Navigating the NAR Commission Settlement: What It Means for Real Estate

The upcoming National Association of Realtors (NAR) Commission Settlement, going into effect on August 17th, 2024, is causing quite a stir in the real estate world. With many details still unclear, agents and industry professionals wonder what the future holds.

What's Happening with the Settlement?

The Council of Multiple Listing Services (CMLS), representing 225 MLS providers nationwide, has yet to offer specific advice on handling the settlement. Instead, they encourage "thoughtful conversations" and a "pick your own adventure" approach. This means different regions will likely hold the settlement differently, adding to the confusion. The NAR's FAQ page on the settlement, now with over 100 questions, shows just how complicated things have become.

Current Commission Rates

Historically, buyer's agents earned between 2.6% and 2.8%, while listing agents earned 2.8% to 3.2%. Recently, these rates have dipped slightly to 2.4%- 2.8% for buyer's agents and 2.8%- 3.0% for listing agents. There's no clear idea yet how these rates will change in the future.

Impact on Real Estate Agents and the Market

The settlement will likely affect real estate agents more than the housing market. The number of closed listings is currently low—70,473 over the past year, down from 74,060 the year before and much lower than the long-term average of 85,101. This downward trend will continue until mortgage rates ease and help the market recover.

Potential Benefits for New Home Sales

More transparent communication about agent commissions might boost new home sales. Builders could also save money by handling more transactions without external agents, allowing them to compete aggressively on prices.

What the DOJ Wants

The Department of Justice (DOJ) aims to lower real estate commissions in the U.S., which are higher than in other developed countries. They want buyer's agent commissions to be set directly between the buyer and their agent, not by the seller. However, the NAR settlement might not fully meet these goals.

Quality of Services

Lower commissions might mean buyers get less advice and support during the buying process, which could lead to costly mistakes. Like legal services, lower prices don't always mean better quality.

Market Trends: Cromford? Market Index (CMI)

The latest Cromford? Market Index data shows mixed results:

• Only two out of 17 major cities have seen an increase in market activity over the past month.
• Most cities have experienced slight declines, with Tempe, Gilbert, and Chandler seeing the most significant drops.
• The overall rate of decline is slowing, with an average CMI change of -5.4% over the past month, better than the previous week's -6.7%.

Nine cities are still seller's markets, though Tempe and Gilbert might only hold this status for a while. Two cities are balanced markets, while six have become buyer's markets. Notably, Scottsdale, one of the largest markets by dollar volume, improved by 6% in the last month, which is a positive sign, especially during the slow season for luxury homes.

Conclusion

As we approach August 17th, 2024, when the NAR Commission Settlement goes into effect, the real estate industry faces both challenges and opportunities. While there's a lot of uncertainty and potential for lower commission rates, navigating these changes thoughtfully is key. Maintaining high-quality services will be crucial for keeping clients happy and successful.