2024 Real Estate Shake-Up for New Yorkers
Go Back To Previous PageMost real estate agents in New York City are not members of the National Association of Realtors. Find out how the group’s recent settlement will impact home buying and selling. The National Association of Realtors recently settled several lawsuits filed by home sellers. As part of the settlement, the organization agreed to pay $418 million in damages and abolish its traditional regulations on broker commissions. However, the settlement still requires the approval of a federal court. If approved, it would mean the end of the standard 6 percent commission that home sellers typically pay. This could lead to a new system in which sellers are not required to pay the full commission.
There are still many questions regarding how the settlement will impact U.S. home prices, how sales commissions will be determined, and who will pay them.
N.A.R.’s rules don’t bind most New York City agents because they’re not Real Estate Board of New York (REBNY) members.
Although the N.A.R. settlement may not directly affect real estate transactions in New York City, its effects are expected to ripple across the country. Earlier this year, REBNY introduced new regulations for agent commissions in home sales. However, it is unclear how these changes will affect the industry, even for REBNY members.
In a statement sent to its members, REBNY officials noted that the N.A.R. settlement “might impact the New York City market” and would soon analyze it and provide a report to their members.
How is REBNY different from N.A.R.?
REBNY was founded in 1896 and seceded from N.A.R. in the 1990s. The organization oversees licensing requirements and sets rules and regulations in New York City real estate. It represents more than 15,000 local real estate professionals and more than 800 brokerages. REBNY also operates the Residential Listing Service (R.L.S.), which provides members with exclusive listings.
The National Association of Realtors (N.A.R.) decision will impact the Real Estate Board of New York (REBNY) and its members.
What are the changes that REBNY has outlined?
In an update to its R.L.S. Universal Co-Brokerage Agreement, REBNY announced that compensation offers to a buyer’s agent must come directly from the home seller, not from the seller’s agent, even if it’s on the seller’s behalf.
The seller may choose to offer compensation to the buyer’s agent. If the seller declines to provide compensation, the buyer’s agent may negotiate directly with the buyer.
Previously, home sellers would typically pay the entire 6 percent commission on a sale, with the seller’s and buyer’s agents splitting it evenly.
How could this affect sellers?
According to some experts, the real estate market in New York City might not be affected by the changes that will impact other areas.
Even if the new regulations forbid sellers’ agents from offering commission incentives to their peers, the money will ultimately come from the seller.
In the past, the agents representing the buyers received half of the sales commission, typically 3%. Offering anything less than that could harm the sale. Most sellers would still offer the standard commission rate to avoid jeopardizing their sales. If a seller offers a lower commission rate to the buyer’s agent, fewer people may show interest in their property, which could lower the price and extend the time it spends on the market.
How could this affect buyers?
If a seller offers low or no compensation to the buyer’s agent, the buyer’s agent may have to negotiate a fee, resulting in an added cost burden for the buyer.
Suppose the seller is not offering the buyer’s agent any commission, but the buyer still wants to purchase the apartment. In that case, the buyer will have to compensate their agent.
Many homebuyers might find it challenging to pay the additional cash in addition to the down payment. If a buyer makes a 20 percent down payment on a $400,000 apartment, which amounts to $80,000, they would still have to pay their agent an additional $12,000 to cover the traditional 3 percent commission.
When buyers have to pay their agent’s fees, they can negotiate the rate below the standard 3 percent. In such situations, buyers have more bargaining power and can deal more effectively, so they pay less than the standard rate.
When the buyer and the seller pay for their respective agent’s representation, the client side has more negotiating power.
View of Manhattan from high rise window
Could buyers skip the agent?
Buyers can search for and purchase listings without an agent’s assistance, both online and offline.
New York City’s real estate market is complex and highly competitive. As a result, it may not be in the best interest of potential buyers to navigate the market alone. This is especially true for co-op apartments requiring extensive applications, financial disclosures, and interviews with prospective buyers.
The application process can be lengthy and confusing, making competent agents invaluable resources for buyers.
When buying property in a co-op market, it’s essential to have a competent agent representing the buyer to navigate the board approval process. Some sellers prefer not to deal with inexperienced and unrepresented buyers, as they may cause unnecessary complications.
People often assume they can handle real estate transactions independently because they have watched a TikTok video or a real estate reality show. However, they end up hurting themselves without the guidance of a professional adviser.
How will this change the game for real estate agents?
Thanks in part to the pandemic, the real estate profession is now crowded, with over 156,000 new agents in the United States from 2020 to 2021.
Ambiguity surrounding agent compensation may reduce the number of agents.
Too many individuals in this industry lack the necessary skills and knowledge, yet they charge the same 6% commission. This is all positive, as it creates a competitive environment that pressures commissions.
According to the speaker, the agents who choose to stay will become more experienced, helpful to their clients, and charge lower fees.
Real Estate Shake-Up: What does this mean for home prices in New York?
If sales commissions decrease, listing prices in New York may also drop. The median listing price in February was $825,000 (according to Realtor.com).
“If sellers become more aware of their options and start offering nothing to the buyer’s side, without any cost to them, then the overall commission will decrease by half, “As a result, we may also see a drop in home prices.”
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
