Last time I promised a look at what would happen if the buyer paid their own brokers instead of the seller compensating both. I’ll get to that in a moment but I first wanted to reflect on where we are in the housing market and what I think will happen in 2024.
Congratulations, We Survived The 2023 Market
It has to be one of the strangest years in real estate ever.
Are prices up or down? Yes!
Is it a seller’s market or a buyer’s market? Yes!
Is it a terrible time to buy a house or a horrible time to buy a house? It depends!
When will rates come down? Someday!
I’ve joked that every year previous to 2023, the majority of my clients were happy to be buying or selling; it meant moving on to bigger and better things. But in 2023, most of my clients were only moving because they had to.
Perhaps the best way to view 2023 is as a housing crash. Not a crash in prices (which didn’t change that much overall by the end of 2023) but rather a crash in inventory. The nation saw about as many home sales in 2023 as it did in 2008.
The elevated interest rate environment:
priced many buyers out of the market
trapped many sellers in a home with a 3% or less mortgage
depressed inventory enough to keep prices high for those who did buy
So, What About 2024?
In my mind, the central question of the 2024 housing market is this: at what point will rates come down far enough to bring back enough buyers and sellers to the table? Is it 6.75% which is about where it is now? Is it 6.5%? Is it lower? I don’t think anyone knows the answer to that question yet.
But my guess by the end of Q1 in 2024, we will hit that mark where it will feel psychologically safe for buyers to go shopping again and for sellers to start selling again.
In this scenario, rates will drop and prices will go up. If it’s a small price bump then houses will be more affordable. If it’s a big price jump, then homes will be less affordable than today even if rates creep into the high 5’s.
In A World Where Buyers Pay Their Brokers
As you might recall, recent legal challenges and changes within the NWMLS have made it possible that in the coming years more buyers, maybe even all buyers, will be paying their own broker directly.
But, one big obstacle for this is that it’s difficult for many buyers to afford representation. Between the downpayment, and the closing costs and moving costs, etc, buying a home isn’t cheap. The current model is flawed but at least buyer representation is baked into the cake of the market price.
It’s my conviction that most buyers, especially first-time homebuyers should have representation. After all, buying a house is not like buying a toaster from Amazon or even a car from a dealership. It’s the most expensive and perhaps most important thing a person buys in their entire life. It makes sense that they might want or need someone to look out for their best interests.
But assuming the current legal challenges break up that model, there are a few ways this will play out:
Flat Fee/Facilitated Sale: I’ve done this a few times already and maybe it will become the norm. After finding the house and deciding to offer on it, a buyer hires an agent to help facilitate the sale and do so on a flat fee basis or at an hourly rate rather than a commission. If this became the norm, agents would compete and position themselves based off of what the client gets for that flat fee. Anywhere from just 1 hour’s worth of contract checking to something like full on negotiation and representation every step of the way.
Commission is financed into the Loan: I think this would require changes to federal law and I’m not sure it’s a good idea, but just as buyers finance other aspects of the home sale into their loan, they could finance some or all of their broker’s compensation into their loan. This would eat into a buyer’s loan approval amount and could mean sellers would have to lower prices to accommodate.
The seller continues to offer some compensation to the buyer broker: The cases now making their way through the court assert that sellers shouldn’t be forced to compensate the buyer broker. (They’re right). But that doesn’t mean they won’t still choose to do so. As I mentioned last time, there are real advantages to the seller when offering a commission to a buyer broker. It’s an incentive to someone else to help you sell your house. It’s possible, probable even, that when the dust settles in the future buyer brokers will still be offered some amount of commission.
No matter what lies ahead for rates, prices and commissions, 2024 will be an exciting and event filled year for residential real estate.
Michael Perrone is a licensed managing real estate broker in Washington State and is the owner of The Perrone Real Estate Group. You can reach his office at 425-224-6040 or by subscribing and responding to these newsletters.