(CNN) — The seismic deal announced by the National Association of Realtors earlier this month has not yet been approved, but it is already sending shockwaves through the real estate industry.
The mere prospect of a future deal has already caused some Americans to change their behavior when buying and selling their homes. Some potential home buyers said they plan to restart their search after the new rules are in effect in hopes of finding lower prices, while some sellers aren’t waiting for the new rules to go into effect in July to reduce, or even eliminate the commission prices they offer to buyer agents.
Housing experts say the $418 million deal will effectively demolish the current real estate business model, in which home sellers pay both their agent and their buyers’ agent, which critics say inflated prices.
If approved by a judge, the deal will come with new rules for real estate agents.
“This is uncharted territory,” Debra Dobbs, a real estate agent in Chicago, said of the potential new rules.
Potential lower home buying costs
The new rules could help reduce home prices, experts say.
That’s what Jeremy Cannon, a 34-year-old teacher from Corona, California, hopes.
Last year, Cannon and his wife tried to buy their first home and submitted offers on several properties.
“All of our offers were rejected because other people were bidding higher than us,” Cannon said. “We were already trying to bid above the asking price for virtually every location.”
At that point, Cannon decided to take a break from his dream of ownership. However, the new rules established by the NAR agreement could potentially eliminate what he considered an intractable obstacle: the high cost of housing.
Selling commissions, traditionally shared between a buyer’s agent and the agent who puts a home on the market, typically range from 5% to 6% of a home’s sales price. The median home price in the United States is $417,000, according to census data, meaning the average seller could be paying more than $25,000 in brokerage fees.
Groups of vendors filed lawsuits against NAR over this practice, alleging that it constituted a violation of antitrust laws.
Under the terms of the proposed agreement, selling agents will no longer be required to offer to share their commission with buying agents, decoupling commissions from home prices and opening the door to a more competitive housing market.
Many experts believe that commission costs have been built into home listing prices. Lower commissions could mean lower home prices.
“I think it could be helpful,” Cannon said. “I hope it will be cheaper and bring house prices down more.”
He now plans to restart his house search this summer.
A price drop would be a much-needed respite for Cannon and others looking to buy a home: The median sales price of a new home has increased 21% since January 2020, according to census data.
The new rules also require agents to enter into written agreements with their buyers. Many agents plan to stipulate that if the home seller does not agree to pay their commission, the buyer will have to pay that money.
But Cannon said that if buying a home becomes more affordable, he would be willing to pay out of pocket for an agent, as long as it’s “someone who has my best interests in mind.”
Some are ahead of the new rules
Matt Hanley, 49, who works in insurance in Minnesota, has lived in his home since 2007. He became familiar with how real estate transactions work when he recently bought a new home.
“We were confused,” he said. “I thought, ‘Wow, I’m surprised the seller has to pay my agent’s commission.’ It seemed like a conflict of interest.”
Hanley now plans to put his house on the market in April. However, after the NAR deal was announced, he changed course: Instead of offering to pay a commission to be split between his agent and his future buyers’ agent, he asked his agent to write “0%—negotiable” as buyer agent commission on his home listing page.
“Why wait for a deal to be reached? This is public knowledge now,” Hanley said. “I’m going to try to get myself at the beginning of this bell curve.”
However, Hanley’s experiment may be premature. The new rules will prohibit agent compensation from being included on centralized listing portals, which some critics say led agents to offer more expensive properties to clients. But for now, buyers’ agents will still be able to see that Hanley is not offering them compensation, which could discourage them from showing his home to clients.
But Hanley pointed to the favorable conditions as a reason he believes buyers may still consider purchasing his home, even if they have to pay their real estate agent out of pocket.
“We have everything going for us. We have no inventory in our area and we’re selling at peak time, so we said, ‘Let’s try it,'” he said. “If someone really wants it, they will pay their buyers’ fee.”
“They should inform their agents, we should inform ours,” he added.
“It will take more than a simple sentence”
Mariya Letdin, associate professor of business at Florida State University, said this agreement has helped raise awareness that people have the right to negotiate. Still, Letdin said the status quo is likely to remain.
“It’s up to consumers, both the sell-side and the buy-side, to put this into widespread use,” he said. “I think it’s going to take more than just a ruling. I think it’s going to take consumers standing up for themselves and not being passive.”
“They now have a legally protected voice and they should use it if we want change to happen,” Letdin said.
The potential changes in the real estate industry brought by the National Association of Realtors’ deal have already started impacting how buyers and sellers approach their transactions. As the industry awaits the final approval of the $418 million agreement, the future of home buying and selling could be in for a significant shift.