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The world of real estate is in for a shakeup. A landmark antitrust verdict and subsequent settlements are poised to reshape how homes are bought and sold across the U.S., with potential benefits for buyers and sellers. As highlighted in a recent Barron’s article by Shaina Mishkin, these changes promise to significantly alter the dynamics of real estate transactions, fostering a new era of transparency and negotiation. Here’s a deep dive into the upcoming changes and their impact on your home-buying journey.
From Standardized Commissions to Negotiable RatesFrom Standardized Commissions to Negotiable Rates
For decades, the real estate transaction process has followed a familiar script, with sellers typically offering a commission to the buyer’s agent (usually 2-3% of the sale price) embedded in the listing on Multiple Listing Services (MLS). This system has kept commissions reasonably static, although data indicates a higher average commission rate in New York City, hovering around 5.39% in 2024.
From Commissions to NegotiationsFrom Commissions to Negotiations
This shift towards negotiation presents a unique situation for New York City, where average commissions are already higher. However, there are signs that the market is adapting. Despite the upcoming changes, many Manhattan sellers still offer a buyer’s agent commission, sometimes at a slightly reduced rate (around 2.5%). In Brooklyn and Queens, the commission offered is even lower, typically around 2%. This remains positive for buyers who will likely not need to pay for a buyer’s agent in New York City. Perhaps this is because the buyer pool is thin and interest rates are high, so sellers want all the marketing power they can get, and reaching all buyers’ agents helps greatly. It is essential to note the MLS does not govern New York City.
Instead, we have the RLS by The Real Estate Board of New York that considers national events and evolves to provide a fair and equal opportunity in real estate dealings.
New York City DecouplingNew York City Decoupling
New York City has implemented changes to the real estate commission structure in a separate but related development. The Real Estate Board of New York (REBNY), which oversees the city’s real estate agents, decoupled commissions for buyer and seller agents on January 1, 2024. This means sellers are now responsible for directly offering and paying compensation to buyer agents, rather than the traditional system where listing brokers factored buyer agent commission into the asking price. REBNY believes this change promotes transparency and aligns with the evolving landscape of real estate transactions. While the impact of this decoupling on commission rates remains to be seen, it adds another layer of complexity to the national conversation about buyer agent fees.
Beware of Discount Buyer Agents or RebatesBeware of Discount Buyer Agents or Rebates
Purchasing a home is a serious business in which you stand to make or lose thousands, to hundreds of thousands or millions. Think about the consequences. Would you feel comfortable hiring a discount attorney in a complex lawsuit? Similarly, an inexperienced or under-qualified agent might not have the expertise to navigate complex negotiations, identify potential problems with a property, or secure the best property and possible deal for you. Remember, the agent’s compensation is directly tied to the quality of their service. While it’s tempting to go with the lowest commission, the potential downsides can outweigh the savings.
The Benefits of BargainingThe Benefits of Bargaining
Negotiating directly with agents potentially empowers buyers to secure lower commissions. Industry experts predict a slight decrease in the average buyer’s agent commission (currently around 2.66%) over the next few years.
However, it’s important to remember that negotiation is a two-way street. While aiming for a lower fee is tempting, completely bypassing a buyer’s agent could be costly. Experienced agents offer invaluable expertise in navigating the complexities of the home buying process, many with preferred access and know-how. They can provide insights into local market trends, identify potential red flags on a property, handle the intricacies of inspections, and guide you through the negotiation process to secure the best possible deal. Once an agreement is reached in New York City, they also handle condo and co-op board applications, streamlining the buying process and presenting comps for the appraiser. Agents also have many relationships with vendors that beat scouring Yelp.
Demystifying Buyer-Agent Agreements:Demystifying Buyer-Agent Agreements:
Buyer-agent agreements outlining the scope of services and associated fees have become mandatory to ensure transparency and informed decision-making. Often used in some states and brokerages, these agreements will now be standard practice nationwide, including in New York, which was not required until now.
Before signing on the dotted line, take the time to review the agreement carefully. It should detail the services provided by the agent, including:
- Market analysis and property search: How will the agent identify properties that meet your needs and budget?
