The Patriot Post® · Reforming the Real Estate Swindle
Following a successful lawsuit that resulted in a landmark settlement, the rules surrounding realtor commissions have changed. As of August 17, new rules went into effect, giving homebuyers and sellers greater negotiating control over the commission they pay to real estate agents.
Five months ago, the National Association of Realtors agreed to a class-action settlement over accusations of artificially inflating commission rates between 5% and 6%. That rate is among the highest in the world.
For example, if a home sold for $450,000, the seller would, in most cases, pay a total of $27,000 to cover both the buyer’s and seller’s realtors’ commissions. The lawsuit alleged that these fixed commission rates were inflated and took control away from both a prospective homebuyer and seller. Essentially, realtors for buyers and sellers were working together in the interest of the real estate agencies rather than their clients. And the process lacked transparency.
According to the new rules, a buyer can now hire a real estate agent via a written contract with compensation as low as 1.5% of the purchase price of a home or a flat fee before the agent shows the buyer a house. Regarding a home seller, the sale agreement can still include the offer to cover the buyer’s broker’s commission.
“A comparison of rates around the world is very misleading,” says NAR spokesman Mantill Williams, “because it often doesn’t give accurate comparisons of value and the numerous other costs consumers have to pay as part of transactions abroad, just cost.”
Yet, with most people searching the Internet for home listings, the realtor’s traditional role has changed. The NAR contends that realtors are involved in many more behind-the-scenes efforts to serve their clients, such as recommending home inspectors and finding lenders and lawyers. But how are these expenses itemized? And might some clients prefer to handle these matters themselves?
In truth, what the agent is selling is convenience. That can be a valuable service to homebuyers and sellers, but the value of that convenience must be negotiated with the client. Furthermore, with average home prices hitting record highs thanks to sustained high inflation and higher interest rates to compensate, 5% and 6% commissions only make it harder for the average American to afford a house.
What impact will this have on the real estate market? Some believe the new rules and lower commissions could cause many of the estimated three million real estate agents to leave the industry. There will be plenty of disruption. As Ryan Tucholski, chief executive of the West Volusia Association of Realtors, observed, “There’s no industry continuity yet. We’ll get there, but right now it’s going to be rough and tumble as this rolls out.”
Consumers, on the other hand, will benefit both from more direct, candid, and transparent conversations with realtors and from the lower commission rates that result.