Although there is no doubt that business practice changes outlined in the National Association of Realtors’ (NAR) nationwide commission lawsuit settlement agreement are going to impact how real estate industry professionals operate, economists aren’t too sure they’ll have much bearing on the housing market.
“I know that surprises people,” Orphe Divounguy, a senior economist at Zillow, said of the impact of business practice changes on the market. “Ultimately, the reason 80% of people move is because of life changes — getting married, starting a family. So, I look at the determinants of housing demand and the determinants of housing supply, and who pays commission are not part of that list.
“Incomes, wealth, life events, mortgage rates all play a role in determining housing demand, while on the supply side we have land costs, government regulations in terms of zoning rules, geographic constraints to building and builder financing costs,” Divounguy added. “So, I don’t think the commissions discussion will have much of an impact on the housing market as a whole.”
Selma Hepp, chief economist at CoreLogic, shares many of Divounguy’s views, but she does have some concerns about how the commission changes will impact first-time homebuyers. These people, she said, “are typically the ones that need the most help and are least familiar with the process.”
“Now they will have to come up with payment for real estate agent services, but that may be challenging for some who are already challenged in terms of coming up with enough down payment,” Hepp said of first-time buyers.
“So, say it gets rolled into their mortgage or they have to get another loan to pay it off. That gets rolled into their debt-to-income ratio, which means they look like a riskier buyer, which means their mortgage loan gets priced higher, which means they have an additional disadvantage because the cost of lending goes up for them. So, this is a further challenge for them to even enter the housing market.”
The plight of first-time homebuyers is also a concern for Mike Simonsen, the president of Altos Research.
“I do expect that, on average, consumers will spend less on commissions, so one could argue, that if transaction costs are lower, then we could see more transactions, so that is something we are keeping an eye out for,” Simonsen said.
“The other thing we are looking at is that the people who would really benefit from lower transaction costs are those who buy and sell homes at scale, which are the big investors. So, an unintended consequence of this is that the people who benefit are the big players and not people like first-time homebuyers.”
As these business practice changes begin Aug. 17, Simonsen has a few different markers he will be watching, including list-to-sale price ratio, days on market and the number of deals that fall through.
“In a normal market, homes sell and list for really close to the same dollar amount. Any given home might be over or under price, but on average, the sale-to-list price ratio is very close to 100%,” Simonsen said. “But the question is, if the buyer agency fees are being paid by the seller or by the buyer, how will that change the final sales price if it gets added in or taken out of the final price?”
Additionally, Simonsen wonders if “listings that are not offering any buyer agent commission are taking longer to sell and do they maybe sell for less?”
“There could also be a world where there are more unrepresented buyers, and we know that if there are more unrepresented buyers, there are more insurance claims and lawsuits, and deals fall through more often,” Simonsen said.
“Obviously, if the properties where the sellers aren’t offering concessions of any sort are taking longer to sell and selling for less, that will definitely dictate what everyone does with this moving forward, unless the DOJ (Department of Justice) or a regulator steps in and prevents sellers from offering any sort of concession.”
HousingWire Lead Analyst Logan Mohtashami is also reviewing indicators like days on market and sale prices as the business practice changes go into effect, but he doesn’t expect to see any real impact anytime soon.
“You always need about 12 to 18 months of a new law or rule going into effect to really get to see how the market will handle it,” Mohtashami said.
If sellers are unwilling to offer help with buyer’s agent fees, Mohtashami said they are effectively making their homes more expensive for buyers.
“When you have to bring in more cash, it is a big deal,“ he said. “Having the seller pay the buyer’s agent was always a stimulus program in a way for first-time buyers, and when you take that stimulus program away and ask people to bring more money, it changes everything, so I am excited to see that aspect plays out.”
With slower housing market conditions in many metro areas, Mohtashami feels this not the type of market for sellers to do much experimentation with commissions.
“Market dynamics do play a big part in this because it is not the best market for sellers to experiment with commission, with inventory rising and some cutting prices,” he said. “If rates go down, though, and you have more buyers in the pool, then we’ll have to see how this works when demand is kicking up, so that is a moving variable.”
At the end of the day, while economists don’t believe the business practice changes will have the same impact on the market as any interest rate cuts made by the Federal Reserve, it doesn’t mean they won’t be keeping a close eye on things.
