Multi-million dollar settlement changes how realtors charge. Can it help KY homebuyers?
Homeowners are no longer required to offer their buyer’s agent a commission when they sell, according to the terms of a $418 million settlement reached earlier this year between the National Association of Realtors (NAR) and sellers who accused the trade group of breaking antitrust law.
Prior to the settlement in effect as of Aug. 17, it was a common practice for sellers to pass along that commission cost — in many cases 6% split between the buyer’s and seller’s agent — onto homebuyers, inflating the home’s sale price. Going forward, buyer’s agents will be required to discuss compensation arrangements upfront and enter into written agreements with buyers before they start showing properties.
So, with the old way of doing things gone and more transparent fee negotiations, can homebuyers in Kentucky expect to see prices come down?
Chris Bollinger, an economist and University of Kentucky research professor who’s studied housing markets, is somewhat skeptical about that prospect.
While Kentucky homebuyers may see a dip in home prices — or at least a slowdown in how fast they rise — Bollinger can see a post-NAR settlement future where things don’t end up changing all that much.
Here are some takeaways to help homebuyers understand how this settlement may or may not end up affecting Kentucky’s housing market.
What affect will the NAR settlement have on home prices, if any?
As mentioned, Bollinger anticipates buyers may see a slight dip in home prices post-settlement. However, “decline” isn’t often what homebuyers think it is.
“Economists tend to say ‘Oh, the price of houses will go down.’ Well, what we really mean is they won’t go up quite as fast this year,” Bollinger told the Herald-Leader in a phone interview Thursday.
The latest available data from the Fayette County Property Valuation Administrator puts the median home sale price here at $322,000 for July. That’s still much more affordable than the national median home sale price for that same month: nearly $440,000, according to real estate site Redfin.
In Fayette County, the median sale price for a single-family home has gradually increased this year from $305,000 in January to a June peak of $330,000. This is in line with the rise and fall of the home-buying season, which peaks in the summer when families like to move before school starts back.
What matters most is how buyers will decide to shop for a home
Homebuyer behavior is likely to be more influential on home prices, according to Bollinger. Even before the NAR settlement and the changes it’s ushering in, homebuyers were shifting how they shop.
Bollinger has lived in Lexington for almost 30 years and points out that, back then, “the only way I could even find out what was available was to talk to a realtor.”
These days, many buyers are likely to ask realtors who want their business, “I can go on Zillow. Why do I need you?”
The decision of whether to even hire a realtor will likely hinge on who the homebuyer is and their situation.
“I do think there are people who will want to use a realtor,” Bollinger said, with those people most likely being out-of-state buyers or wealthy people who value those services as a way to save time. “But if I was looking for a house in a city like Lexington, where I’ve lived for 25 years, I know what neighborhoods I want to live in. I know how to find houses. So I think it’s going to depend on what kind of buyer you are.”
Homebuyers will likely see more options and flexibility
Things may not change much for homebuyers more broadly. After all, there are at least 18 states that required buyer-agent agreements before the NAR settlement.
On the other hand, realtors themselves have been preparing for months ahead of the settlement going into effect, including Kentucky Realtors, the state chapter of the National Association of Realtors.
“Kentucky Realtors has been working diligently to prepare its members statewide through several in-person and virtual training classes on the changes and the related forms. The association has also led town halls across the state to answer questions from its members,” an emailed statement from Kentucky Realtors spokesperson Jamie Johnson reads in part.
“The changes will allow even more conversations between realtors and their clients, ensuring mutual understanding and clarity into the real estate process. Realtors are dedicated professionals working to help their clients achieve the dream of homeownership,” Johnson’s statement continued.
Randy Newsome, the president of Bluegrass Realtors, echoed that sentiment in an emailed statement that reads, in part: “Real estate is a relationship business so much of the focus has been on how to continue serving clients in the best way possible when dealing, often times, with the largest transaction of their lives. The settlement, ultimately, brings more transparency to the process so buyers and sellers will better understand the services provided by their trusted realtor.”
What Bollinger is confident in predicting is that different types of brokerages with different business models and price points will crop up to accommodate the shifting demands of the market. Examples include flat-fee or discount brokerages that offer à la carte services, allowing clients to pay for only what they need.
Prior to the settlement, with the industry standard 6% commission split between the seller’s and buyer’s agents, that would amount to $15,000 for a home selling for $250,000, which popular real estate site Zillow reports is the median sale price in Kentucky as of June. The commission would cover services such as marketing the home, negotiating the sale and managing the closing paperwork for the sale to go through.
These changes could ultimately affect the number of agents in the market. Bollinger points out “realtors are salespeople” and their skills could translate to positions in other industries if they find they can make a better living doing something else.
“There are as many realtors as the market can handle, and the market is changing,” Bollinger said.
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This story was originally published August 27, 2024 at 10:49 AM.