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The NAR Settlement: Has It Really Changed Real Estate Commissions?
When the National Association of Realtors (NAR) settled a major lawsuit for $418 million, many speculated that real estate commissions would plummet, transforming the industry forever. Fast forward three months, and the numbers tell a different story. According to a recent study by AccountTECH, the impact of the NAR settlement on commissions has been far less drastic than expected. Let’s dive into the data and the key takeaways for investors and industry professionals.
A Modest Shift: The Commission Numbers You Need to Know
Despite predictions of major changes, AccountTECH’s analysis shows only slight adjustments in commission rates following the settlement. The average commission for listing agents rose marginally from 2.724% in 2023 to 2.738% at 60 days post-settlement. Meanwhile, buyer agents saw a slight dip, but the change was not significant enough to trigger widespread concern.
Many agents, especially those with established client bases, reported little change in their business operations or earnings. Ian Hoover of Deacon & Hoover Real Estate noted that while the client communication process may have become more involved, it hasn’t substantially affected business.
Too Soon to Draw Major Conclusions?
While the numbers remain relatively stable for now, it may be too early to fully understand the long-term impact. The true effects of the NAR settlement on commission structures might be more apparent by next summer, after the spring buying season. AccountTECH suggests that if commission rates continue to decrease by 0.05% per month, we could see rates for buyer agents fall to 2% by June 2025.
The study analyzed data from over 17,000 buy-side pending transactions and 625 real estate offices. However, as with any emerging trend, we’ll need more data over time to accurately gauge the direction of the market.
The Buy-Side Drop: What Investors Need to Know
One significant trend emerging from the data is a sharp 10% year-over-year drop in buy-side transactions. While this could be related to multiple factors such as fluctuating mortgage rates and broader economic conditions, it’s worth noting that this drop aligns with the industry’s increasing uncertainty.
For real estate investors, this shift in buy-side activity signals a potential slowdown in market dynamics, which could be influenced by the NAR settlement. However, the overall effect is still unclear, and it’s important for investors to keep a close eye on the evolving landscape.
Are Brokerages Feeling the Heat?
The impact of reduced commissions is hitting some brokerages harder than others. AccountTECH’s research reveals that a significant number of real estate companies could become unprofitable if commissions drop further, particularly if operational costs remain unchanged. Specifically, if buyer-side commissions fall to 2%, nearly 80% of brokerages could find themselves in the red.
This underscores the importance of adaptability in the current market. Brokerages will need to rethink their strategies, invest in new technologies, and find ways to maintain profitability even with smaller margins.
The Road Ahead: Adjusting to a New Reality
While the immediate effects of the NAR settlement may not have been as drastic as some feared, the broader real estate industry is still undergoing significant changes. With the rise of social media and DIY home buying, clients now have more control than ever in the process. Brokerages will need to adjust by offering added value—whether through personalized services, tech-driven solutions, or more transparent business practices.
Real estate agents may find that the key to maintaining relevance in this shifting environment lies in embracing these changes and finding ways to integrate new tools and marketing methods. After all, buying property involves significant financial risks, and consumers will continue to seek trusted professionals to guide them through the complexities of the market.
Final Thoughts: A New Era for Real Estate Commissions
While the NAR settlement has sparked concern about commission changes, the latest data suggests that the expected downfall of agent earnings has yet to materialize. However, this doesn’t mean that the landscape won’t continue to evolve. As the market shifts toward a more tech-centric, self-guided approach, real estate professionals will need to adapt.
Whether you’re a buyer, seller, or investor, staying informed about industry trends and being flexible in the face of change will be key to thriving in this new era of real estate
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“
The NAR Settlement: Has It Really Changed Real Estate Commissions?
Has the U.S. Housing Market Finally Begun to Thaw After the Pandemic?
It seems like the housing market might be showing signs of life. According to a recent report from Redfin, pending home sales in early October have seen their largest year-over-year rise since 2021, with a 2% increase in the four weeks ending October 6.
This news is likely to be welcomed by real estate investors who have felt the market has offered limited opportunities over the past few years. However, it’s important to take a cautious approach—one promising statistic doesn’t necessarily indicate a broader trend.
Is the Housing Market Truly Recovering?
Let’s explore the different factors at play.
Interest Rate Reductions: A Critical Factor or a Red Herring?
The Redfin report links the surge in pending sales to the Federal Reserve’s much-anticipated rate cut announcement in mid-September. According to Redfin, this announcement prompted buyers to re-enter the market in late September, despite mortgage rates having already been falling for weeks before the cut.
This psychological boost is crucial. Although buyers were aware of the falling rates beforehand, many seemed to be waiting for a formal signal to act. This could be attributed to a lingering fixation on the ultra-low rates of 3% to 4% that buyers enjoyed before 2022.
Any rate cut announcement serves as a nudge for prospective buyers, making them feel that now might be the right time to purchase, even if mortgage rates had been decreasing already. In an unstable mortgage market, such announcements hold significant influence.
However, mortgage rates are just one piece of the puzzle when analyzing housing market performance. As noted by Investopedia, the real estate market is driven by four primary factors: interest rates, demographics, economic conditions, and government policies.
Demographics: Shaping the Market
During the pandemic, demographic shifts had a profound effect on U.S. real estate, with major population movements like the Sunbelt migration fueling booms in cities such as Phoenix and Austin, which later became unaffordable for many.
Age is another key demographic factor, and the millennial generation’s pent-up demand continues to be a driving force behind the rise in home purchases. Despite the challenges of the past few years, millennials who have longed to become homeowners are now entering the market in greater numbers, as more properties become available.
Rising Inventory: A Sign of Stabilization
A key factor contributing to the market’s stabilization is the growth of housing inventory over the last year. The pandemic had a significant impact on the availability of homes, with sellers hesitant to list properties due to COVID-19 restrictions and, later, higher mortgage rates.
Some homeowners, particularly those upgrading to larger homes, found it financially challenging to sell and take on higher mortgages. Others, however, simply chose to wait for a more favorable market.
Although the latest Realtor.com report shows that inventory remains down by 23.2% compared to pre-pandemic levels, we are seeing an upward trend. For instance, new listings have been rising since last year, with a 5.7% year-over-year increase for the four weeks ending October 6.
As of September 2024, some states have even surpassed their pre-pandemic inventory levels, including Tennessee, Texas, and Idaho, with others, like Washington, close behind.
Vulnerabilities in Certain Regions
However, not all regions are showing positive signs. For example, some areas, particularly those affected by extreme weather, have seen inventory spikes not because of market recovery, but due to homeowners trying to offload damaged properties they can’t afford to repair.
For instance, regions like Florida and North Carolina, hit by hurricanes, have experienced increases in home listings, but these may reflect a response to climate-related challenges rather than market health.
Opportunities for Investors
Investors should be discerning when choosing markets, focusing on regions where inventory is growing due to increased home construction rather than climate-related distress. States like Idaho, Utah, North Carolina, and Texas, which are building new homes, offer potential, though caution is needed in areas prone to natural disasters.
The Midwest and Northeast, meanwhile, still face significant challenges in recovering to normal market conditions. These regions have lower rates of new construction, meaning inventory remains scarce, which could present both opportunities and difficulties for investors.
The Bottom Line
The U.S. housing market is showing signs of recovery, but the situation remains complex and varies by region. Interest rates play an essential role in unlocking the market, but investors should also consider other critical factors, such as homebuilding trends, climate risks, and government policies. While the market is heading in the right direction, it’s crucial to examine regional differences carefully before making investment decisions.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“