Jarai Howard, a 29-year-old tech worker with a growing family, is on the hunt for his second home in the Dallas-Fort Worth area. Howard, who purchased his first house for $200,000 in 2017 and benefitted from an exceptionally low mortgage rate of 2.2% during the pandemic, anticipated that buying a newly built home priced around $700,000 would be a relatively straightforward process. However, his recent experiences with real-estate agents have been anything but simple.
Having initially planned to use a real-estate agent for his new home purchase, Howard was surprised by the complexities and costs involved. He had been informed that, in the current market, he could face up to $25,000 in fees for his buyer’s agent, a significant increase from his previous experience. Unlike his first home purchase, where the buyer’s fees were not a consideration, Howard was now facing unexpected and substantial costs. Additionally, a particular real-estate agent insisted on a contract requiring Howard to pay a 3% commission, which seemed excessive given his past experience. The contract explicitly stated that the commission was negotiable, but when Howard attempted to negotiate down to 2%, he was met with resistance, leaving him frustrated and confused.
This situation highlights a broader shift in the real-estate industry that will take effect on August 17. The changes are part of a significant $418 million settlement agreement involving the National Association of Realtors (NAR), several real-estate brokerages, and a group of home sellers. The lawsuit, which went to trial in October 2023, accused the NAR and brokerages of colluding to artificially inflate real-estate commissions. The jury sided with the plaintiffs, resulting in fines and requiring substantial changes to the industry’s commission practices.
Adam Hopson, chief strategy officer at the real-estate startup Flyhomes, describes these changes as the most significant transformation in over a century. According to Hopson, the new regulations will fundamentally alter the dynamic between buyers and real-estate agents. However, the impact of these changes remains a subject of debate within the industry.
Ken Johnson, a real-estate economist at Florida Atlantic University, has expressed concerns that these changes could make the real-estate market less efficient. Johnson argues that the new rules might lead to increased complexity and potentially adverse outcomes for all parties involved. Despite these concerns, proponents of the changes believe they will ultimately benefit home buyers by fostering greater transparency and competition in real-estate transactions.
The upcoming changes will introduce two major modifications starting August 17. Firstly, real-estate agents affiliated with the NAR will require buyers to sign a contract before they can view any properties. This contract will outline how the agent will be compensated. Secondly, the Multiple Listing Service (MLS) will no longer display the commission offered to a buyer’s agent. This change addresses criticisms from home sellers who argued that the current system, where a seller pays a 6% commission split between the buyer’s and seller’s agents, was unfairly skewed in favor of real-estate professionals.
An NAR spokesperson has emphasized that offers of compensation will remain negotiable and that fees can be structured in various ways, including fixed commissions or concessions through closing costs. The goal of these changes is to enhance transparency and empower buyers and brokers to negotiate compensation arrangements that work for them.
For buyers, this new approach means they will need to sign a contract with an agent before viewing properties, which is a significant shift from past practices. This requirement is akin to committing to a salesperson before test-driving a car. The new contracts may vary in quality and clarity, which could create additional challenges for buyers. They are advised to carefully review any agreements and seek legal advice if they find the terms unclear or unfair.
In practice, buyers like Howard might find themselves having to sign a contract with an agent before they have a chance to fully evaluate their services. To address this issue, some real-estate brokerages, such as Re/Max, are encouraging buyers to sign an agreement with a single agent for multiple property viewings, rather than entering into new agreements for each property. This approach aims to provide buyers with a more streamlined and less confusing process.
Amy Lessinger, president of Re/Max, suggests that buyers should carefully select a reputable and experienced agent who can guide them through the entire transaction and provide a transparent explanation of their compensation. Ensuring that the agent’s fees and services are clearly outlined and understood is crucial for a smooth home-buying experience.
Despite these adjustments, Howard’s recent experiences in Texas have been frustrating. The new regulations have led to confusion among agents, with some even suggesting that Howard seek legal representation to understand the new contract terms. In response, Howard has decided to bypass traditional real-estate agents altogether and is now working with ShopProp, a company that charges a flat fee for buying and selling properties. For homes priced over $700,000, ShopProp’s maximum fee is $6,995 or 1% of the final sale price, which is significantly lower than the standard commission rates.
Rob Luecke, managing broker and CEO of ShopProp, emphasizes the company’s commitment to providing cost-effective real estate services and aims to eventually eliminate commissions entirely. ShopProp’s approach involves charging lower-than-average fees and offering a more transparent and affordable option for home buyers and sellers.
Howard remains committed to having a real-estate agent assist him with his purchase, despite his frustration with the traditional process. As he navigates this significant transaction, he values the guidance of an experienced professional to ensure he makes the best possible decision with his substantial investment.
The real-estate industry is at a pivotal moment, and the changes brought about by the settlement and ongoing legal scrutiny are likely to have far-reaching effects. While the immediate future may bring some uncertainty and adjustment, the long-term impact of these changes could lead to a more transparent and competitive market, potentially benefiting home buyers and sellers alike.