What’s going on with the real estate industry NAR settlement and interest rates?

This last week has been one wild ride for the real estate industry and I’m here to break down the announcements and shed some light on recent events.

First, on Friday of last week it was announced that the National Association of Realtors (NAR) has agreed to a $418 Million settlement in the case pertaining to collusion amongst real estate agents and the commissions they charge. This case was presented against NAR and others claiming that Realtors have set fixed commission rates and that sellers should not be responsible for compensating a buyer’s broker. The settlement outlines some important changes to the way Realtors can advertise commissions through the MLS and how Realtors representing buyers will need written agreements, all to go in effect in July of this year.

Second, the FOMC announced that it would leave rates alone this past week citing hotter than anticipated consumer index data and inflation. Although this wasn’t the news most were hoping for given the original expectation of a reduction in March, there is still light at the end of the tunnel with an expectation of three reductions in 2024.

NAR Settlement Breakdown and Insight

Although the NAR settlement is big news, it wasn’t as surprising as news outlets lead you to believe. The information coming from news outlets is lacking proper context and leaving out key factual information to spin their narrative to obtain more readers. I want to breakdown the facts and the proposed changes to help provide better insight            

• 6% Commissions: Every article I’ve read is referencing “No more 6% commissions” for sellers selling homes. 6% commissions have never been “set” or “standard” in the industry and have always been negotiable. Sellers have always had the right and the ability to negotiate the commissions paid to their brokers and have always had the opportunity to offer, or not offer, a commission to a buyers agent.
• Buyers Agents Commission to be paid by the buyer: All of my buyer contracts are written on state mandated and drafted forms. They state that although their agent will try and collect their commission from the listing agent or seller, the buyer is obligated to pay the commission if the seller or listing agent do not. This has been the case for over 10 years in all of the states that I work in, so this is not a new change or idea, although it’s being presented as one. Buyers can agree to a commission rate negotiated with their broker and then their broker will attempt to gain compensation from the seller or their agent.
• Sellers can no longer advertise buyers brokers compensation in the MLS: This is the one part of the settlement that I don’t fully understand or agree with. As I stated above, buyers brokers execute agreements with their buyers that include a commission rate prior to contracting with the buyer on a home. As a buyers broker I let my buyers know prior to even looking at a home if the seller is willing to compensate me for my services. I’m able to do this because the seller and listing agent are able to advertise the fee they are willing to pay in the MLS, so it creates full transparency for myself and my buyers so I can provide factual, advertised information. The way the NAR settlement reads is that a buyers broker commission is to be REMOVED from the MLS, meaning there is no advertised buyers broker compensation, meaning no transparency. I understand the idea of “de-coupling” commissions as written in the settlement, but I can’t understand why removing transparency from a real estate transaction is considered a benefit.

Insight

There’s still a lot to understand and to work through from the settlement and it’s hard to know the exact impact to the industry at this time. My expectation is that these “changes” will prompt a large industry exit for Realtors that are either unable or unwilling to work within the new rules. Sellers who choose to offer no buyers broker compensation will likely see their homes sit on the market longer or sell for a lower average price as buyers expect a reduction of the sales price to cover brokers expenses. Buyers that choose to be unrepresented will likely expect sellers to reduce their sales price by 2-3% since they don’t have the cost of a broker. Buyers will undoubtedly be the hardest hit by the settlement, making the path to homeownership even more challenging.

I believe that the best path forward is transparency in the market and the discussions between Realtors and their clients. I have always been transparent with my clients and I will continue to do so in an effort to provide the best service possible to buyers and sellers.  

FOMC meeting breakdown and insight

The FOMC’s decision to hold rates steady this month was an expected one given recent, hotter than expected CPI and inflation data. It had been previously stated towards the end of 2023 that rates would begin to fall in March of 2024, but this has since been postponed by the FOMC. The large positive takeaway from the meeting was that the FED chair still expects to reduce rates 3 times in 2024. Stocks rallied following this news and mortgage rates took a dip that will likely remain fairly steady until the next meeting.

Insight

The real estate market is changing and those that don’t own homes are paying the price. Interest rates are a key component in affordability and historically high rates have forced many potential buyers to continue renting for what feels like the foreseeable future. Although there is light at the end of the tunnel with rate reductions this year, rates will likely remain above 5.5% for the remainder of 2024. High rates and high home prices, along with higher taxes, utility costs, and increasing insurance expenses are all contributing to a increasing spread between would be home buyers and potential sellers.

We are hopeful for the future rate decreases in the coming months and home values will likely continue to rise slowly as there is still limited inventory for buyers to consider. Buyers and sellers should continue to be hopeful with the expected rate decreases this year which should provide needed relief to both buyers and sellers.

As always if I can help you with your real estate needs in anyway, whether that be buying, selling, investing, renting, or managing your short- or long-term rental, I’m here to help. I can be reached directly at Matt@briggsamerican.com or 980-250-2795.