Real Estate Spotlight
NAR Settlement Unlikely to Make Homes More Affordable
By Carlie Back, Keller Willaims Realty East Valley
I have been asked recently about the settlement by the National Association of Realtors, NAR, and if it will help to make homes more affordable. Unfortunately, the headlines and reporting have been inaccurate and confusing to the public. The settlement has nothing to do with controlling or lowering the commissions charged by agents. The amount of compensation an agent charges is not set--and has never been set. Sellers have always had the right to negotiate the rate and the option to shop different agents and companies with varied compensation agreements. There have always been discount brokers that will offer less service for lower fees, and a la carte fees, where the seller can pick and choose which services they desire. Sellers are able to sell their properties without an agent in a "For sale by owner" scenario.
The outcome of the recent settlement is that listing agents may NOT publish on the Multiple Listing Service (MLS) to offer cooperative compensation to agents who are representing the buyers in a transaction. As long as I have been in the business—more than 30 years--seller's agents have offered to share the commission they are charging a seller to compensate an agent representing a buyer to sell the house. When the listing agent shares the compensation with the buyer's agent, the buyer does not have to come up with more cash to pay for their agent's commission; in addition to closing costs, down payment, title and lender fees. These additional fees eliminate many buyers from the buying pool. Before I got into the business, subagency was common. It was thought that because the commission was being paid by the seller, an agent bringing a buyer was a sub-agent of the listing agent. This meant that both agents had a fiduciary responsibility to the seller, leaving the buyer unrepresented. This cooperative agreement provided the buyer's agent compensation and the buyer protection.
The media is reporting that home prices will become more affordable because of this settlement. Home prices are created by supply and demand. Cost of the sale, commission, closing costs, title and lender fees do not contribute to the value of a property. The fact that a seller is not paying a commission that is cooperatively shared with the buyer's agent does not mean they are going to lower their sales price by the amount of the commission they saved. Most sellers are going to want the market value. The buyer is unlikely to see the price lowered by the amount of the saved commission. Sellers can continue to compensate buyer agents, and most listing agents will recommend this as an option to assist in the sale of their property.
Buyers are the group most affected by this settlement. Appreciation of home values and higher interest rates currently are challenges for buyers. They are having to come out of pocket for down payment, closing costs, and now may have to pay compensation. In addition, many loans will not allow buyers to finance a fee for compensation. VA buyers are not allowed to pay compensation, creating challenges for veterans. Agents working with buyers will need to explain this to buyers and use a Buyer Agency Agreement where the buyer may have to agree to pay a fee for representation.
The settlement IS going to change the way we operate. However, it will not change many aspects of our business; agents will communicate with buyers and sellers and let them know ALL of the options available to them, we'll continue to work long hours, nights, and weekends, and look out for the best interest of our clients. We work for free, and do not get compensated until the transaction is successfully closed for our clients.
If you have questions on the settlement or any other real estate topic, please reach out to your real estate agent or give me a call at 602-481-5184.
Carlie Back can be reached at: carlie@carlieback.com or carlieback.com
2024 Real Estate Market Looking Optimistic
By Carlie Back, Keller Williams Realty East Valley
The Real Estate Market in 2023 had challenges, mortgage interest rates rising, increased home prices, and a low supply of homes for sale. These factors contributed to a low number of homes sold in 2023. Arizona Regional Multiple Listing Service, ARMLS reported sales volume for 2023 at 4,265. This is the second lowest sales volume in the last 20 years; only 2008, when we experienced the real estate crash, were fewer sales recorded.
Increasing mortgage rates were the main reason for the decline. Rising interest rates have much more of an impact on affordability than rising home prices. For buyers, lower interest rates have a much higher impact on the monthly payment than the price of the home. New home builders have been offering to buy down buyer's interest rates to stimulate sales. They have found that 6 percent is the "magic" interest rate to get buyers to sign on the dotted line. The builder pays the lender upfront to lower the interest rate, making it easier for a buyer to get a home.
There are many sellers wanting to move/sell, yet they are sitting on the sidelines. It is difficult for them to move from a 2- to 3-percent interest rate on their existing home to a much higher rate on a home that in most cases will cost them more. After experiencing the low rates in 2020 and 2021, the consumer sees 6 and 7 percent rates as high, but historically they are not. Interest rates fluctuate: In the past 30 years they have averaged in the 5 to 10 percent range and peaked in 1981 at a whopping 18.6 percent. Historically, rates are not high, it just seems high in comparison to the current past rates.
Many real estate experts are forecasting good news for 2024 when it comes to rates. The Federal Reserve has raised rates in efforts to curb inflation. This has proven to be effective, and they have not raised rates in their last few meetings in 2023. It’s expected that rates will remain steady and may even be lowered later this year. Lawerence Yun, Chief Economist at the National Association of Realtors is forecasting that rates will drop to between 6 to 7 percent towards the end of the year.
When, and if rates come down, will determine movement Lower rates will improve consumer confidence and buyers will get off the fence as homes become more affordable. With the ongoing challenge of low inventory, (the number of homes for sale), coupled with an increase in buyer demand, we could see fierce competition in the market for buyers. Lower rates will also motivate more sellers to sell. This will add supply to the market, but not enough to fill the demand.
Now is a good time to buy. The sellers that have been on the market during the slow activity of 2023 and early 2024 are not receiving multiple offers and are much more likely to work with a buyer on price, buying down the buyer's interest rate, and/or offer assistance with down payment and closing costs. When there is more competition in the market, buyers do not have this luxury. When, and if rates come down, buyers can always refinance. We are not seeing home prices dropping, except on overpriced listings.
Homeowners will agree that buying a home is a great financial investment. Over time they see their equity increasing and they need a place to live. Paying rent is like paying 100 percent interest. In comparison, 7 percent seems like a low rate. We are now in a relatively balanced market and moving slowly towards a slight seller’s market; it is a good time to buy. Do not wait for the rates to decrease. If you do, you will be competing with all of the other buyers that are waiting for that to happen. When interest rates were low, forcing buyers to make fast decisions, making offers well over the asking price, agreeing to waive inspections and appraisals to secure a home. Right now, buyers can take more time, properly inspect the home, and proceed in a more prudent manner than when the competition is strong.
In 2024, look for rates to lower slightly. Demand is pent up, and as rates decrease, demand will increase with buyers and sellers coming off the bench. Supply will remain tight, and competition will again be strong for buyers wanting to invest in a home. Rental rates are high, the average in ARMLS is $2,250 and the median is $2,095 a month. Why not apply that rent to paying off your own mortgage and not your landlords? Owning your own home versus renting is, and always has been, a wise investment and a place to build memories.
Carlie Back can be reached at: carlie@carlieback.com or carlieback.com