“Nuanced” and “mixed” are some of the words frequently used to describe the United States’ highly complex housing market. An article in The New York Times even went so far as to call it “ugly” recently. However we may describe it, the adage that “all real estate is local” may be truer today than it has ever been, given the wide variances of prices, inventory levels and now, legally required written buyer agency agreements that may differ from state to state, and potentially even from broker to broker.
If you’re moving employees within or sending them on temporary assignments or permanent transfers to the U.S., it probably feels pretty daunting to figure out how to best prepare and budget for housing right now. As a formally licensed real estate salesperson with more than 30 years of experience in managing corporate relocation home purchase and sales programs, I’m happy to help remove some of the mystery and offer a few practical tips.
As we shared in a recent Pulse Insight, there are multiple factors that have been impacting the cost and availability of properties for purchase and rent in the U.S. for some time now, They include high interest and mortgage rates, low inventories, rising insurance premiums in many locations and some changes in how real estate transactions occur. Most current forecasts predict a stabilization in both the purchase and rental markets generally, given the recent Fed rate cut and a strong chance that mortgage rates will continue to come down later this year or early next, releasing some much-needed inventory from sellers who have been waiting it out. This is welcome news, along with new construction finally beginning to catch up with demand, also helping to ease the inventory squeeze. Even so, widely varying nuances in the sizes, types and average costs of available properties across the different regions of the country continue to present challenges to employees on the move and the employers who sponsor them.
We can’t talk about the current U.S. property market without considering how the terms of the historic
$418 million legal settlement that the National Association of REALTORS® (NAR) agreed to are reshaping agent compensation and relocation referral fee income models. The terms officially went into effect on August 17, and final court approval is expected before the end of this year, with a review date set for late November. We won’t go into the full legal analysis here, but if you’re interested, you can find more information on the origins of the class-action suit and NAR’s position at nar.realtor/the-facts.
To understand the crux of it, it’s important to know a few key facts:
It's also important to note that NAR firmly denies any wrongdoing and maintains that real estate
commissions have always been negotiable, but the settlement ushered in some changes that impact
three key practice areas:
Offers of cooperative compensation are now prohibited on any REALTOR® association- owned MLS and any non-REALTOR® association-owned MLSs that opted in to the settlement. Compensation fields have been removed from the forms for all types of properties, including residential sales, rentals, co-ops and commercial units.
Seller or lessor concessions are still allowed to be reported on MLSs (as an amount or a percentage), at the local MLS’s discretion, but they cannot be limited to or conditioned upon the retention of or payment to a cooperating broker. Concessions are typically applied to such things as closing costs or property repairs, or the buyer may choose to apply them to their agent’s commission. NAR recommends that buyers clearly state in their purchase offer how they want any concession to be used.
As of August 17, listing agreements -
Must conspicuously state that broker commissions are not set by law and are fully negotiable.
Now required in all 50 states, written buyer agreements must be signed by prospective purchasers or
renters before engaging any services or touring any property, either in person or via personal virtual
sessions conducted from within the home, led by the agent or his or her MLS representative. The
agreements are meant to distinguish MLS participants who are providing specific services, such as
identifying potential properties, arranging tours, negotiating terms or writing and presenting offers, vs. those why may be more informally engaging with unrepresented interested parties – prospective buyers or tenants attending an open house, for example. The agreements will vary from state to state, but in essence they must specify in clear and non-open-ended terms what compensation the buyer’s agent or broker will receive and how the amount will be determined. Like listing agreements, they also must clearly state that broker fees and commissions are not set by law and are fully negotiable. They outline that the buyer’s agent or broker is prohibited from receiving compensation for services from any source that exceeds the amount or rate agreed upon and indicate that the buyer will owe their agent a commission if the seller opts not to pay.
It's important for employees to understand that buyer agency or representation agreements are
contracts. While they may be excited to start their home search in the new location, they should not sign one without fully understanding the terms, including the duration of the agreement, the amount of compensation to be paid, and whether any exclusive representation is part of the terms. Working closely with a relocation counselor can help them avoid any unintended legal or financial ramifications.
We’ve covered a fair amount of legalese here – but what does it all look like in practice? In summary, the settlement means that:
One of the biggest implications for relocation transactions is the potential for increased costs. In those
cases where sellers or landlords opt not to compensate the buyer’s or renter’s agent, that will be added to the purchase or rental price. Employers need to proactively decide whether their home searching employees will be liable for covering their agent’s compensation on their own, or whether they will cover it as part of their relocation benefits. In the latter instance, they will also need to decide whether they will gross-up the additional cost to tax protect the employee.
Relocation management companies (RMCs) have traditionally generated revenue from real estate
referral fees on relocation transactions. New ways of covering the costs of providing professional
services will be introduced as compensation models evolve and those referral fees potentially lessen or disappear altogether. We see one or more of several different scenarios likely to play out in the coming months:
One of the best, most proactive steps employers can take considering these new complexities is to commit now to what you will authorize in different scenarios. A clearly defined plan will facilitate much better communication and give your employees the knowledge they need to make quick, confident decisions, especially in highly competitive markets.
Like its state laws, many aspects of the U.S. housing market have always varied by region. The significant practice changes underway are only adding to the complexities. It requires up-to-date local knowledge and expertise to successfully navigate it. You and the service partners you work with all want the same thing: positive experiences for relocating employees and their families. Trust your partners to educate you about the changes, advise on different scenarios and make recommendations based on your employees’ circumstances, the locations they’re moving to and from, and your company policy and culture. Of course, solutions must also be designed to keep you fully compliant with all the national, state and local laws and your employees happy and productive in their new homes. Global and regional economic, legislative and geopolitical conditions will always influence the housing market, and we’re here to help keep you in the know and ready to address them with confidence.