Big turnaround in home buying after lawsuit

A groundbreaking settlement in a legal dispute with the National Association of Realtors could change the way homes are bought and sold starting Saturday, lowering commission costs and increasing transparency.

However, it could also make it harder for first-time buyers to purchase a home and shake up the real estate brokerage industry.

“This is an opportunity for us to adapt. So many people are looking for transparency these days, and this change in approach gives us that,” said Natalie Davis, a real estate agent with Keller Williams Realty Downtown in Denver.

Although buyers and sellers have always been able to negotiate terms, including the amount of commission, with their brokers, the industry has established practice of sellers paying commission costs of around 5 to 6 percent for both sides of a transaction.

Home sellers in Missouri filed suit to end the practice, which they say is unfair and causes them to pay more out of pocket than necessary. The National Association of Realtors agreed to a $418 million settlement in March and agreed to change some of its long-standing practices effective August 17.

One of the biggest changes involves publishing the amount a seller would pay a broker to find them a buyer on the Multiple Listing Service (MLS), which is traditionally owned by local associations of realtors.

Brokers could see the information about the co-op’s compensation, but consumers didn’t have easy access. As long as the sellers paid the bill and included the commission costs in the sales price that the lenders financed, it didn’t matter much.

“Real estate agents can no longer post their commissions on the MLS. But they can post that information on their own websites. You’ll see more of that in the future. But that’s up to each agent,” said Tyrone Adams, CEO of the Colorado Association of Realtors.

If this information is not publicly available, buyer’s agents can contact the seller’s agent directly to obtain it. This is an additional step, but not a major one.

Separating commission information from real estate agents’ platforms should dispel allegations of collusion while giving sellers more flexibility in compensating buyers’ agents.

“Sellers need to be aware that if they don’t offer compensation, they may be narrowing the pool of buyers. It’s the buyer’s decision, not the agent’s,” said Kelly Moye, a Northglenn real estate agent.

The practice of brokers avoiding offers that are less favorable to them remains prohibited, but buyers are not allowed to impose such conditions.

This is where a tug of war will occur. A buyer who does not have the money to pay his agent’s commission may want to consider only those offers where the seller has agreed to pay the commission.

But even in the entry-level home market, homes sell the fastest and with multiple offers.

Even if the seller is willing to pay the buyer’s agent, charging a lower commission than competitors could save them money and drive up their offer, Holden Lewis, a real estate and mortgage expert at Nerd Wallet, said in a blog post.

By negotiating early with their agent, buyers can improve their chances of closing a sale.

Agents want to be paid – either by the seller or the buyer – and this is written into the contracts. However, if the buyer is short on cash, which is often the case with first-time buyers, they should try to negotiate the terms.

“The contract will specify how much you will pay the agent representing you, either as a flat fee or as a percentage of the purchase price. Both are negotiable. Other negotiable elements include the length of the contract and the geographic area (one or more addresses, zip codes, cities and counties) for the scope of your search,” Holden said.

The settlement requires buyer-agent agreements, which Colorado has long required. Even standardized contracts leave room for negotiation. If an agent won’t budge or can’t justify their demand for compensation, consumers may want to look elsewhere.

“As for the regular contract with a financial obligation to compensate the buyer’s agent, they should not sign that agreement unless they have read it and understood it and it is fair to them,” said Stephen Brobeck, a senior fellow at the Consumer Federation of America.

Buyers should request a copy of the brokerage agreement and review it carefully before signing. They should avoid agents who do not give them a copy up front. Buyers should always weigh the benefits they receive against the costs.

“We suggest they aim for the dollar equivalent of 2 percent or less of the selling price,” Brobeck said.

According to a study by Seattle-based brokerage Redfin, the average buyer’s commission for a home in Denver was 2.56 percent in July, compared to 2.64 percent in January. Denver had the 18th highest commission of the 50 metropolitan areas studied by Redfin.

House viewings as a sticking point

Most real estate contracts do not allow a buyer to come and view a home in person, other than at an open house. This is partly to protect sellers, who typically leave the home after a viewing and do not want strangers roaming unaccompanied through their privacy.

The National Association of Realtors, as part of its proposed settlement, requires agents to sign a “tour” or “showing agreement” before walking a prospective buyer through a property. It’s not a full-fledged buyer-agent agreement, but compensation will likely be discussed if the person doing the tour decides to purchase a home.

“The idea is to provide transparency to the buyer regarding the compensation and its origin,” Moye said.

However, the Colorado Real Estate Commission argues that submitting agreements is not required under state law and is part of the duties of a licensed broker, says Marcia Waters, director of the Colorado Division of Real Estate.

“This is not a consumer-friendly approach and if someone wants to view a property, they should not be forced to sign a contract,” Waters said, adding that the commission had communicated this to the Colorado Association of Realtors in a letter.

The Real Estate Commission provides many standardized forms used in the industry, but has not created viewing agreements and does not plan to do so, Waters said.

“If brokers use travel contracts, they must hire a licensed Colorado attorney to draft those contracts,” she warned.

More difficult for newcomers

Current homeowners investing in a larger home typically have enough equity to cover the costs of an agent, require less assistance, and can handle more tasks themselves. First-time buyers are more of a focus.

“First-time buyers are the ones who need the agent the most. They are also the ones who can least afford their buyer’s agent’s compensation,” said Lindsey Benton, broker and owner of Live.Laugh.Denver. Real Estate Group.

Down payment and closing costs are already a burden for many first-time buyers, and realtor fees add to the upfront costs that lenders can’t yet roll into a mortgage. First-time buyers are also the most vulnerable when trying to go it alone.

The changes could lead to a revival of less common practices, such as transaction brokers acting as arbitrators for both sides rather than as trustees for one side or the other, or hiring a lawyer to draft a legally binding contract or having the buyer represent themselves.