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House hunters fear Realtor settlement could make homebuying harder

Jeff Collins, The Orange County Register on

Published in Home and Consumer News

Real estate investor Debra Falese called a landmark Realtor commission settlement “horrible” because it requires home shoppers to sign contracts with their agents.

That could leave buyers “locked into” working with unreliable agents, the Huntington Beach, California, property owner said.

New homeowner Morgan Hedrick worries the settlement will make it harder for future buyers if their broker fees come out of pocket instead of from the sale of the home.

And one home shopper outside an open house in Downey, California, was visibly angry, saying the settlement does nothing to help the consumer.

“Now I have to pay my own agent,” the man said. “There are so many hidden fees to begin with. Now you’re bombarded by another fee that can come out of your pocket.”

Homebuyers, sellers and the real estate industry as a whole are facing an uncertain transition under the proposed agreement the National Association of Realtors signed in mid-March.

Faced with more than 20 class-action lawsuits accusing NAR of price fixing, the trade group agreed to pay $418 million and to end the requirement that home sellers pay their buyer agent’s commissions.

A majority of home shoppers queried at open houses on a recent weekend either hadn’t heard about the settlement yet or, at best, had a vague idea of what it means.

But many who have followed the news expressed concern that first-time buyers or those new to an area will face additional difficulties because of the settlement.

Many buyers will have inadequate representation or no representation at all because they won’t be able to afford more experienced brokers, they said.

Some might seek representation from a home’s listing agent. In a seller’s market, buyers might hesitate to ask an owner to pay their broker fees because it renders them less competitive than other bidders.

“From what I can figure out, it’s not going to benefit the buyer,” Hairo Alonzo, 35, of Buena Park, California, said while touring an open house in nearby Norwalk.

As for who should pay the commission for the buyer’s side of a transaction, he said, “it should stay as it was.”

What’s ahead is uncertain

Seller-paid commissions kept broker fees artificially high, plaintiffs’ lawyers argued in the lawsuits.

The lawyers, some economists and consumer advocates say commissions will fall under the settlement because buyers will negotiate directly with their agents, spawning more competition among brokers.

The agreement is long and complex. But two key provisions stand out:

— Sellers would be banned from posting offers to pay buyer broker fees in listing databases, or the MLS (multiple listing service). But they still can find other ways to communicate such offers, ranging from emails and social medial posts to carrier pigeons, as one observer jokingly put it.

— Buyers working with a Realtor would be required to sign contracts spelling out how much their agent will get paid before they can visit a single home.

The settlement, which still needs court approval, is expected to take effect in July.

It doesn’t specify who will pay buyer commissions in the future. So, while buyers could end up paying their own fees directly, seller-paid buyer commissions aren’t necessarily a thing of the past.

For example, sellers still can post offers in the MLS to pay “concessions,” which buyers can use to pay their broker fees.

Questions abound

Some agents are starting to get questions about the settlement from their clients.

“We’re getting a question right now during listing appointments,” said Letty Vermeulen, an agent with Aspire Los Angeles. “People are a little bit confused about what that’s going to mean for them. And I think sellers want to make sure that they’re still being competitive, that their listing is still going to get the attention it deserves.”


If buyer fees are lower, they’ll have more money to spend on a house, Vermeulen said.

“Buyers want to know how they can possibly negotiate their fees, because obviously that’s going to put them in a better position to purchase,” she said.

But other buyers are worried they’ll have less to spend if they pay their commissions directly.

The Wall Street Journal reported that some home shoppers are hustling to buy a home before the settlement takes effect.

Buyers who knew about the settlement were split over whether it will be good or bad for them.

Erin Pan, 36, of Cypress, California, believes buyer-broker contracts could increase transparency, spelling out the commission rate and responsibilities of both sides.

But as a homeowner shopping for a bigger house, Pan worries about speculation the settlement could lower house prices.

“For me, I want to sell my house at the highest price,” Pan, who works in corporate finance, said while touring homes with her husband, Tim Wang.

Steven To, 60, of Walnut said he thinks the settlement could be good for buyers and sellers if commissions do shrink.

Fermin Diaz, 44, of Norwalk said he likes the idea of having a buyer-broker agreement when he buys his next home.

“It has its good and its bad,” Diaz said. “The good is you can negotiate the price. The bad is if they have a minimum, and they go up from that.”

After five years of renting, Morgan and Sam Hedrick finally bought their first home in Long Beach, California, in February. But Morgan worries future buyers like themselves will struggle to buy a home if they have to pay commissions.

“To have to pay 3% on top of a home that you’re already shelling out close to $900,000 on, you know, it’s a lot,” she said. “It’s going to be up to us as buyers to make sure that we can take out that extra percentage to pay our Realtors to find us a home.”

The idea that some buyers will go directly to listing agents “is a little worrisome,” she added.

“We’re making one of the biggest purchases of our life. And to put that into somebody we’ve never met before, we don’t really know if they have our best interest at heart,” she said.

Falese, the Huntington Beach real estate investor, is worried about the buyer contract requirement.

She once signed a contract with an agent to find a rental house in Long Beach. But, she said, “the contract was crazy because it covered all of California.

“I ended up buying two properties in Huntington Beach. So, if I would not have gotten out of that contract in Long Beach, I would have had to pay the agent in Long Beach who did nothing for me in Huntington Beach,” she said.

Does she think the settlement will be bad for buyers?

“How can it not be?” she asked.

When she bought her first house, she emptied her coin jar to help pay her closing costs.

At today’s prices, buyers already are paying a premium, she said.

Paying the buyer’s commission “just adds more burden to the buyers,” Falese said. “It’s a struggle for young people that are trying to get their very first home. I can’t even imagine how kids are making it work these days.”

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