Florida Realtor Alexandré Worthington is already bracing for a shift that threatens a tear down a compensation system that has ruled his industry for more than a century.
Real eState
Real estate industry holds its breath as commissions system teeters – The Washington Post
“It’s the perfect time to pick up the pieces,” Worthington said. “It’s a perfect time to reflect on the changes that could be coming and how to prepare for them.”
In a federal civil case, a Kansas City jury last month found the National Association of Realtors (NAR) and major brokerages conspired to keep commissions artificially high. The result has left the real estate industry holding its collective breath, as experts say it is on the cusp of a radical reorganization that could affect everything about the business.
“There’s a lot of speculation out there around how this will play out,” said Ryan Tomasello, who covers the real estate technology sector for Keefe, Bruyette & Woods. Although much remains uncertain, “we have a high degree of confidence that, at the conclusion of this storyline, significant changes will be made to the commission structure in the U.S.”
The most immediate and striking blow could come as a result of the federal case in Kansas City, Mo. The judge overseeing the case has the power to issue an injunction that could break up the century-old “bundled” or “cooperative” commissions system, in which sellers’ and buyers’ agents split a commission that typically ranges between 5 and 6 percent of the home sale price. The timing of such an action remains unclear.
A settlement in which NAR agrees to change the system is also possible, according to Michael Ketchmark, the lead plaintiff attorney. “We’re in the process of having conversations with the [Justice Department] and NAR, and we remain hopeful that we’re going have a resolution that brings relief to millions across the county,” he told The Washington Post.
In 2019, a group of home sellers sued NAR and brokerages Keller Williams and HomeServices of America in the Kansas City federal court, accusing the organizations of conspiring to keep commissions artificially high by requiring sellers to make the cooperative commission offer before listing homes on a widely used property database — the Multiple Listings Service — that allows for-sale properties to receive notice. The plaintiffs alleged that the system stifled competition and inflated commissions for buyers’ agents.
NAR, Keller Williams and HomeServices of America have denied those allegations and vowed to appeal the Oct. 31 verdict that awarded $1.8 billion to a half-million Missouri home sellers, an amount that could swell to $5 billion. Those organizations say the existing commissions structure is transparent, and they denied that the payment structure was anticompetitive. NAR said after the verdict that the “matter is not close to being final.”
Mantill Williams, an NAR spokesman, said the association is open to a resolution that “maintains a way for buyers and sellers to continue to benefit from the cooperation of real estate professionals and eliminates our members’ risk of liability for the claims alleged.”
“That being said,” he added, “we remain confident we will prevail on our appeal.”
But the verdict has already sent convulsions through financial markets and the real estate industry.
Shares of Zillow plunged nearly 7 percent after the jury rendered its verdict, as investors saw potential changes as a threat to the company’s revenue model — a large portion of which comes from advertising for buyers agents, according to analysts. During an earnings call a day after the jury verdict, Zillow chief executive Richard N. Barton sought to reassure Wall Street analysts that buyers agents would not go extinct and that the company’s revenue model was safe.
He added that possible developments to the commissions system “look like good initial steps at more transparency and education for consumers,” though added that he believed any change would come slowly.
Changes to the commissions structure could eventually result in a 30 percent reduction in the $100 billion total that U.S. consumers pay in real estate commissions, according to a report by Tomasello and his team. Analysts and real estate experts said prices for buyers’ agents would adjust more accurately to the value of their services. If buyers’ agents are no longer guaranteed 3 percent of the commission, their fees might fall because they would have to compete on the price of their services, experts said.
Worthington, the Florida Realtor, said buyers’ agents could shift to an “a la carte” service model, in which potential home buyers choose their level of service and pay accordingly. A 1 percent commission, for example, could buy a customer automated emails with new homes for sale, based on the preferences of a prospective buyer, he said.
For a 3 percent commission, “I’m actually going to walk into my office every morning and scrub our system and every resource I have to find the house that you’re looking for,” he said.
