Since the National Association of Realtors settlement was announced on Friday, speculation and predictions have overwhelmed the real estate market. Some projections are outlandish, and I thought it would be beneficial to share my opinions.
Takeaways
These changes will NOT reduce home prices. Increasing the housing supply will be our best bet to stabilize home prices.
“Good” agents will do better; “Bad” agents must improve to survive.
Realtors are not going away. We still need them!
We will see new Realtor pricing models.
These changes harm new buyers and make home-buying more expensive.
The Deets
The settlement changes the following items.
Prohibits agents’ compensation from being included on listings on local portals, known as multiple listing services (MLS)
Another change ends the requirement that brokers subscribe to multiple listing services.
Buyers to pay their realtor fees.
Sticky Realtor Fees
The expectation that Realtor fees will disappear is unrealistic. Home buyers and sellers could always negotiate this fee with their customers. Very few deviate from the 6% commission. The stickiness of this pricing has economists asking if realtors collude. Realtors that deviate from the 6% fee violate the implicit agreement between them and are “punished” by other realtors in future transactions. Not listing the fee on MLS does not eliminate this outcome. It just makes it more challenging to identify the violators initially.
Do We Need Realtors?
Realtors provide an essential service needed in the market. Sometimes, I hear people complain about the value added by realtors. Often suggesting that realtors are unnecessary and, if they do anything, complicate the process. A view that seasoned buyers usually hold. Homebuying is complicated, fraught with imperfect information, and an emotional transaction. All of which require a guide to help you navigate the unknowns and keep you from being overwhelmed. This is especially true for first-time buyers.
The policy change will require realtors to communicate their value-added more clearly. I have always held that most realtors do not effectively communicate their value-added, which has allowed the market to question their value. We will see more effort by realtors to communicate their value proposition. The good ones will do well, and the “bad” realtors will exit the market or move to lower-tier pricing.
Increased Dual Agency
was a real estate agent in her past life. As we discussed the implications of these changes, she quickly noted that this creates an incentive for dual agency. Dual agency is the process where one realtor represents the buyer and seller. Requiring buyers to pay their fees increases the money buyers need to save before purchasing a home. Making homeownership even more costly. Agents that convince their sellers to cover the cost for their buyers will have increased demand for their listed homes. Realtors will be more likely to offer this service if they represent both sides of the transaction. More Housing, Please
Buyers will feel the immediate change. This policy makes homeownership even more expensive for them than it has been. If our goal is to increase affordability for buyers, then we need more housing! That’s the policy that we should be aiming for.
What are your thoughts?
I would love to hear from all my real estate fanatics, realtors, brokers, mortgage bankers, investors, flippers, and those looking to jump into the market for the first time. What are your thoughts?
Thanks to Fox19 for reaching out to get my views on the market. Read their article here
My current thoughts is that I agree with you - I don't think the commission will make a dent in prices. It'll probably be beneficial to sellers to some extent. I think house prices are quite strongly determined by local income/job opportunities (actually wrote several lengthy pieces on this and how to model it intuitively - https://www.nominalnews.com/p/illustrative-model-of-housing-prices ).
However, there might be other welfare effects that are difficult to account for - maybe we had too many real estate agents and it wasn't an efficient allocation.
For sure it will make certain agents deviate from the market, but agents that understand what’s happening and have a PHENOMENAL company like Keller Williams behind them teaching them and thoroughly explaining to them how to get ahead and stay ahead will make agents ready for the change