Buyers now have to pay, or handle a complex financial transaction themselves
of ConsumerAffairs
For decades, the home-buying process remained fairly stable. The seller paid a 6% commission to the listing agent, who shared half with the agent representing the buyer.
A court settlement ended that, after a group of sellers sued the National Association of Realtors (NAR), claiming they received no services from the buyers agent and shouldnt have to pay them. NAR settled the case and agreed to change the process.
The rules that took effect over the weekend prohibit listing agents from using the Multiple Listing Service home listing to say they will share the commission with the buyers agent. Agents working with a buyer must enter into a written buyer agreement before the buyer can tour a home. The agreement will specify how much the buyer must pay the agent.
That may sound fairly simple and straightforward, but the real estate industry experts we consulted say the rules create a lot of uncertainty for home buyers and will likely make it harder and more expensive to buy a home.
Thousands of dollars more to close
Anna DeSimone, author of Closing the Gap in HomeownershipRe-writing the Rules Against Mortgage Discrimination, says that if the buyer has to pay for the services of an agent, it will likely add thousands of dollars to closing costs. She also says the rules will disrupt the appraisal industry.
Homes that are virtually equivalent will be sold at sightly different prices, due to whether or not the seller paid the buyers agent fee, thus creating a shift in property valuation statistics, DeSimone told ConsumerAffairs.
DeSimone says there are three triggering events where buyers and sellers need to negotiate. First, when making an offer. Second, if the home inspector uncovers repairs, and the parties must agree on who bears the cost. Lastly, dealing with below-contract appraisals, which accounted for 8% of appraisals nationwide in 2023, and as high as 14% of homes in minority areas.
To create another step in having buyers and sellers enter into negotiation adds more complexityand a lot more stressto the home buying process, she said.
Affordability may get even worse
Seamus Nally, CEO of TurboTenant, says requiring buyers to pay their agent will reduce the amount of money they can spend on a house, at a time when affordability has been eroded by both prices and mortgage rates.
Buyers may be stuck looking at smaller or less valuable homes now because this will impact what they can afford, Nally said.
The alternative, says Nally, is for buyers not to have representation in what is an ever-more-complicated financial transaction.
Sellers could feel some pain, too
Kris Mullins, the chief marketing officer at Capital Max, a commercial real estate family office, says the new rules have added layers of complexity that could simply overwhelm buyers. She also says sellers, who initiated the change, may not always benefit.
Moreover, the shift in responsibility for commissions from sellers to buyers could discourage competitive offers in a hot market, Mullins said. Buyers, especially those with limited resources, might hesitate to make aggressive bids if they are also worrying about covering their agent's fees. This could lead to slower transactions and, ultimately, a less dynamic market where fewer deals are closed efficiently.
Its possible there may be new types of businesses that spring up to assist home buyers at less than the cost of a commission. One of the first is Shay, a San Francisco start-up that uses artificial intelligence (AI) to provide step-by-step guidance and tools to help buyers handle the transaction themselves.
The company says the platform will give users a customized task list that guides them through every step of a real estate transaction, from mortgage pre-approval to closing on their house. The company launched Aug. 17, when the new rules took effect.
Photo Credit: Consumer Affairs News Department Images
Posted: 2024-08-19 11:29:57
