March 20, 2024 | Reading Time: 4 Minutes
Is the Real Estate Market on the Verge of a Price Drop?
The recent $418 million antitrust lawsuit settlement with the National Association of Realtors has sparked speculation about the future trajectory of home prices. The lawsuit alleged that the association’s practices, particularly regarding realtor commissions, artificially inflated home prices. Under the previous system, home sellers typically paid a commission of around 6 percent of the sale price, which was divided between their own agent and the buyer’s agent. With this settlement, home buyers may now be responsible for paying their agents directly.
Opinions are divided on the potential impact of this change. While lower commission fees could theoretically lead to cheaper homes, it’s also plausible that sellers might maintain their listing prices and pocket more of the sale proceeds. However, decreased commission fees might encourage more homeowners to list their properties, potentially resulting in a downward pressure on house prices overall.
Tech companies in the real estate sector, such as Zillow and Redfin, stand to benefit from this shift, as they offer alternatives for home buyers to initiate the buying process without relying heavily on traditional real estate agents.
To shed light on the implications of this settlement, Vox spoke with Sonia Gilbukh, a real estate professor at City University of New York, Baruch College. Here’s a condensed version of their conversation:
Q: What prompted the need for reform in realtor commissions, and how does this settlement address it?
A: Previously, sellers bore the full commission cost, typically 6 percent of the transaction. The settlement prohibits sellers from advertising buyer agents’ commissions on the Multiple Listing Service (MLS), necessitating direct negotiations between buyer agents and their clients for compensation.
Q: Will sellers still cover buyer agents’ fees?
A: While still possible, it’s less likely to be industry standard. The change challenges the notion of sellers being obligated to cover buyer agents’ commissions, potentially leading to more negotiable commissions.
Q: How prevalent is the practice of “steering” among buyer agents?
A: Steering occurs when buyer agents favor properties offering higher commissions. Research suggests that homes offering lower commissions may face difficulties in selling, indicating a degree of steering.
Q: What are the broader implications for sellers and buyers?
A: Sellers may incur a 3 percent transaction cost, while buyers might explore alternative compensation models for their agents, such as flat fees. Over time, decreased transaction costs could lead to lower home prices and increased market activity.
Q: Will fewer realtors enter the industry?
A: It’s likely, particularly among new entrants who primarily serve as buyer agents. However, this could result in a more experienced pool of real estate professionals, ultimately benefiting consumers.
Q: What other reforms could reshape the real estate industry?
A: Outlawing seller-paid buyer commissions remains a possibility, though the current settlement largely addresses this issue.
In conclusion, the real estate landscape is undergoing a transformative period, with the potential for decreased transaction costs and increased market efficiency. While the full extent of these changes remains uncertain, they could ultimately benefit both buyers and sellers in the long run.