The recent headlines about the settlement involving the National Association of Realtors, also known as NAR, have led to speculation and misinformation. If the courts approve the terms, the settlement will bring some changes to the industry in July, with some states seeing more changes than others. So, what does it mean for Minnesota real estate? I’m breaking down 3 common myths I’m seeing.
The Myth: Realtor Commissions are Disappearing
While using an agent is not required, 89% of consumers receive professional guidance from a real estate agent when buying or selling a home. There are many models for payment and service types, such as flat rate, discount, or 0% commission brokerages. The most common structure, however, is when a listing agent splits the commission a seller has agreed to pay between themselves and whatever agent represents the buyer who purchases the home. The settlement does not prohibit this structure, only WHERE the commission offered can be communicated.
The Truth: Offers of Commissions Will Not Be on the MLS
There has never been an obligation for a seller to pay a buyer agent commission, but it is a common practice to attract the highest number of qualified buyers to yield stronger offers. I predict we’ll still see this as the most common structure, but the commission will be communicated off of the MLS.
The Myth: Commissions Will Be Negotiable for the First Time
Headlines like “The 6% commission on buying or selling a home is gone” touted an industry standard on its way out that would be replaced by the consumer naming their price to work with an agent of their choosing.
The Truth: Commissions Have Always Been Negotiable and Regional
Broker commissions have always been negotiable but, of course, an agent isn’t obligated to change whatever pricing structure they have determined they will work for. Location makes a big impact on commissions as well. An agent working in Silicon Valley where the median home price is over $1,500,000 is more likely to negotiate a lower commission percentage to their clients than an agent in Toledo, Ohio, where the median home price is under $124,000.
The Myth: Home Prices Will Fall Due to This Settlement
Many media outlets report that, if sellers now choose not to pay out buyer’s agents, they will pass the savings on to the buyer via a lower list price for their homes.
The Truth: Home Prices Are Set by Supply and Demand
A seller wants to net the most profit possible from their home sale and in our current market, the demand for homes outweighs the supply. Suppose similar properties in a seller’s neighborhood recently sold for $500,000. In that case, they will not suddenly reduce their asking price if they have data that supports they can net this amount, regardless of who is paying what commission.