- Showings and negotiations: What level of access and support will you receive during property visits and offer negotiations?
- Communication and responsiveness: How will the agent keep you informed throughout the process?
- Termination clause: What procedures and fees are involved if you terminate the agreement?
- Additional fees: Are there any extra charges beyond the commission, such as transaction or administrative costs?
Don’t hesitate to ask clarifying questions and negotiate the terms of the agreement to ensure it aligns with your expectations and budget.
Finding the Right Fit: It’s All About the AgentFinding the Right Fit: It’s All About the Agent
With the emphasis shifting towards negotiation, choosing the right agent is paramount. A good agent is your trusted advisor throughout the process, leveraging their expertise to secure the best possible outcome.
Here are some tips for finding the perfect match:Here are some tips for finding the perfect match:
- Interview multiple agents: Interview several agents to assess their knowledge of the local market, communication style, and experience level.
- Seek referrals: Ask friends, family, or colleagues who have recently bought a home for recommendations.
- Check online resources: Utilize online platforms to compare agents in your area, read reviews, and check for any disciplinary history.
Considering Agent-Free? Weigh the Pros and ConsConsidering Agent-Free? Weigh the Pros and Cons
The changes also allow for a more independent approach to home buying. While some buyers may opt to navigate the process without an agent, weighing the potential cost savings against the value an experienced agent brings is crucial.
Here’s a breakdown of the pros and consHere’s a breakdown of the pros and cons
Going Agent-Free (Pros)Going Agent-Free (Pros)
- Potentially lower cost: You could save on commission fees by handling property valuation, negotiations, and paperwork.
Going Agent-Free (Cons)Going Agent-Free (Cons)
- Increased workload: The home-buying process is complex and time-consuming. Researching properties, scheduling tours, negotiating offers, understanding legal documents, and managing inspections can be overwhelming for a first-time buyer.
- Limited market knowledge: Without the expertise of an agent, you may miss out on valuable insights into local market trends, potential red flags on properties, or hidden gems that haven’t yet hit the MLS.
- Weaker Negotiating Power Without an Agent: Skilled negotiators and real estate agents leverage their experience and market knowledge to secure the best possible deal for you.
A New Era of Service Options:A New Era of Service Options:
The changing landscape is fostering innovative service models from agents and brokerages. Some are offering alternative service packages like flat fees or rebates. These options can be a good fit for buyers who have already identified a property of interest and don’t need full-service representation.
For example, as mentioned in Barron’s article, Gea Elika, the managing principal broker at New York City-based ELIKA Real Estate, rolled out a “light” service option late last year. This model charges buyers a flat out-of-pocket fee, ranging from $3,500 to $7,500 depending on the property price, and covers tasks like reviewing the listing price, submitting and negotiating an offer, providing guidance, and preparing the application. ELIKA remains committed to tailoring services to homebuyer needs while still providing the option of full representation.
Challenges and AdjustmentsChallenges and Adjustments
As with any significant change, there will likely be a period of adjustment as buyers, sellers, and agents adapt to the new rules. Here are some potential challenges to anticipate:
- Disagreements over Commission: The shift towards negotiation could lead to disputes between buyers and sellers regarding agent fees. Effective communication and a willingness to compromise will be critical in navigating these situations.
- Fair Treatment for Veterans: Concerns about the potential impact on veterans who utilize VA loans have been raised. These loans currently prohibit veterans from paying real estate commissions. However, the Department of Veterans Affairs ensures veterans are neither disadvantaged nor overcharged in home-buying. They are actively working on adjustments to the regulations to address this issue.
Key Takeaway: Embrace the ChangeKey Takeaway: Embrace the Change
The upcoming changes in real estate commission structures present an opportunity for a more transparent and potentially affordable home-buying experience. You can confidently navigate the process by educating yourself on the new landscape, understanding the role of buyer-agent agreements, and carefully selecting an agent who aligns with your needs. While cost might be necessary depending on the market, a qualified agent’s expertise and guidance are invaluable in securing your dream home.
Additional ResourcesAdditional Resources
- National Association of Realtors (NAR)
- Consumer Federation of America
- The Real Estate Board of New York