The 6% commission, a standard in home purchase transactions, is no more.
In a sweeping move expected to reduce the cost of buying and selling a home, the National Association of Realtors announced Friday a settlement with groups of homesellers, agreeing to end landmark antitrust lawsuits by paying $418 million in damages and eliminating rules on commissions.
The NAR, which represents more than 1 million Realtors, also agreed to put in place a set of new rules. One prevents sellers’ brokers from setting buyers’ agents’ compensation, which critics say led brokers to push more expensive properties on customers. Another ends requirements that brokers subscribe to multiple listing services — many of which are owned by NAR subsidiaries — where homes are given a wide viewing in a local market. Another new rule will require buyers’ brokers to enter into written agreements with their buyers.
The agreement effectively will destroy the current homebuying and selling business model, in which sellers pay both their broker and a buyer’s broker, which critics say have driven housing prices artificially higher.
The really fucked up thing is the origination fee. Banks charge like 1% to do the loan paperwork. Why does the paperwork for a $400k house cost more than a $250k house? Don’t the banks make enough money on the interest?
Not to mention PMI, which should just be illegal. Oh you don’t have 20% down? Great credit score? Doesn’t matter. We’re charging you another 2%.
Home sales are a greasy business.
That 20% down payment in today’s market is just atrocious. We’re getting ready to sell our home and we will profit maybe 80k, and that’s still not enough for a detached 3-bedroom home in our area. We’ll likely need to dip into our 401k to get up to 20% to avoid PMI
This is why everyone seemingly has a real estate license. Low barrier to entry and no cap on income. I am guessing the barrier will increase now so the top producers get even more quantity to make up for the lower per transaction deal and push out the smaller fish.
Without PMI, if you don’t put 20% down, they just won’t give you the loan for that amount. Outlawing PMI would just screw the consumers who can afford the payments, but just don’t have the 20% to put down. Which was the case for me when I bought my first house.
I’m not gonna shed any tears on that, but this is peripheral to the root issue and why that commission is out of control.
Solve why homes cost a ransom in this first place, and that 6% commission should drop proportionally.
Yeah it all comes down to a shortage of homes. The bubble popped around 2008 and construction of new homes stopped. Ever since then we haven’t been building enough homes, so there is a shortage driving up prices. Until we make more places to live, home prices will be outrageous.
Many of the builders went under. The ones that survived were typically building more expensive (ergo higher margin) housing. Which is why they’ve continued doing so up to today.
I don’t recall exactly now but read a while back around half the home building companies in the US were defunct by 2012.
Or, ya know, regulate rampant price fixing.
Who is fixing the prices of homes? I would expect it to basically be a bunch of individual sellers setting it at what the market would allow.
Yeah, no it’s an entire industry.
https://finance.yahoo.com/news/yardi-rent-setting-software-illegally-223000337.html
That’s about someone alleging collusion among some massive rental owners in Seattle. . .and it’s being offered up as proof that there is some collusion among individual home owners in selling homes across the country.
Well okay then.
I am always baffled by “the shortage of home”. Population growth is pretty slow. And the news claims more young adults are living with thier parents. So where are all the homes going?
The homes didn’t go anywhere. They don’t exist. Developers basically stopped building enough homes in 2008. Since then the population growth has vastly outpaced the number of homes being built. Now we’re years away from having enough housing because it takes time to catch up building them. Unfortunately prices are not going to significantly drop any time soon.
The percentage is one issue. While it takes more work to find the buyer for a $10 million home than for a $200k home, it doesn’t take $488,000 more work. But that’s an edge case, since not many of those are sold so it is more about the lack of volume requiring more money. The real issue is in places like SoCal where every house costs a million, so every commission is $60k. That’s a big chunk of change for average buyers trying to get into a starter home.
I mean it also just continuously inflates the price every transaction cycle because that cost gets baked into the loan.
So you are adding substantial inflation to home prices with that 3-6% if the average home is bought and sold ~10 years.
Can you explain this? I can’t make sense of it. If it’s a fixed rate, I don’t see how it adds to the inflation of the home value.
If you buy a house for 100k, it has a 6k commission baked in the price, so the seller gets 94k. But that 94k only matters to that seller, you still need 100k to break even, plus another 6% to get into the green after your sale’s commission. So your break even price is now 106,360. And your buyer’s break even price will be 6% on top of that and so on.
Because it’s a % of the price, it’s exponential growth. If it was a fixed number, it would just be linear growth.
The general idea of saving 15 to 20 percent for a down payment becomes a lot less worthwhile of a grind when that money all goes to realtor fees.
I wonder what will happen in the current spring market between now and when the settlement takes effect in mid-July?
I could imagine some sort of buyer frenzy before they’d have to pay for the buyer agent themselves.
Good — the real estate market is run by a cartel
Don’t know if Canadian market is really different, but in Québec at least more and more people are selling their properties themselves to save on those commission. For instance https://duproprio.com/en#how-much-could-i-save You cannot do that in USA?
You can in many places. Realtors do offer benefits though but usually not 6%.
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You can, but the problem is that realtors won’t show people your property because you are not using a realtor. It is a way to essentially punish people that try to avoid the fees.
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I’ve never paid more than 3% on my home sales in Austin. Put simply, the market was too hot. I said “I’m not paying more than 3% total” to which most independent Realtors I interviewed said that.they would not do it because it would impact the showings. So I went to the top Realtor in the city and they agreed. All they did was list it on MLS and on their website. The longest sale took less than a month with the shortest being under contract before it was even listed. They just called one of their clients and it was gone in less than two hours.
6% for essentially zero effort is bullshit.
PS: You can list your home for sale on MLS yourself. There are plenty of services that do it for a fixed fee.
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Can you elaborate? NY Times and Washington Post are reporting the same:
American homeowners could see a significant drop in the cost of selling their homes after a real estate trade group agreed to a landmark deal that will eliminate a bedrock of the industry, the standard 6 percent sales commission.
The real estate group, which represents 1.5 million real estate agents around the country, said it will pay $418 million over four years to settle several cases, along with agreements to change the rules that plaintiffs alleged supported 5 to 6 percent commissions paid by home sellers. The association said it continues to deny wrongdoing.
https://www.washingtonpost.com/business/2024/03/15/nar-real-estate-commissions-settlement/
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You may be right it’s negotiable, but this lawsuit happened because sellers felt they didn’t have a choice:
The NAR had required homesellers to include the compensation for agents when placing a listing on a multiple listing service. Although NAR has long said commissions are negotiable and that the structure helped making housing more affordable for buyers, critics have long argued that the fees were expected and homesellers felt they would lose buyers if they didn’t offer them.
…
Individual sellers often feel powerless to negotiate a better deal for themselves, given the risk that offering lower commissions could cause brokers to steer buyers to other properties, said Robert Braun, a partner in Cohen Milstein’s antitrust practice.
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The CNN article just updated to remove the part about the required 6% and I’ve updated the summary to match.
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