Baron Aims to Clarify Real Estate News
Local real estate expert Jimmy Baron shares his thoughts on the current state of the housing market.
Recent headlines surrounding changes in the real estate industry have many consumers and media outlets going ga-ga: “Class Action Settlement Will Make Home Buying Cheaper” … “Realtor Commissions to go Away Clearing the Way for Lower Prices” … “Seismic Changes to Real Estate Industry Will Turn it Upside Down.”
Admittedly, this is intriguing and exciting news to someone entering the home buying/selling market but, alas, it is essentially clickbait and, in many cases, misleading. In fact, the new rules (scheduled to go into effect in July) are likely to make the process more complex and more expensive for home buyers, according to local real estate expert Jimmy Baron.
Baron says, “To bring you up to speed, a class action lawsuit (still to be approved by the Department of Justice) against the National Association of Realtors resulted in a few key rulings that have caused a lot of conversation and confusion for consumers, the media, and real estate professionals themselves. Most notably is the resolution that sellers will no longer be required to pay the buyer’s agent commission. However, what many don’t realize is that this has never been law in the first place. Sellers have always had the option of paying their agent a negotiable commission and determining how much of that would be shared with the buyer’s broker. They’ve simply chosen to do so because it was the smartest way of getting the greatest number of buyers in the door. The new regulation simply dictates that if the seller does decide to also offer a buyer’s agent commission it must be separate and not part of the listing agent commission. But the effect is pretty much the same.”
Baron continues, “In that vein, there’s lots of chatter about sellers simply paying their own agent and buyers separately paying their own agent, which sounds perfectly sensible and reasonable, except to home buyers who ultimately dictate the market.”
Buying a home is obviously an extraordinarily expensive endeavor. In addition to obtaining a mortgage, the buyer must come out of pocket for a down payment, closing fees, inspections and, of course, moving costs, according to Baron.
“This is literally tens of thousands of dollars in most cases,” Baron said. “So, if Mr. and Mrs. Homebuyer are now going to be asked to pay a broker commission as well, they may very likely instruct their agent to simply not show them homes that don’t cover the buyer’s agent commission. And this, of course, does not bode well for sellers who benefit from the greatest possible number of showings.”
Baron suggests readers frame the situation as such: If you’re selling your home would you pay people to simply come see it? Doubtful. But what if you let people see your home for free and then just offered to pay the one person who brought you an actual buyer? Makes a little sense, doesn’t it?
Baron continues, “But why use a buyer’s agent at all? Isn’t that why G-d created Zillow? Well, would you enter a court room representing yourself? If you’re smart, probably not. Nearly 90 percent of all home buyers still use agents when making the biggest purchase of their life because they realize the value a good agent brings when it comes to writing a competitive offer to beat out others in a bidding war, negotiating with the seller’s agent (whose fiduciary duty is to look out for the best interest of the seller, not the buyer), how to insure all the proper inspections are performed, navigating the complex world of terms/contingencies/deadlines/special stipulations/lengthy inspection reports/low appraisals/handling mold or Radon and the list goes on.
“These are things you don’t learn on ‘Million Dollar Listing.’ Buyers simply have too much to lose and are not likely going to risk exposing themselves by ‘going it alone’ without experienced representation. They also realize that a seasoned agent will have an advantage in finding out about off-market homes or properties that have not yet been listed.
“And lastly, the notion that these new commission regulations will lead to lower home prices is absurd. Sellers will not be reducing their asking prices if they aren’t paying a buyer’s agent any more than McDonalds would lower the price of a Big Mac if the cost of pickles went down. They’ll just enjoy a bigger profit.”
Baron concluded, “The NAR settlement essentially scratched an itch that never existed. The system may not be perfect, but it has worked reasonably well for years and, while there’s likely to be some added confusion when these new regulations kick in, sellers will soon realize that making their home easier to purchase – rather than more difficult – will only benefit them in the end.”
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