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 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.