Loan originators have been mulling over news from the National Association of Realtors (NAR), which agreed to a $418 million settlement March 15, transforming several rules and guidelines set by the NAR that critics say have kept housing costs artificially inflated.
The case, brought against the trade association on behalf of home sellers and related to agent compensation, is expected to take effect sometime around July and would be paid over four years, pending a judge’s approval. Multiple listing services (MLS), overseen by NAR, are now prohibited from providing commissions to buyers' agents.'
Discussions between LOs about the impacts of the settlement got heated on social media this week.
"LOs need to fight for their commission the same way [real estate agents] are fighting for theirs," "the allure of homeownership may diminish," and, "I think we will be seeing more [down payment assistance] to cover commissions" were a few of the reactions from loan officers on Facebook.
NAR, who has denied wrongdoing and did not respond to NMP's request for comment, released a statement on Tuesday saying they do not set commissions. The beginning of the statement reads, “The National Association of REALTORS (NAR) does not set commissions – they are negotiable. The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation. That offer can be any amount, including zero. And other rules throughout the MLS Handbook and NAR policy expressly prohibit MLSs, associations, and brokers from setting or suggesting any such amount that should be included in that field.”
Why It Matters
The March 15 settlement would give home sellers the option to compensate real estate agents in the sale of their homes, no longer requiring them to pay agents the standard 6% commission, which means that agents’ commissions could decrease dramatically. Buyers may also have to pay their brokers directly in the future, depending on if they choose to use one or not. With the current 6% commission rate, a homeowner selling a $400,000 property typically incurs approximately $24,000 in broker fees, ultimately transferred to the buyer. If the new regulations result in reduced commissions, that same homeowner may witness their broker's fee decrease to around $12,000.
It also would allow sellers to shop around for different rates. Other broker tactics that critics say are anticompetitive, such as a rule that made sellers’ agents set compensation for buyers’ agents, will be prohibited. Real estate commissions are expected to fall between 25% and 50% because of the new rules, according to TD Cowen Insights.
Michael Greco, broker and owner of Texas-based Greco Mortgage, is most concerned about the impact on first-time homebuyers and cooperative compensation, meaning an agent or broker representing a home seller typically splits a commission with the agent representing the buyer. "They barely have enough to put that 3% down, never mind put anything else down. We need closing costs covered by the seller," Greco said in an interview with NMP. "If the seller isn't offering cooperative compensation, the borrower will fight over who gets paid. But if the real estate community stands by sellers offering cooperative compensation, that's the best model."
Continued Greco, "Currently, half of my buyers require seller credits for closing costs to be approved, and unfortunately, this assistance is now at risk...For properties that don't offer such commissions, sellers may suffer from reduced activity."
Kyle Beeler, a California loan officer with Motto Mortgage and a Realtor, says that the NAR settlement is "an overreaction," citing that California is already using contracts and buyer agreements without the MLS mandating certain percentages. Beeler took to Facebook to document his concerns about the settlement, writing, "VA does not allow veteran buyers to pay a buyer's agent commission. Are we going to stop selling to Vets? Getting loans will be much more difficult if not unattainable and the housing market will decline. If a homeowner reads this and thinks they are going to pocket the extra % from a sale then they are confused by the false narrative being pushed on TV and social media."
The silver lining is that homes are expected to become more affordable. The median-priced U.S. home for sale sits at $387,000, which means today’s sellers are paying more than $23,000 in brokerage fees. Those costs are passed on to the buyer, which in turn boosts the price of the home. That fee could fall by around $6,000 to $12,000, per TD Cowen Insights.
Industry Concerns
A Redfin release highlights the structural concerns associated with the settlement, namely fee transparency. “For our entire history, Redfin has advocated for lower fees, transparency and more choices for real estate consumers. We’ve saved our clients over $1.6 billion in fees,” the statement read.
The statement continues to ascertain that Redfin believes fees paid to buyers’ agents will fall, reading, “Redfin believes that competition over the years has lowered the fees a seller’s agent can charge. If buyers choose an agent based in part on fees, we expect that the price pressure on buyers’ agents will be even more intense than that on listing agents.”
Other predictions and challenges Redfin’s statement highlights include the number of homes marketed outside of the MLS increasing, making it harder for buyers to get a complete view of the housing market; buyers’ agents will require their customers to sign buyers’ agency agreements, and more listing agents will sell homes directly to buyers.
Marty Green, a principal with Polunsky Beitel Green, commented, “In my view, NAR made the correct choice to resolve the claims because the settlement, although extraordinarily expensive, provides a path forward where NAR can help the industry navigate the path to a new commission structure that becomes more negotiable.”
Green continued, “The industry will be in transition as everyone digests the settlements and market forces begin working. I think we will begin to see some creative buyer's agent arrangements that may have been harder to get traction on before. But these changes won't happen overnight, and I anticipate a certain amount of uncertainty for the coming months…this uncertainty impacts not just the real estate community, but also consumers, as mortgage underwriting guidelines have looked at real estate commissions based on how they have historically been paid. We are still in a seller's market, so I can envision some sellers not being prepared to pay the buyer's side agent or limiting the amount they will pay.”
Mortgage Partner Agent Programs
The settlement also presents a roadblock for mortgage lenders to attract clients by providing incentives to homebuyers who opt to work with the lenders’ affiliated real estate agents.
Several major mortgage lenders, such as Rocket Mortgage and loanDepot, receive referral fees from their partnered real estate agents in return for leads — including buyers without representation who are eligible for a mortgage or are in the process of selecting a lender. These lenders can encourage buyers and sellers by offering significant monetary benefits to those who choose to collaborate with their affiliated real estate agents, including cash bonuses or credits toward closing costs.
Since part of NAR's settlement prohibits listing brokers from making offers of compensation to buyers’ agents through MLSs, this could pose a challenge for lenders in promoting incentives to individuals who consent to engage with their affiliated agents.
