What the NAR Settlement Means for Buying a New Construction Home

What does the NAR Settlement Mean for the New Construction Industry?

What the NAR Settlement Means for Buying a New Construction Home

In April, the real estate industry reached a pivotal turning point when a federal judge approved a major class-action antitrust settlement with the National Association of Realtors (NAR). Announced on March 15th, the decision forces the NAR to compensate a class of home sellers who filed a lawsuit for $418 million.

This groundbreaking ruling is set to revolutionize the traditional model of real estate commissions.  Now that the dust has settled it’s time to understand the potential impact on the new construction market, given that many real estate professionals predominantly serve buyers.

One note, as of now, the final rules have not been approved by the court, so all of these changes are speculative.

The NAR Settlement Explained

In most real estate transactions, the selling party offers a 5% to 6% commission. This commission is then split between the seller's and buyer's agent. The buyer's agent often receives a 2.5% to 3% commission.

All these details were indicated on the property listing, meaning the buyer's agent knew how much compensation they would receive from the start. However, proponents argued that this approach was biased because sellers who could not afford to pay the buyer's agent high commissions received low-grade services.

There have been concerns that real estate brokers might not show properties to clients if the commission offered by the seller's broker is lower than average or deemed insufficient, potentially limiting the exposure of properties to potential buyers.

In addition, sellers would have to increase the asking price of their homes to cover the cost of high commission rates, leading to inflated home prices, as sellers aim to net a certain amount from the sale after paying the brokerage fees.

According to the new settlement, the seller doesn't have to pay the buyer's agent any commission. The seller will only have to pay their broker the usual 2.5% to 3% commission. Because of this, most buyers' agents will ask their clients to sign a contract, agreeing to pay them a fixed fee or a percentage of the sales price.

The Settlement's Implications on the New Home Buying Process

The settlement's approval is great news for property sellers, as they don't have to pay much commission.

But what are the effects on new construction home buyers? As new construction continues to grow it is important to understand how this will affect buyer. This recent policy brings about positive and negative consequences, as explained below:

The Bad

While the NAR settlement has created a level playing field for buyers and sellers, it's also triggered a few challenges.

For one, buyers must dig deeper into their pockets to finance their agents' commissions. According to the existing guidelines, real estate commissions cannot be incorporated into mortgage loans. Therefore, buyers with tight budgets may have to apply for personal loans to finance this expense.

You could resort to a personal loan, which has higher interest rates than mortgages and raises your debt-to-income ratio. If this ratio is too high, it may disqualify you for a mortgage. The alternative is to forego hiring a broker and do everything solo. However, first-time buyers who resort to such a DIY approach could make costly mistakes.

Remember, an agent offers assistance in several areas, including negotiating inspection items, examining contracts, and securing the best financing terms. If you don't have adequate experience in such matters, it's wise to enlist help from an agent.

The Good

On one hand, it gives buyers more control when setting brokerage fees. With sellers taking a step back, it's up to the buyers to decide the amount they'll pay their agents.

Due to this, there will likely be changes in how agents charge fees. Some will resort to hourly fees, while others prefer a flat fee. Some agents may decide to charge their clients for every showing. Whatever the payment method, this gives homebuyers a wider pool of agents to select from.

The good news for home buyers is that technology can significantly expedite your search for the right real estate agent. By using specialized real estate platforms and tools, you can quickly match with agents who satisfy your needs, save you time, and guarantee a smoother house-hunting process.

For instance, you can use NewHomesMate to find the latest new construction listings. Our platform connects you to NewHomesExperts in your preferred area, who can help make your search more manageable by filtering through our extensive real-time data set on your behalf.

These Experts have the inside scoop on their local market, including current inventory, upcoming developments, and builder incentives. Their expertise can prove invaluable in buying a new home, particularly as the industry adapts to the evolving commission structure.

Partner Up with NewHomesMate

NewHomesMate's user-friendly interface and comprehensive database give you access to various options tailored to your needs and preferences. Whether you're house-hunting for the first time or you're an experienced investor, our platform enables you to make informed decisions and find the perfect new construction property.

As the real estate industry undergoes this transformative shift, leveraging the resources and expertise provided by NewHomesMate and our network of NewHomesExperts will be key to success in the new construction market. From the first tour to the blue tape walkthrough, we will be there for you.

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