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March 23, 2024 Admin

Homebuyers May Be Forced to Pay More After Legal Fight

Coffey Modica’s Maria D’Avanzo shares her expertise in this recent Newsweek article on changes in homebuyer fee structures.

Published Mar 22, 2024  | Updated Mar 23, 2024
By Omar Mohammed

The changes coming to the real estate market over how agents are compensated could see homebuyers facing extra costs when purchasing property, a housing economist said.

Last week, the National Association of Realtors (NAR) settled claims that alleged the organization had been part of a structure that lacked transparency in the way real estate commissions were being charged. This contributed to high costs of home transactions, particularly for sellers, critics said.

NAR denied any wrongdoing but agreed to pay more than $400 million over the next four years to end the claims. They also moved to change the rules over how sellers and buyers of homes pay commissions that experts say could transform the sector.

One such change that could come into effect is sellers are now forbidden from deciding what fees real estate agents are set to be paid, which typically would be at 6 percent of the home sale price.

Currently, sellers would cover that cost, but the new system could mean that they may no longer do so and allow some flexibility in the way buyers and sellers cover the fees.

But Danielle Hale, chief economist at realtor.com, suggested that buyers may be disadvantaged in the new system as now they might have to pay their agents out of their own pocket when in the past sellers had been the ones who incurred the cost.

“These changes could put more pressure on buyers if they are responsible for compensating their own agents directly, at a time when home prices are high and elevated mortgage rates make borrowing expensive,” she said in a statement shared with Newsweek.

“Some buyers might have to lower their target price in their home search to account for this newly added expense, but even if home prices were to fall in the future, buyers’ costs are likely to rise by a similar amount if they are having to compensate agents directly.”

Hale acknowledged that it may be too early to tell how exactly the rules changes on commissions will come shape the housing market.

“What consumers decide to do will ultimately determine how it will play out, and there are countless possible scenarios,” she said. “Home sellers could still choose to offer to pay buyers’ agents, or another option might be for buyers to raise the offer price on a home and then ask for funds back in a concession to cover their agent’s cost. Or the buyer and seller might each pay their own agent.”

Agents can be helpful to buyers, Hale pointed out.

“Buyers agents play an important role in helping home shoppers find the right home, negotiate the terms of the sale, and settle on a price, and buyers will likely be reluctant to navigate the financial decision of a lifetime without their professional expertise and support,” she said. “Ultimately, if these changes bring about greater consumer transparency, that’s a good thing.”

But some real estate experts told Newsweek this week that the shift, which could take effect this summer, may force agents to work harder at proving their value to customers. Buyers may become more selective in terms of what they want to get from their agents, some say.

“Maybe there’s like an à la carte menu, right? If you want me to just bring you to the place to the house, to walk around, let you in, maybe that’s one price,” real estate lawyer Maria D’Avanzo, a partner at Coffey Modica, told Newsweek this week. “If I am also going to be sourcing your engineer or your inspector to do the inspection, that’s another price.”

This may in the long run help to save costs on transactions, she said.

“Under that formula, I think a buyer is going to end up paying less than they would if they paid like 3 percent of the purchase price,” she said.

The ultimate consequences of the NAR rule changes will take time to be fully understood, according to Hale.

“There’s still a lot to be determined with the settlement and what it means for the industry, agents, buyers and sellers, and the market,” Hale said.