Impact of the NAR Settlement upon U.S. Housing Market and Residential Property Values
A Groundbreaking Shift in the US Housing Market: Potential for Lower Home Prices
The impending transformation of America's entire housing market might bring delightful news: possibly more affordable houses. The anticipation stems from a $418 million settlement negotiated by the National Association of Realtors (NAR) with organizations representing home sellers. If approved by the court, the goal is to abolish the traditional 6% commission that sellers often pay, usually included in the home's listed price.
Experts predict that slashed commissions may subsequently lead to lower home prices, providing much-needed relief in the face of skyrocketing housing costs propelling inflation across the country – a trend amplified by the pandemic's impact.
However, don't expect immediate changes. The process involves securing court approval and implementing new regulations. Notably, buyers' agents showing homes listed on local centralized listing portals, known as multiple listing services (MLS), will not be privy to pre-set commissions if their clients buy the property under these new regulations.
While the NAR, representing over 1 million agents, has been tight-lipped about predicted price reductions resulting from the settlement, NAR President Kevin Sears confidently stated that "the benefits it will provide to our industry are worth that cost."
The settlement follows a federal jury decision in Missouri, which held the NAR and two brokerages responsible for $1.8 billion in damages over alleged collusion to maintain inflated agent commissions. The NAR's settlement brings this legal battle to a close.
Steven Brobeck, a senior fellow at the Consumer Federation of America, speculates that Americans collectively pay $100 billion yearly in commission fees. If the settlement goes through, potential savings anywhere between a quarter and half of that sum might be on the horizon.
It's important to acknowledge that informal practices within the real estate industry might work against the proposed 5 to 6% commission rate decrease. Listing agents may continue advising sellers that paying buyer's agent fees can hasten home sales, thereby boosting compensation through profit-sharing. Buyer's agents might also resist commission negotiations.
Nevertheless, real estate professor Tomasz Piskorski from Columbia University remains doubtful about the settlement's influence on home prices. While he acknowledges increased transparency for homebuyers as potentially beneficial, he suggests that lower commissions might motivate more renters to venture into homeownership, offsetting any price reductions.
Factors such as housing inventory, mortgage rates, and consumer savings rates will significantly impact the housing market, as highlighted by Brobeck.
Key Insights:
- While the proposed reduction of real estate commissions might theoretically contribute to lower home prices, the indirect impact is contingent on the distribution of savings between sellers and buyers.
- Market dynamics could change, with buyers potentially being priced out due to additional upfront costs if they must pay their own agent commissions.
- The housing market would likely witness a shake-up, potentially leading to reduced demand, slower market activity, consolidation among agents and brokerages, and altered consumer behavior.
- The settlement negotiated by the National Association of Realtors (NAR) with organizations representing home sellers, aimed at lowering traditional 6% commissions, could potentially impact investing in real-estate by leading to a reduction in housing prices, benefiting those interested in finance and looking to buy property.
- If the court approves the $418 million settlement, the downsizing of commission fees in the housing-market might incentivize investors, particularly renters, to invest in real-estate as homeowners due to the potential savings, albeit factors such as housing inventory, mortgage rates, and consumer savings rates will also significantly impact the market dynamic.
