November 2024 - Autumn market Wrap Up and NAR Lawsuit Update

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     The dust has mostly settled from the National Assoc. of Realtor’s lawsuit, although more lawsuits are being brought as of this writing, including one by a Broker/Realtor who says they are forced by the organization to be a member in order to access the MLS. As far as the most recent settlement in August over the transparency of commissions, two main items have resulted.

     Listing Brokers are no longer allowed to display or advertise their co-broke (cooperating commission, or what they are willing to share to a buyer’s agent for procuring a buyer for their listing) in the MLS. The second major change is that any buyer who is being represented by an agent needs to have a signed contract in place about how and how much the buyer’s agent will be paid before stepping foot into one home with the buyer. Otherwise, it seems business as usual as deals continue to happen after the previously dreaded August 17th date, when the change took place. 

     As the Autumn Market continues here in the Capital Region, the seller’s market has softened up compared to a couple of years ago, but seller’s still have an advantage as demand outweighs supply. High housing prices have sidelined some buyer’s, while many seller’s still sit tight, not wanting to trade in their 2% - 4% mortgage interest rates for one closer to 7%. If rates do go down, spurring buyers to take action, will the increased demand only push prices higher? 

     No one has a crystal ball, but one has to search back quite a ways in the old memory to the time when it was a buyer’s market, second showings were almost always required, and homes sat on the market for 90 days easily before going under contract. Other times it could take a half a year if you priced too high. Now it’s a matter of days, or weeks at the most. But imagine this if you will…a neighborhood where there is a For Sale sign on every third house on the block, and buyers walk up and down the street choosing which one they like while sellers offer concessions to attract buyers.  There was a time.

Matt

A.       There are several factors that go into making a strong offer to help you be among the top candidates for sellers who are selling a house in a hot market. The first and most obvious is, of course, price. If the home has been on the market less than one week, and you know there are going to be multiple offers, you are going to want to offer over asking price. How much over is up to you and what you either can afford or be willing to pay. Whatever you decide, your monthly payment should be so it is comfortable for you, and not making you stretch your budget. Escalation clauses are another way to offer the highest price without getting beat out. They basically allow you to bid in increments a certain amount higher than the highest bid up to a cap. some sellers and their agents do not like these, and will not accept them, for whatever reason. One main reason could be so that offers come in higher rather than only a few thousand than the highest offer.

 
     Speaking of price, although many appraisers do their best to defend the purchase price of a home, they can only work with the available data, or sold comparables in the marketplace. Why defend a purchase price you may ask? Because market value is what a ready and able buyer is willing to pay. If you think an appraisal may come in short, you can agree to cover the difference between the appraised value and your over listing price offer. This assures the seller you won't be canceling the deal or asking them to take less if the appraised value comes in lower than the contract price.

 
     Although it's not something I would recommend, buyers can waive their home inspection. This puts a seller's mind at ease that they won't be re-negotiating the price if something comes up during a home inspection. This tactic is best used by someone who is already familiar with home construction, and is also willing to tolerate some extra costs after they close, such as a radon remediation system should radon be found after closing. (Radon is an odorless, colorless gas that comes out of the ground from decaying rock, and is one of the leading causes of lung cancer in the U.S.), replacing rotted wood in a hidden sill plate, or mold in the attic.. Some lenders may require a home inspection, although many still rely on their appraiser to be their "eyes and ears" to note troubled spots in a home.

 
     Being flexible with closing dates is also a good tactic. Some sellers may need to stay longer than usual, and being patient with them can go a long way. Finally, a strong earnest deposit, or good faith deposit is recommended. It shows sellers you have "skin in the deal", and are less likely to walk away should buyer's remorse occur. It's a lot easier to walk away from $1,000 than $10,000. 

 
     The above tactics are not for the faint of heart, but during a strong seller's market, and available "for sale" housing being so scarce, some of the above techniques may be the difference to getting into a home, or still being in "shopping mode, or worse having to keep renting.

Matt

A.     Yes. Starting August 17th, 2024, buyers will no longer be able to tour homes without signing some type of Buyer Broker Agency agreement. Currently, a buyer can see a home on Zillow, call an agent listed on the website (which is generally a paid advertisement), and make an appointment to tour a home without having any type of formal agreement in place.

     This will all go away in August. The types of agreements that will be in place are yet to be seen, and will likely vary among Brokers. Some may opt to have a one time showing agreement, and others may have a more detailed agreement attempting to secure a buyer into a longer term contract. 

     One thing that will be mandatory on all of these agreements are the way the buyer's agent is to be compensated. It may state a flat fee for showing so many houses, an hourly rate, or a straight commission when a sale is made. It will be up to the individual agency.

     Will buyer's really pony up the money to pay thousands of dollars out of pocket to a buyer's agent? Probably not. It appears as though a concession will be built into contracts that the seller will reimburse the buyer's agent their fee, so essentially, the buyer is still financing the buyer's agent's commission. 

