New Real Estate Laws
CONTRIBUTED CONTENT — A recent class-action settlement by the National Association of Realtors in March brings to light some changes for both home buyers and sellers in the real estate market. Fortunately for buyers and sellers in Utah, most of the required changes are already being done by local realtors. Here are nine things you need to know about the settlement.
Does the settlement force real estate agents to slash their commissions?
No. The settlement has nothing to do with commission rates. There are no standard or fixed commission rates in the industry, a policy that has always been in place and will continue indefinitely.
Traditionally, when a house is sold, the listing agent (the seller’s agent) gets their negotiated fees from the sale’s proceeds. Out of this payment, they also cover the buyer’s agent’s fee.
This method of paying buyers’ agents started in the 1990s in response to consumer advocates to ensure that buyers, too, had representation in real estate transactions. Before the 1990s, the concept of “buyer beware” prevailed, leaving buyers without representation and vulnerable to exploitation.
Does the settlement require sellers to no longer pay a commission to the buyer’s agent?
No. According to the settlement, details about how much a buyer’s agent will be paid cannot be listed on the Multiple Listing Service. However, this doesn’t mean that sellers can’t compensate the buyer’s agent. They’re still allowed to do so outside of the MLS through other means like direct marketing, negotiations or discussions with real estate professionals.
Not being able to list commission details on the MLS doesn’t take away the importance of compensating the buyer’s agent. Offering a commission to the buyer’s agent can be crucial in making your property more affordable for many buyers who wish to have professional representation on one of the largest investments of their life.
Without a commission offer, if buyers must cover the cost of professional representation themselves – on top of their down payment and closing costs – the dream of homeownership could become unattainable for many.
Will buyers need to sign a formal agreement with their agent
Yes.Starting in July, pending court approval, home buyers will be required to sign a formal buyer-broker agreement prior to touring properties with a realtor. The agreement will clearly define the compensation that the buyer’s agent is to receive.
Utah realtors have been required by Utah law to use buyer-broker agreements for years, so this isn’t much of a change. Signing an agreement with a buyer’s agent, which includes compensation terms, formalizes the relationship, ensuring clarity on the services provided.
Will the settlement lower housing costs?
No. If a real estate commission were lowered by 1%, would a $500,000 home automatically be worth $495,000? No. A seller would not reduce the sale price to $495,000 simply because the commission was lowered. The market value of the home is dictated by the real estate market itself.
Housing costs have soared over the past several years due to an underbuilding gap of more than 5.5 million housing units in the U.S. The housing shortfall has been exacerbated by an even larger decrease in the supply of entry-level single-family homes, or starter homes (1,400 square feet or less), according to Freddie Mac.
Until there is an all-of-government approach to a historic lack of inventory in communities across the country, the dream of homeownership will remain out of reach for millions of middle-class Americans.
Are commissions in real estate transactions fixed?
No. Commissions have never been fixed and never will be. The range of a commission can vary significantly, spanning from as low as a flat fee of $300 for listing services to as high as 7%-8%, with numerous options in between. Real estate commissions will continue to be negotiable under the settlement terms.
Alternatively, homeowners have the option to sell their property independently at no cost. The current landscape offers an unparalleled level of consumer choice, with a multitude of diverse business models available.
It’s worth noting that consumers should not be compelled to pay for services they neither desire nor utilize. In the realm of real estate, homeowners have the freedom to decide whether to engage a real estate agent, just as they have the option to handle their taxes without hiring a CPA or fix a leaking faucet without calling a plumber. The power of choice remains firmly in the hands of consumers.
How does the MLS benefit consumers?
UtahRealEstate.com, or the MLS, remains the preferred choice for most consumers primarily due to its unparalleled accuracy, extensive reach and overall superiority. UtahRealEstate.com is one of the largest MLS’s in the U.S., serving more than 8 million consumers each year.
Utilizing the MLS typically results in sellers finding qualified buyers in the shortest possible timeframe and maximizing their financial returns from the transaction. In the end, the consumer benefits significantly.
Why do 9 in 10 home sellers hire a realtor?
The Wall Street Journal suggested that the real estate market is not a genuine free market, but a “rigged game” that pads the pockets of realtors at the expense of consumers. Critics argue that the role of a real estate agent is merely to fill out “paperwork.” Yet, 9 in 10 home sellers today hire a real estate agent to sell their home.
Why? Because the process of buying or selling a home often represents the most significant financial transaction in people’s lives. As the real estate landscape has grown increasingly complex and litigious, people rely on realtors to guide them through legal contracts, disclosure law, property security and negotiations.
Do real estate agents make too much money?
It is ironic that class-action attorneys, who stand to make 30% to 40% of any judgment or settlement, are accusing realtors of charging a 5% to 6% commission. Class-action attorneys will take hundreds of millions of dollars from their clients at the end of the day, leaving them with just a fraction of the winnings, sometimes just a few dollars. Remember, there are more than 500,000 plaintiffs in the Sitzer-Burnett lawsuit.
A report by TLR, a Texas-based organization that discourages non-meritorious lawsuits or outrageous claims for damages, examined eight years of consumer class actions in federal court and found that consumers received only a tiny fraction of the money awarded in cases while plaintiff lawyers frequently claimed a bigger share of the settlement than their clients.
While attorneys make millions, the median annual wage for real estate sales agents was $49,980 as of May 2022, according to the most recent statistics by the U.S. Bureau of Labor Statistics.
Will realtors continue to play a crucial role in real estate transactions?
Yes. Realtors are experts of the real estate transaction – a process that, for most consumers, is rare and filled with complexities. For instance, agents advise clients on disclosure law, competitive bidding situations, earnest money deposits, property security and stipulated deadlines.
Some oversimplify the vital role of real estate agents, who engage in an intricate, regulated and state-licensed activity that demands ongoing education and training. Remember, realtors only get paid if the house sells.