Sophia Gilbukh, an assistant professor of real estate at Baruch College’s Zicklin School of Business in New York, said breaking up the buyers’ and sellers’ agent commissions could also result in lower listing prices for homes.
High fees borne by sellers result in higher listing prices, Gilbukh said, because sellers want to cover their costs. Higher prices increase mortgage payments for buyers, she said.
Breaking up the commission system, Gilbukh said, would result in lower prices overall but also lead to bigger upfront costs for buyers, who indirectly pay the costs of the commissions in the form of higher mortgage payments. Without the structure of the current cooperative system, buyers would need to directly pay their agents immediately after a sale.
“That might put a lot of buyers at a disadvantage, especially liquidity constrained buyers,” she said. “They might not be able to afford a higher-fee agent — even if it’s worth it for them — because they just don’t have the money to pay for it upfront.”
The cooperative compensation structure was established in 1913, when National Association of Real Estate Exchanges, the precursor to NAR, said its member agents should share commissions with agents that produced buyers, according to a 2015 study by economists Panle Jia Barwick and Maisy Wong. The commissions rate hit 5 percent in 1940 and has remained virtually unchanged ever since, according to the study.
Commissions work differently in countries such as the United Kingdom, where sellers pay typically less than 2 percent, and buyers pay their own agents, according to the study.
U.S. regulators have long scrutinized America’s commission system, Tomasello, the analyst, said. In 2020, the Justice Department sued NAR and proposed a settlement in which the association would have to change its rules to bring more transparency to its commission system. The settlement also sought to stop NAR from saying buyers’ agent services are free. But less than a year later, the Justice Department withdrew from the settlement to “permit a broader investigation of NAR’s rules and conduct to proceed without restriction.”
The Justice Department has also filed statements of interest in the Missouri case and a similar civil case in Illinois that clarify the parameters of a 2008 settlement between NAR and the Justice Department involving online listings. It did not respond to a request for comment on settlement negotiations in the Kansas City case.
Echoing the Missouri and Illinois cases, a new group of Missouri residents filed a proposed lawsuit Oct. 31, alleging that real estate agents are conspiring to keep commissions high, restraining price competition and harming consumers in violation of federal antitrust laws. The lawsuit seeks damages for home sellers nationwide.
Carole Higgins, a real estate agent in Suttons Bay, Mich., said changes are long overdue because agents have largely failed to appropriately explain contracts and commissions to consumers.
“We’ve grown so sloppy with the way that we are training our Realtors that this was the natural outcome,” Higgins said of the lawsuits. This “is a wake-up call.”
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Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.
Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.
Average residential home price in B.C.: $938,500
Average price in greater Vancouver (2024 year to date): $1,304,438
Average price in greater Victoria (2024 year to date): $979,103
Average price in the Okanagan (2024 year to date): $748,015
Average two-bedroom purpose-built rental in Vancouver: $2,181
Average two-bedroom purpose-built rental in Victoria: $1,839
Average two-bedroom purpose-built rental in Canada: $1,359
Rental vacancy rate in Vancouver: 0.9 per cent
How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent
This report by The Canadian Press was first published Oct. 17, 2024.
The Canadian Press. All rights reserved.
VANCOUVER – Voters along the south coast of British Columbia who have not cast their ballots yet will have to contend with heavy rain and high winds from an incoming atmospheric river weather system on election day.
Environment Canada says the weather system will bring prolonged heavy rain to Metro Vancouver, the Sunshine Coast, Fraser Valley, Howe Sound, Whistler and Vancouver Island starting Friday.
The agency says strong winds with gusts up to 80 kilometres an hour will also develop on Saturday — the day thousands are expected to go to the polls across B.C. — in parts of Vancouver Island and Metro Vancouver.
Wednesday was the last day for advance voting, which started on Oct. 10.
More than 180,000 voters cast their votes Wednesday — the most ever on an advance voting day in B.C., beating the record set just days earlier on Oct. 10 of more than 170,000 votes.
