This newsletter is 1,017 words and should take about 9 minutes to read.
Read last week’s newsletter here → "3/15 Unfazed"
This one is going to be short. I’m out of town to watch the March Madness tournament in Salt Lake. But, I dig into the NAR lawsuit below.
Phoenix
The Cromford Market Index is a gauge of Phoenix’s Supply and demand metrics. 100 is considered a balanced market. Anything higher than the 100-point benchmark is considered a seller’s market. Anything below 100 is considered a buyer’s market.
As of March 22nd, 2024, the CMI has decreased to 114.2. Down 9 basis points from 7 days ago.
Supply has increased by 7 basis points and demand has increased by 1 basis point.
Rates
7-Day rate change: -18 basis points
YoY change: +46 basis points
Average interest rate: 6.91%
NAR lawsuit explained
Last Friday, The National Association of Realtors (NAR) settled a class action lawsuit for $418M to be paid in the next 4 years.
The lawsuit claimed that NAR used a “mafia-like” style approach to keep housing prices high. Sellers would pay the buyer’s agent commission. That is now a thing of the past. Sellers will not be required to compensate a buyer’s agent starting July 2024. The MLS will no longer show how much compensation a buyer’s agent will receive if they were to bring a buyer.
Buyer’s agent commission will have to be paid from either the buyer, seller or a combination of both.
Hot take from a Realtor myself - This change is what the industry needed. In my opinion, 5-6% is too much compensation to be paid by a seller for how streamlined the transaction process is now. However, I still do believe that there is value in the service and knowledge aspect of an agent. There are so many nuances when it comes to a real estate transaction such as financing, inspections, city-specific laws, HOAs, CC&RS, timelines, documents, appraisals, contingencies, conditions, novations, negotiations, creative financing options, and the list goes on.
Here’s what I believe will come out of the lawsuit
Housing prices will take a minor hit.
The reason I believe prices will experience a dip is because the financial barrier of entry just increased for buyers. This will limit purchasing power and hinder buyer demand to an extent. Leading prices to follow suit. The decreases will not be substantial, but it will be there. Especially in lower price point neighborhoods. But, a fair share of sellers will still be offering a commission to buyer’s agents. Think of this as an incentive to show and sell the home.
First-time home buyers will get hit the hardest. As mentioned before, buyers with cash win in this scenario. FTHBs typically are not as liquid with cash which translates to their negotiating power suffering.
Buyer’s agents used to “work for free”, not anymore. Before the lawsuit, some agents would use a form called “buyer-broker agreement” to be filled out when working with buyers. What this document does is state that buyers are obligated to work with a specified agent and company for a set period. Now, that document will be required by Arizona real estate law. There will be a specific dollar or percentage amount the buyer’s agent must be compensated at the closing table. As mentioned before, either the buyer picks up that amount, the seller, or a combination of both.
You’re a buyer and your agent isn’t performing to your expectations or you find an agent you’d rather work with during your search? You now will have to pay a severance fee for that buyer-broker agreement’s early termination. Buyers will vet their buyer’s agents much more thoroughly now. Which again, I believe is completely reasonable for both parties.
Part-time agents will be a thing of the past. The expectations for agents will be much higher now. And in an industry where the barrier of entry is so low, consumers will be much more particular when picking an agent. Some agents who work a full-time job would keep their licenses active in case their mother-in-law’s 2nd cousin’s ex-husband wants to buy a home. That will be almost nonexistent anymore.
I think that the industry standards for the “average” commission rate will float around 4-4.5%.
There will be more Consumer-Consumer lawsuits than ever before.
I’m unsure if you knew this, but one benefit of working with a Realtor is access to their paperwork/ documents. The Arizona residential purchase contract protects the buyer in every way shape and form. You get fired from your job 1 day before closing which leads to a loan denial? Congratulations, you are obligated to have your earnest money deposit refunded. You can thank the Realtor’s purchase contract for covering your assets on that.
Commissions are essentially going to be treated as a closing cost now. Before a real estate transaction’s closing costs would range from 1.5-2%. Now they’ll be 3.5%-4.5% depending on the buyer’s agent.
Lenders will create creative financing programs where you can pay your Realtor’s commission throughout X months “interest-free” on your loan. You’ll probably get charged a higher fixed rate so they can make money on the back end selling your loan on the secondary market. Remember, there’s no such thing as free!
It’ll take 18-24 months to iron out the fallout of these changes. But they’re much needed in an industry with such a poor reputation.
From a Realtor’s point of few- Good agents will probably take a higher market share and generate more income. Sure, they’ll make less per transaction but that’ll be made up for in the transaction volume. This industry is going to ongoing a massive and necessary trimming of fat in the next few months.
Also, there is a very slim possibility this gets shot down at the DOJ, but there still is that chance lol.
Below is your anti-Realtor propaganda meme that you can share on your Facebook or text your in-laws.
S&p 500 vibe check
Meme, tweet, & fact of the week
When Nike First Started, It Was Called Blue Ribbon Sports. The Name Was Changed In 1971.