NAH Lawsuit : Possible Effects to Realtors & Brokers

If a million real estate agents were to disappear, it would undoubtedly have a profound impact on the real estate market. Now, let's discuss this scenario in the context of someone trying to buy or sell a house using a realtor or broker.

In the world of real estate, professionals are abuzz with talk of what might happen if a million real estate agents suddenly vanish. According to the wise folks at KBW analysts, it's the top 20% of agents who are responsible for a whopping 80-90% of transactions. Even more jaw-dropping is the fact that the top 10% of agents handle about two-thirds of all transactions.

Now, the KBW analysts believe that if we see a complete unbundling of commissions and a subsequent reduction in the annual commission pool, many agents might decide to bid us farewell. So, what would happen in a world with significantly fewer agents?

If we look at agent counts compared to annual home sales in other countries, the ratio in Canada, which shares a similar market structure with the U.S., is almost identical. However, in many other countries, this ratio ranges from about 10 to 20, with a median of 16. This suggests that the number of agents in the U.S. could potentially decline to around 300,000 to 600,000 over time, representing a drop of 60-80% based on the current NAR membership of 1.6 million.

Now, what does this mean for buyers and sellers looking to navigate the real estate market with the help of a realtor or broker? Well, it could pose a real challenge, especially for those who rely heavily on buyer's agents. With the internet providing an abundance of information about available properties, many buyers are now finding their dream homes online, which might make them question the need for a buyer's agent.

In this evolving landscape, it's possible that specialists or hybrid models might become more popular, catering to the changing needs of buyers and sellers. Realtors and brokers may need to redefine their value proposition to remain relevant in the market.

But what about the financial aspect? How would buyers manage the costs associated with their agents if commissions were unbundled? Well, one clever solution being discussed is rolling these costs into the mortgage. Currently, a homebuyer can indirectly finance real estate commissions into the mortgage loan, as agent commissions are typically paid from the proceeds to the seller. However, financing a commission paid to a buyer's agent directly is not so straightforward.

Yet, there's hope on the horizon. Talks are afoot within the industry about creating a workaround without causing too much upheaval in the underwriting and origination process. Mortgage lenders and institutions like Fannie Mae, Freddie Mac, and the Federal Housing Finance Authority (FHFA) are actively exploring options to make this work.

So, in the world of real estate professionals, the real estate world is on the brink of change. If a million agents were to vanish, the industry would need to adapt and find new ways to provide value to buyers and sellers. With the possibility of commissions being rolled into mortgages, the landscape may evolve, ensuring that the real estate market continues to thrive even in the face of significant change. Stay tuned for more insights on these intriguing developments.