     Some seller's may agree, and just up their price equal to the concession. It's all really up in the air at this point, and only time will tell how it all plays out. It should be noted, this only affects buyers and sellers who work with Realtors, and not all NYS licensed real estate sales agents and Brokers.

Matt

A. There are a ton of articles on the class action lawsuit against the National Association of Realtors (NAR). Much of the main stream news unfortunately is blatant "misinformation".  Since there is so much information out there, I won't play legal scholar here in this blog, but will try to give you what I believe to be an accurate as possible synopsis.

It has been a long standing tradition that when a Realtor collects a commission from a home owner for listing and selling their home, they give part of that commission to a cooperating broker, many times one from a different agency or firm. 

     The dispute arose because sellers of real estate were asking their listing agent, "If the buyer's broker represents they buyer, why am I paying their commission?" Some brokers may have been responding, "Because it is a requirement of our Realtor Association to offer a cooperating fee". This may or may not be the actual case because this practice varies by state and region. Here in the Capital Region of NYS, this has been more of a long standing tradition than a requirement. The concern focused on what are called “anti-trust” issues that brokers were colluding on price (commission) fixing. Since commissions were always negotiable, this was never the case, however NAR decide to settle the lawsuit to prevent their members Realtor Brokers) from getting sued.

     Rather than go into all of the “ways it used to be”, I will sum up how it will be moving forwards. Starting in July of 2024, there will be no more cooperating offers from listing brokers to buyer brokers. All buyer brokers will be required to be paid directly by their buyers. This may come in the form of seller concessions, where the buyer asks the seller to contribute to the buyer’s closing costs. Buyer’s closing costs may include the buyer broker’s commission.

     When in negotiations, a buyer, in order to pay their broker, may ask for concessions from the seller. The seller may decide to raise the purchase price in the amount of the concession, or they may not. It is all negotiable.

Although buyer’s may see this as a new, added expense, it in reality is not. They were always paying for the buyer’s broker to get paid as the fee comes out of the proceeds of the house for which the buyer is providing the money, their money.

     The bottom line is the days of real estate agents showing homes without a contract in place for how they will get paid are over. The MLS will no longer be a portal where commissions and fees are discussed between brokers, and will strictly be a market place for homes for sale.

Matt

A. The short answer is, no, not always. There are other terms in a real estate contract that may be more appealing to a home seller than just price, such as the earnest deposit, financing, home inspections, and closing dates. Let’s review these real quick.

     The earnest deposit, also known as a good faith deposit, is the amount that typically accompanies the offer, or is given shortly after an offer is accepted. This is meant to reassure the seller that the buyer has "skin in the game", and won’t walk away from the deal on a whim without consequence or financial penalty. This deposit is returned to the buyer when an item that came up in the inspection can’t be negotiated, or the buyer isn’t able to obtain financing as agreed upon in the contract. If the buyer does not have a legitimate reason however, the seller may be entitled to keep the deposit if the buyer tries to back out without good cause. If two offers are basically equal, the one with a higher deposit is better since it is easier for buyers to walk away from $1,000 than $10,000. This is especially true if the buyer waives their inspections, is paying cash, and has no other recourse to get their deposit back.

     Buyer financing also plays a role. The most common types of payment for a house are FHA or conventional financing, and cash. Although cash is perceived to be preferrable, a substantially higher offer that is being financed can still be better than cash, since the seller is getting a certified bank check at closing either way. When the price is close or similar however, cash may be the better option since there is no mortgage contingency to fall through. FHA mortgages benefit the buyer since they require less money down, but they can present problems during the appraisal if the home needs certain repairs such as painting.

     Home inspections are another term to consider. If you had an offer that was $5,000 less, but the waived inspections, would you take it over the higher offer? Sometimes it can be worth it to not have the hassle of haggling over items that are found during an inspection. One way to head off this problem is to get a pre-listing home inspection.

     Finally, closing dates can play a role. If a homeowner needs to stay in their home for a longer period of time for whatever reason, an offer of less money, but allows the seller to stay in their home for an extra month might be worth it since they would be laying out that expense somewhere else on a short term rental until their next home is ready.

     One more thing worth noting is the appraisal. During times of a seller’s market, when multiple offers can bid the price upwards, making an appraisal questionable, buyers who are willing to make up the difference between the appraised amount, and the price they agreed to pay can also be an important item to consider versus a buyer who won’t agree to doing so. 

     In conclusion, any one of these items, or a combination of them all, such as waived inspections and a cash offer with a strong earnest deposit may be a better offer than one with a higher price but with FHA financing, inspections, and a weak earnest deposit. Lean on your Realtor to help you decipher offers being presented to you to find the best one that suits your needs when selling your home.

Matt