyers in the driver's seat, experts say.
“You can now hire a lawyer for $1,500, instead of paying a $50,000 commission,” said Doug Miller, a Minnesota-based real estate attorney who helped launch the proceedings that led to the NAR settlement.
Whichever prospective buyer chooses as their representative in the home buying process, the NAR settlement now formally prohibits a seller's ability to advertise a commission to buyer representatives in the multiple listing service.
For its part, NAR maintained that the free market had always determined commission levels, and that they had always been negotiable—even beneficial.
“Compensation offers help make professional representation more accessible, reduce costs for homebuyers to secure these services, increase fair housing opportunities, and increase the pool of potential buyers for sellers,” NAR said in its March 15 statement announcing the agreement.
But in most cases, there was little variation in the amount offered for those commissions in a given market – usually around 3%.
This is because any attempt to offer a lower commission to a buyer's agent will likely motivate the agent to steer their client away from that property.
Miller described this behavior as inappropriate and said that buyers, in many cases, were not aware of it.
“The future here is that buyers will now be in the driver's seat,” Miller said. “Instead of that money (commission) going to their agent… it can now go directly to the buyer. It's the same amount of money, but now the buyer gets the money instead of the buyer's agent, and they can decide what to do,” he added. with her.”
Moreover, greater competition for clients will likely lead to lower costs across the board, said Ryan Tomasello, a real estate industry analyst at financial firm Keefe, Bruyette & Woods.
“When you bring a lot of transparency to a market that has historically lacked it, any economist will tell you that it reduces frictional costs — that is, commissions — which are some of the highest in the world,” Tomasello said. “So the total cost of buying and selling a home, in theory, will go down.”
Many experts, including other real estate professionals, agree that the settlement would effectively thin out the ranks of overnight travel agents who served as middlemen — a phenomenon that has been on the rise during the pandemic-era housing boom.
“A lot of people came down during 2020-2021 trying to make easy extra money by putting themselves out there as a buyer's agent and getting 3%,” said Phil Crescenzo Jr., vice president of the Southeast division at Nation One Mortgage Corp. .
“But they didn't bring 3% of the value, not even close to that.”
Crescenzo compared it to the mortgage brokers who helped fuel the housing bubble in the mid-to-late 2000s.
“Once the compensation rules changed, the dominant professionals rose to the top, the bottom disappeared, and the industry improved,” Crescenzo said.
