Many are predicting dramatically lower home prices in the wake of a $418 million settlement the National Association of Realtors have agreed to that will upend decades-long industry practices that consumer advocates say kept commissions artificially high.
That has many feeling a wicked witch is dead dance coming on — but it might be too soon for celebration.
Wyoming real estate agents and brokers told Cowboy State Daily that while they believe the agreement may drive more competition, there are some nuances that have yet to be sorted out, and they expect a few unintended consequences down the line. That’s assuming that the deal is approved by the judge on the case, who won’t be making that decision until July.
Skip Buyer’s Agents Altogether?
The biggest of the unintended consequences realtors are expecting is that buyers could end up paying their agents up front, out of pocket.
In the past, sellers technically paid the commission for buyer’s agents to attract buyers. But buyers really paid those fees, because they were baked into the long-term price of the home, which buyers paid through their loans. That made the fees relatively painless, even if the costs might linger over the life of the loan.
Expecting buyers to pay the costs up front could lead many to simply skip having a buyer’s agent altogether, Jackson Hole Realtor Latham Jenkins told Cowboy State Daily. In the long run, the biggest losers in that proposition could well be the buyers.
“There are a lot of pitfalls that can happen during a transaction,” Jenkins said. “And those can be very costly in the end. You think you can do it yourself, but you don’t know what you don’t know. Buyers can easily overpay. They can easily acquire a home that has substantial problems. And they can easily miss out on acquiring a home that they would love because their emotions got in the way.”
For example, Jenkins recalls a time when one of his buyers almost nixed a deal because the seller wouldn’t agree to leave his lawnmower behind.
“Buying a home can be a very emotional experience,” Jenkins said. “An advocate who is on your side can help keep you focused on your goals and objectives.”
Widening The Wealth Gap
Cheyenne Broker Associate Dominic Valdez, with #1 Properties in Cheyenne, agreed with the idea that the settlement is likely to discourage buyers, particularly entry-level homebuyers, from seeking a buyer’s agent.
But he doesn’t think new homebuyers will skip agents altogether because of how complex buying a home is and how many things can go wrong.
His concern instead is that it will discourage first-time homebuyers from purchasing a home altogether, particularly in an environment that combines astronomically high interest rates with record high home prices.
In Cheyenne, for example, an entry-level starter home is in the neighborhood of $350,000, while interest rates have been as high as 7%.
“(New homebuyers) already have to come up with closing costs and a down payment,” Valdez said. “Now they have to figure out how they can pay for a buyer’s agent as well? It could throw up a big roadblock, or another hurdle, to get over in the real estate game.”
The additional handicap could mean an entire generation of new homeowners losing out.
“Real estate is the biggest wealth builder in the American economy,” Valdez said. “I don’t know how we are going to work through that, but it’s coming, and I’m really concerned about my kids who are in their early 20s right now. It won’t be long before they start thinking they want to buy a house, and it’s going to be tricky.”
Here Come The Forms
As if the huge stack of papers homebuyers must sign isn’t already tall enough, another of the unintended consequences Valdez and other Realtors expect are more forms aimed at ensuring there’s enough transparency around compensation to buyer’s agents.
But, Valdez added, it’s going to be difficult to predict exactly how all these things will play out until the settlement is finalized.
“This doesn’t go into effect until July,” he said. “It’s been a long time coming, and there have been lots of discussions and arguments about it. But, until we actually get into it, it’s tough to predict our day-to-day as agents.”
In Wyoming, agents were already required to provide full transparency on who is getting paid what, and how that payment is happening, Valdez added.
That’s one reason Valdez doesn’t believe the change is going to drive down home prices as much as some have predicted.
“Sellers are just going to say, ‘I don’t have to pay the buyer’s commission, so I have more money that I can keep,’” he said.
Wyoming Already Doing Things Right
Sundance Realtor Jeremy Holt doesn’t think much will change in Wyoming.
“I was confused when I first saw this case, because no one around here does it the way that these guys were doing it,” Holt told Cowboy State Daily. “They were doing some very underhanded, shady things.”
Holt said when he signs someone up at whatever the negotiated rates are, he tells them up front that he will offer 2.5% to 3% to the buyer’s agents.
“We’ve already essentially negotiated that we will pay buyer’s agent X% of the negotiated listing amount to bring their buyers to us,” he said. “The big deal that’s happening about this is all these people in these other states aren’t like Wyoming. They aren’t straight shooters. They’ve made the line so blurry there that they’ve gotten themselves in trouble, and I don’t see anything like this happening in Wyoming.”
Holt said he’s been seeing tons of emails from the National Association of Realtors that are basically reminding everyone to follow longstanding ethics and policies to ensure transparency.
“I think people in Wyoming must be able to read better,” he said. “Because we were already doing these things and NAR is really scrambling to remind people, ‘Hey, you guys got sloppy on this.’ So, I think (in Wyoming) we’re going to see things come down from the top that we’ve already implemented.”
More Competition
Most of the Realtors agreed the settlement should help goose competition in the sector despite potential unintended consequences.
That’s music to the ears of Americans For Prosperity’s Wyoming State Director Tyler Lindholm. Americans For Prosperity bills itself as a consumer advocacy group focused on advancing policies that strengthen livelihoods and improve lives.
“One thing I do know is that mandatory fees, whether imposed by an association that you mandatorily have to join to be a Realtor or imposed by the government, are always a horrible idea,” he said. “Consumers never win in situations like that.”
The settlement is a “seismic shift” in the business model that will allow buyers to negotiate better rates, Lindholm suggested, saving them money in the long run — instead of sticking them with extra costs on top of an already pricy home loan.
“(This) will shake the entire industry,” Lindholm said. “I think you’re going to see some brokers flourish and you’ll see some fall by the wayside. But honestly, the ones that do fall by the wayside, the free market is going to decide that, not some association that’s managed out of New York or Florida or wherever.”
While in general more competition helps drive down rates, Lindholm believes that competition also means some buyers will choose to pay more fees than they may have in the past for better services.
“It’s going to be a win for the good Realtors, and for the consumers,” Lindholm said. “And it’s going to be a garbage day for those realtors that weren’t hustling. Not that I think realtors are bad people, but they should be treated like any other type of business out there. If you are successful, you should thrive.”
Renée Jean can be reached at renee@cowboystatedaily.com.