Environment Canada says voters in the area of the atmospheric river can expect around 70 millimetres of precipitation generally and up to 100 millimetres along the coastal mountains, while parts of Vancouver Island could see as much as 200 millimetres of rainfall for the weekend.
An atmospheric river system in November 2021 created severe flooding and landslides that at one point severed most rail links between Vancouver’s port and the rest of Canada while inundating communities in the Fraser Valley and B.C. Interior.
This report by The Canadian Press was first published Oct. 17, 2024.
The Canadian Press. All rights reserved.
British Columbia voters face no shortage of policies when it comes to tackling the province’s housing woes in the run-up to Saturday’s election, with a clear choice for the next government’s approach.
David Eby’s New Democrats say the housing market on its own will not deliver the homes people need, while B.C. Conservative Leader John Rustad saysgovernment is part of the problem and B.C. needs to “unleash” the potential of the private sector.
But Andy Yan, director of the City Program at Simon Fraser University, said the “punchline” was that neither would have a hand in regulating interest rates, the “giant X-factor” in housing affordability.
“The one policy that controls it all just happens to be a policy that the province, whoever wins, has absolutely no control over,” said Yan, who made a name for himself scrutinizing B.C.’s chronic affordability problems.
Some metrics have shown those problems easing, with Eby pointing to what he said was a seven per cent drop in rent prices in Vancouver.
But Statistics Canada says 2021 census data shows that 25.5 per cent of B.C. households were paying at least 30 per cent of their income on shelter costs, the worst for any province or territory.
Yan said government had “access to a few levers” aimed at boosting housing affordability, and Eby has been pulling several.
Yet a host of other factors are at play, rates in particular, Yan said.
“This is what makes housing so frustrating, right? It takes time. It takes decades through which solutions and policies play out,” Yan said.
Rustad, meanwhile, is running on a “deregulation” platform.
He has pledged to scrap key NDP housing initiatives, including the speculation and vacancy tax, restrictions on short-term rentals,and legislation aimed at boosting small-scale density in single-family neighbourhoods.
Green Leader Sonia Furstenau, meanwhile, says “commodification” of housing by large investors is a major factor driving up costs, and her party would prioritize people most vulnerable in the housing market.
Yan said it was too soon to fully assess the impact of the NDP government’s housing measures, but there was a risk housing challenges could get worse if certain safeguards were removed, such as policies that preserve existing rental homes.
If interest rates were to drop, spurring a surge of redevelopment, Yan said the new homes with higher rents could wipe the older, cheaper units off the map.
“There is this element of change and redevelopment that needs to occur as a city grows, yet the loss of that stock is part of really, the ongoing challenges,” Yan said.
Given the external forces buffeting the housing market, Yan said the question before voters this month was more about “narrative” than numbers.
“Who do you believe will deliver a better tomorrow?”
Yan said the market has limits, and governments play an important role in providing safeguards for those most vulnerable.
The market “won’t by itself deal with their housing needs,” Yan said, especially given what he described as B.C.’s “30-year deficit of non-market housing.”
IS HOUSING THE ‘GOVERNMENT’S JOB’?
Craig Jones, associate director of the Housing Research Collaborative at the University of British Columbia, echoed Yan, saying people are in “housing distress” and in urgent need of help in the form of social or non-market housing.
“The amount of housing that it’s going to take through straight-up supply to arrive at affordability, it’s more than the system can actually produce,” he said.
Among the three leaders, Yan said it was Furstenau who had focused on the role of the “financialization” of housing, or large investors using housing for profit.
“It really squeezes renters,” he said of the trend. “It captures those units that would ordinarily become affordable and moves (them) into an investment product.”
The Greens’ platform includes a pledge to advocate for federal legislation banning the sale of residential units toreal estate investment trusts, known as REITs.
The party has also proposed a two per cent tax on homes valued at $3 million or higher, while committing $1.5 billion to build 26,000 non-market units each year.
