Estimated read time: 7-8 minutes
A class-action settlement by the National Association of Realtors (NAR) in March brings to light some changes for both home buyers and sellers in the real estate market. Fortunately for buyers and sellers in Utah, most of the required changes are already being done by local Realtors.
"The settlement isn't really what the media have portrayed it to be," said Dawn Stevens, president of the Salt Lake Board of Realtors. "The absence of a buyer's agent leaves the buyer to navigate an intricate process of drafting offers, negotiating repairs, and signing legal contracts. Conversely, homeowners seeking to bypass the buyer's agent commission might find themselves significantly reducing their asking price to attract buyers. It really is going to hurt buyers and sellers in the end."
Here are some things you need to know about the settlement:
The settlement does not force real estate agents to slash their commissions
The settlement has nothing to do with commission rates. Real estate agents have the flexibility to set their commission rates or fees according to their discretion. There are no standard or fixed charges in the industry, a policy that has always been in place and will continue indefinitely.
Traditionally, when a house is sold, the listing agent (the seller's agent) gets their payment from the sale's proceeds. Out of this payment, they also cover the buyer's agent's fee. This method of paying buyers' agents started in the 1990s in response to consumer advocates to ensure that buyers were also represented in real estate transactions.
The settlement does not require sellers to stop paying a commission to the buyer's agent
According to the settlement, details about how much a buyer's agent will be paid cannot be listed on the Multiple Listing Service (MLS). However, this doesn't mean that sellers can't compensate the buyer's agent. They're still allowed to do so outside of the MLS, through other means like direct marketing, negotiations or discussions with real estate professionals.
Not being able to list commission details on the MLS doesn't take away the importance of compensating the buyer's agent. Offering a commission to the buyer's agent can be crucial in making your property more affordable for many buyers who wish to have professional representation on one of the largest investments of their life. Without a commission offer, if buyers must cover the cost of professional representation themselves — on top of their down payment and closing costs — the dream of home ownership could become unattainable for many.
Before the 1990's, the concept of "buyer beware" prevailed, leaving buyers without representation and vulnerable to exploitation.
Buyers still need to sign a formal agreement with their agent
Starting in July, pending court approval, home buyers will be required to sign a formal Buyer Broker Agreement prior to touring properties with a Realtor. The agreement will clearly define the compensation the buyer's agent is to receive. Utah Realtors have been required by Utah law to use Buyer Broker Agreements for years, so this isn't much of a change.
Signing an agreement with a buyer's agent, which includes compensation terms, formalizes the relationship, ensuring clarity on the services provided.
The settlement is unlikely to lower housing costs
If a real estate commission were lowered by 1% that does not mean a $500,000 home would automatically be worth $495,000. The market value of the home is dictated by the real estate market itself.
A study by the National Association of Realtors found that an underbuilding gap of more than 5.5 million housing units in the U.S. is a primary factor for soaring housing costs. The housing shortfall has been exacerbated by an even larger decrease in the supply of entry-level single-family homes, or starter homes (1,400 square feet or less), according to Freddie Mac.
Until there is an all-of-government approach to a historic lack of inventory in communities across the country, the dream of homeownership will remain out of reach for millions of middle-class Americans.
Real estate transaction commissions are not fixed
Commissions have never been fixed. The range of a commission can vary significantly, spanning from as low as a flat-fee of $300 for listing services to as high as 7%-8%, with numerous options in between. Real estate commissions will continue to be negotiable going forward under the settlement terms.
Alternatively, homeowners have the option to sell their property independently at no cost. The current landscape offers an unparalleled level of consumer choice, with a multitude of diverse business models available. It's worth noting that consumers should not be compelled to pay for services they neither desire nor utilize. In the realm of real estate, homeowners have the freedom to decide whether to engage a real estate agent, just as they have the option to handle their taxes without hiring a CPA or fix a leaking faucet without calling a plumber.
The power of choice remains firmly in the hands of consumers.
The MLS offers benefits to consumers
UtahRealEstate.com or the MLS remains the preferred choice for most consumers, primarily due to its accuracy, extensive reach and efficiency. UtahRealEstate.com is one of the largest MLS's in the United States, serving more than 8 million consumers each year. Utilizing the MLS typically results in sellers finding qualified buyers in a shorter time frame and maximizing their financial returns from the transaction.
9 in 10 home sellers hire a Realtor
In a recent opinion piece, the editorial board of the Wall Street Journal suggested the real estate market is not a genuine free market, but a "rigged game" that pads the pockets of Realtors at the expense of consumers. While some critics argue that the role of a real estate agent is merely to fill out paperwork, 9 in 10 home sellers today hire a real estate agent to sell their home, according to data from the National Association of Realtors.
The process of buying or selling a home often represents the most significant financial transaction in people's lives. As the real estate landscape has grown increasingly complex and litigious, people rely on Realtors to guide them through legal contracts, disclosure law, property security, and negotiations.
Realtors will continue to play a crucial role in real estate transactions
Realtors are experts of the real estate transaction – a process that, for most consumers, is rare and filled with complexities. For instance, agents advise clients on disclosure law, competitive bidding situations, earnest money deposits, property security and stipulated deadlines.
Some oversimplify the vital role of real estate agents, who engage in an intricate, regulated, and state-licensed activity that demands ongoing education and training. Remember, Realtors only get paid if the house sells.
About the Salt Lake Board of Realtors
The Salt Lake Board of Realtors is the Wasatch Front's voice of real estate and the primary source for housing market information. The Salt Lake Board of Realtors is the largest shareholder of UtahRealEstate.com, one of the leading Multiple Listing Services (MLS) in the United States. Since 1917, the Salt Lake Board of Realtors has been a leader in promoting homeownership and protecting private property rights. The Salt Lake Board of Realtors® empowers its members to better serve the public by providing continuing education, advocacy, and a professional code of ethics.
About UtahRealEstate.com
Founded in 1994, UtahRealEstate.com is the leading provider of real estate technology in Utah and one of the largest multiple listing services in the United States. The company provides one of the top-ranked real estate websites in the country, serving more than 8 million consumers each year. It also provides multiple listing services to approximately 20,000 real estate professionals, accounting for nearly 97% of all Realtors in the state of Utah.
