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Changes to Buying and Selling Your Home and a Lesson from March Madness
In our Episode called “Massive Changes are coming to the housing market” back on December 12th, we let you know that the National Association of Realtors was dealing with a Class Action Lawsuit regarding the way that commissions are paid on transactions. They lost and were planning to appeal. Well, On March 15th the NAR reached a settlement to address this lawsuit and another like it. It will cost them $418mm over 4 years. As a reminder, the issue at hand was what is called cooperative compensation. It deals with sellers’ agents having to list a commission for any buyer’s agents in order to list their home on the Multiple Listing Service, or MLS as it is commonly known. The complaint was that sellers shouldn’t be forced to offer a commission to an agent representing the other side of the transaction. It goes on to suggest that sellers should negotiate what percentage they are going to pay their listing agent, and that buyers should negotiate separately what they are going to pay their buyer’s agent. So, the NAR agreed as part of this settlement that selling agents can’t list a “blanket buyer’s agent commission” on the MLS. However, the settlement does not prohibit cooperative compensation arrangements altogether. Selling agents can still make the decision to share their commission with a buyer’s agent, but they can’t list that amount on the MLS. They can advertise that amount on other home selling platforms – like their website for example. So again, the practice of sharing commission has not been outlawed, but advertising a buyer’s commission on the MLS has been. These changes are scheduled to take effect in mid-July. So how will this affect the way you buy a home today?
If you are a home seller, in the near future, you’ll have to discuss with your realtor whether you want to offer a buyer’s commission. If you decide to do this, buyer agents might be more likely to show your home to their clients. In other words, your home will probably be more attractive if you are offering a buyer’s agent commission. Your listing agent will be able to advise you on this and it will probably depend on a number of factors, including the tightness of the housing market. Selling agents may also decide separately that they still want to share the portion of their commission that you have agreed to pay them. If a selling agent wants a buyer to be qualified, represented, and to have a greater chance of closing, it may be in the best interest of the seller’s agent to share that 5-6%. Is it possible that commissions come down on what seller’s agents are willing to work for? It’s possible, but still unclear, as it will take time for the market to adjust to the new rules of the road. Commissions may not change at all – depending on what specific things your listing agent has promised to do on your behalf.
If you are a home buyer, don’t be surprised if your agent tells you that you will be responsible for his or her commission, if for some reason the seller is not offering to pay it. The buyer’s agents can’t work for free, so if they are not paid by the home seller, they will need to be compensated by you. So, one of the unintended consequences of this settlement may be less representation for buyers. More people may decide to “go it alone” and go about the buying process without the help of a realtor. I would make the argument that even if you are paying a buyer’s agent out of pocket, a good one is worth it. A good buyer’s agent might be able to negotiate more effectively than you and might even pay for themselves by saving you more money on your offer than you could have saved yourself. So, talk to a buyer’s agent the next time you are buying, and just make sure you understand how they are going to be compensated.
This is very fresh news, and the industry is still trying to sort it out. For realtors, they will now be able to be paid for their work without subscribing to the MLS. I think it is very possible that alternative listing services will gain popularity and fewer realtors use MLS in the future because of its limitations on advertising commission sharing.
March Madness Proves the Impossibility of Prediction
Did any of you have N.C. State in your final four? Unless you went to school there, or are a superfan, I am going to guess that you didn’t. Nothing reminds us of the impossibility of specific prediction more than March Madness. We would love to think that we have a crystal ball that gives us insight into exactly what is going to happen in the future. But the fact remains that we just can’t. In the Wilson family, we do a bracket each year. My kids are 16, 14, 10 and 8. Would you care to guess who in the family has won the most bracket challenges? Is it my 16-year-old who spent hours of research on every team in the tournament? No. It has been my 8-year-old, who likes to pick winners based on their mascot. You can be a “basketball expert” like Charles Barkley, and still get specific predictions wrong. So, if it is a general rule that we can’t make exact predictions, what do we do when looking into our financial future? You cannot predict specifically, but you can prepare generally. In other words, it is much more helpful to make general assumptions rather than specific predictions. As part of those general assumptions, we need to plan for unwanted alternatives to take place. As I’ve said before on this podcast, it is wise to make a “this is what I think is going to happen” assumption. But then make plans for “this is a worse scenario that could happen” assumption. Let’s use a quick case study to see how this will play out. Let’s say that you are building a house, and the builder has told you it will take a year to build, and it will cost you $250,000. That may be your base assumption. But you would be wise to prepare for things that might go wrong. Planning for a 20% overrun would be wise. That means you would need to be prepared for the house to cost $300,000. Hopefully, everything goes just as you assume that it will. But you don’t want to be caught without options if it doesn’t. We sometimes call this having margin with your finances. By all means, hope for the best. But prepare for less than the best. As a TN fan of both football and basketball, that philosophy has served me well over the years.
Speaking of things not going as you plan, have you ever bought a new phone, only to drop it and shatter the screen a few weeks later? You can prepare for this unwelcome possibility by having a Foundation Benefits or Foundation Benefits with high interest checking account. As long as you have your cell phone bill drafted from this account, you have up to a $400 benefit that would help replace your screen in the case of this dropped phone scenario. Certain terms and conditions apply, so visit our website to start a conversation with us today about this valuable financial solution. That’s what we do at MBC and Foundation Bank – provide financial solutions. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.
-President Chad P. Wilson, CFP
Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of McKenzie Banking Company / Foundation Bank on April 2, 2024. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. MBC/Foundation Bank is an Equal Housing Lender, Member FDIC.