Eby’s NDP government has enacted a suite of policies aimed at speeding up the development and availability of middle-income housing and affordable rentals.
They include the Rental Protection Fund, which Jones described as a “cutting-edge” policy. The $500-million fund enables non-profit organizations to purchase and manage existing rental buildings with the goal of preserving their affordability.
Another flagship NDP housing initiative, dubbed BC Builds, uses $2 billion in government financingto offer low-interest loans for the development of rental buildings on low-cost, underutilized land. Under the program, operators must offer at least 20 per cent of their units at 20 per cent below the market value.
Ravi Kahlon, the NDP candidate for Delta North who serves as Eby’s housing minister,said BC Builds was designed to navigate “huge headwinds” in housing development, including high interest rates, global inflation and the cost of land.
Boosting supply is one piece of the larger housing puzzle, Kahlon said in an interview before the start of the election campaign.
“We also need governments to invest and … come up with innovative programs to be able to get more affordability than the market can deliver,” he said.
The NDP is also pledging to help more middle-class, first-time buyers into the housing market with a plan to finance 40 per cent of the price on certain projects, with the money repayable as a loan and carrying an interest rate of 1.5 per cent. The government’s contribution would have to be repaid upon resale, plus 40 per cent of any increase in value.
The Canadian Press reached out several times requesting a housing-focused interview with Rustad or another Conservative representative, but received no followup.
At a press conference officially launching the Conservatives’ campaign, Rustad said Eby “seems to think that (housing) is government’s job.”
A key element of the Conservatives’ housing plans is a provincial tax exemption dubbed the “Rustad Rebate.” It would start in 2026 with residents able to deduct up to $1,500 per month for rent and mortgage costs, increasing to $3,000 in 2029.
Rustad also wants Ottawa to reintroduce a 1970s federal program that offered tax incentives to spur multi-unit residential building construction.
“It’s critical to bring that back and get the rental stock that we need built,” Rustad said of the so-called MURB program during the recent televised leaders’ debate.
Rustad also wants to axe B.C.’s speculation and vacancy tax, which Eby says has added 20,000 units to the long-term rental market, and repeal rules restricting short-term rentals on platforms such as Airbnb and Vrbo to an operator’s principal residence or one secondary suite.
“(First) of all it was foreigners, and then it was speculators, and then it was vacant properties, and then it was Airbnbs, instead of pointing at the real problem, which is government, and government is getting in the way,” Rustad said during the televised leaders’ debate.
Rustad has also promised to speed up approvals for rezoning and development applications, and to step in if a city fails to meet the six-month target.
Eby’s approach to clearing zoning and regulatory hurdles includes legislation passed last fall that requires municipalities with more than 5,000 residents to allow small-scale, multi-unit housing on lots previously zoned for single family homes.
The New Democrats have also recently announced a series of free, standardized building designs and a plan to fast-track prefabricated homes in the province.
A statement from B.C.’s Housing Ministry said more than 90 per cent of 188 local governments had adopted the New Democrats’ small-scale, multi-unit housing legislation as of last month, while 21 had received extensions allowing more time.
Rustad has pledged to repeal that law too, describing Eby’s approach as “authoritarian.”
The Greens are meanwhile pledging to spend $650 million in annual infrastructure funding for communities, increase subsidies for elderly renters, and bring in vacancy control measures to prevent landlords from drastically raising rents for new tenants.
Yan likened the Oct. 19 election to a “referendum about the course that David Eby has set” for housing, with Rustad “offering a completely different direction.”
Regardless of which party and leader emerges victorious, Yan said B.C.’s next government will be working against the clock, as well as cost pressures.
Yan said failing to deliver affordable homes for everyone, particularly people living on B.C. streets and young, working families, came at a cost to the whole province.
“It diminishes us as a society, but then also as an economy.”
This report by The Canadian Press was first published Oct. 17, 2024.
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