The NAR Settlement: Will Prices Drop?

It’s the big question on everyone’s mind… “When will prices drop due to sellers not having to pay the Buyers Agent commission anymore?”

In this article, the 2nd in the series about the fallout of the NAR settlement, we will discuss this topic. I will lay out historical data, current market info, and possible situations for the future that will hopefully give you insight into what the settlement will mean for home prices in the near future.

WHO SETS THE PRICE?

One of the biggest things people are forgetting in the recent discussions is who sets the price. Sellers!

That’s right, the seller has always been the one to set what price they want their property listed for sale at. They also decide what price to accept as a final sales price after negotiations with potential buyers.

But the listing agent isn’t out of the picture when it comes to pricing. They offer their professional opinion on what the current market value is for the property, as well as opinions and recommendations on what would be a “fair” value during negotiations. But in the end, it’s always the sellers decision if they will or will not accept an offer.

Likewise, buyers get to decide what price to pay for a property they are interested in. Similar to listings, the buyers agent can give insight and recommendations as to the fair market value of the property to guide the buyers. But once again it is their final decision what to offer on the property. Additionally they decide what the final sales price will be after negotiations. The buyer can almost always back out of a purchase if they feel they are paying too much. This of course depends on how the purchase contract was written and what contingencies they put in place.

With the soon-to-be drop of the buyers commission being paid by the seller out of the proceeds of the sale, some feel that means sellers will reduce the price of their property by the same amount they would have paid toward the buyers agent. If that was 2% of the purchase price on a $600,000 home, that would be $12,000. Using that example, then the same house that was listed at $600,000 would now be listed at $588,000. Not a very large price reduction. Also probably not what a buyer would have in mind when they want prices to drop.

But why would a seller list the property for less? Usually the only reason a seller decides to reduce the price of their listing is due to needing to sell it quicker. Also it could be due to the market shifting and comparable properties selling for less. In my 20 years as a local agent, I’ve never had a seller lower the asking price just because I agreed to lower the commission amount.

WHAT IS VALUE?

So what makes up a value of a property? To put it simply… the value of a property is based on what a buyer is willing to pay for it. That’s it. And nothing in the NAR settlement makes me believe sellers will suddenly want to drop the price of their homes. Over the next couple years we may see prices adjust accordingly. But no one in the business I’ve talked to thinks it will be a sudden event.

REAL WORLD EXAMPLES

All of this talk so far is just “what if” and “potentially”. What about real examples?

Well, I have 2 sellers who have already reached out to me to ask “when can we drop the buyer commission offer?”. I then go over the details and tell them they could currently decide to not offer to pay the buyer commission, would just need to resign a new listing agreement stating that change.

But when I follow up with the question “do you want to adjust the price accordingly by the amount you are saving?” they promptly said “Nope”.

These are just 2 examples. But I’ve heard from a lot of other listing agents who have have similar conversations with their sellers. That leads me to believe sellers will not be dropping the price of their properties just because they will be getting more in their pockets from the sale.

PLAYING NICE

One thing that may happen due to the settlement is sellers offering to accommodate buyers more. What do I mean? Well, with buyers suddenly having to pay out of pocket for their own representation, it may cause them to ask sellers to assist them with that payment. This could be as simple as the buyer asking when submitting an offer for the seller to credit them the full or part of the amount they are paying their agent.

But some loan programs will not allow seller credits for agent commissions. So this needs to be figured out by the mortgage companies pretty quickly.

This isn’t something new. Many sellers currently are paying loan buy down costs to entice buyers. In the past many sellers paid for a 1 year home warranty for buyers. Others offered to cover 100% of the escrow and title fees. What I’m saying is sellers are familiar with offering incentives to entice potential buyers when the market shifts. Logic dictates this behavior will continue.

THOSE WHO NEED IT MOST

While not all buyers will need assistance with paying their own agent, some definitely will. First time homebuyers are the main group that will be affected by these new rules coming out of the settlement. In the past they didn’t have to worry about coming up with funds to pay an agent. Instead they just had to pull together a down payment for the purchase. But now they will need to have a couple thousand extra dollars available in order to be independently represented by an agent. That is unless the seller is still willing to cover that cost for them.

Why is it important for a First Time Homebuyer, or any buyer, to have independent representation by their own agent? Can’t they just have the listing agent represent them?

Well, technically any buyer can just ask the listing agent to represent them. But if the seller doesn’t agree with their agent being a “dual agent”, then they won’t be able to represent both sides. Also, it ties the agents hands a little when they act as a “dual agent”. Think of the phrase “slave to two masters”. It is very difficult to represent the sellers interests at the exact same time as you represent the buyers interests.

Besides just not usually having extra funds to cover the cost of paying their own agent, First Time Homebuyers also have the least amount of experience and knowledge in what buying a home is all about. An investor client will have done dozens or more sales and purchases over the years, and can probably walk thru the process in their sleep. However a First Time Homebuyer has never purchased before so is completely in the dark.

I CAN DO IT MYSELF

Can’t the buyer just complete the purchase without an agent? Of course they can. There is nothing that forces anyone, buyer or seller, from hiring an agent to represent them.

I’m sure there are those out there who are thinking “I’ve watched enough episodes of ‘Selling Sunset’ and know what to do”. But another phrase comes to mind… “a person that represents themselves has a fool for a client.” This is a phrase aimed at lawyers, but it applies to real estate as well. A real estate sale and purchase involves so much paperwork, disclosures requirements, process timelines, local knowledge and resources, market insights. This is in addition to making sure you are following the laws of the local city, county, state, as well as national laws.

Agents are constantly doing continuing education to stay apprised of new and changing laws and documentation. It’s this knowledge and experience that you are paying for. On average, an agent spends about 60 hours per week working for their clients. While you could learn what you need to know and represent yourself, do you really want to spend that much time of your life on it and take on that much liability?

In the end, it doesn’t look like prices will drop simply due to sellers saving a little money. Anything can happen of course. And only time will tell.