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Real estate agent commission rules are about to change, shifting costs between buyers and sellers

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The cost of hiring a real estate agent to buy or sell a home may soon change, along with decades-old rules that have helped determine broker commissions.

The policy changes could help spur price competition for agents’ services and lower the cost for sellers who now typically cover the commission for the buyer’s agent, as well as that of their own.

In turn, more homebuyers could face pressure to pay for their agent’s commission out of pocket. That could be a challenge, especially for buyers already stretching financially to make a down payment and cover other upfront costs involved in buying a home.

Still, housing market watchers say it can’t be immediately determined how significantly any changes that potentially shift the cost of hiring an agent to a homebuyer will affect home sales. An adjustment period is likely as buyers, sellers and agents figure out how to navigate what comes next.

“I just think it’s too soon to tell,” said Greg Kling, an associate professor at the University of Southern California Marshall School of Business who has taught and written about real estate taxation. “We’re going to either see prices are going up for buyers, or the market is going to correct itself.”

WHAT’S DRIVING THIS?

As part of a settlement announced Friday, the National Association of Realtors agreed to make some policy changes in order to resolve multiple class-action lawsuits brought on behalf of home sellers across the U.S.

The trade group agreed to change its rules so that brokers who list a home for sale on any of the databases affiliated with the NAR are no longer allowed to include offers of compensation for a buyer’s agent.

This change is meant to address a central assertion in lawsuits brought against the NAR and several major real estate brokerages: that homeowners are being forced to pay artificially inflated agent commissions when they sell their home.

The trade group also agreed to require agents, or others working with a homebuyer, to enter into a written agreement with them. That is meant to ensure homebuyers know going in what their agent will charge them for their services.

If the court signs off on the settlement, the NAR would implement the rule changes in mid-July. Meanwhile, several real estate brokerage operators, including Anywhere Real Estate and Keller Williams, have reached separate settlement agreements that include provisions for more transparency about agent commissions for homebuyers and sellers.

“The residential real estate marketplace will take some time, perhaps several years, to fully process the implications of this settlement,” said Stephen Brobeck, senior fellow at the Consumer Federation of America. “But over time more, agents will feel free to offer different types of compensation and more consumers will comparison shop and negotiate commissions in a more transparent marketplace.”

WHAT THIS COULD MEAN FOR HOMEBUYERS

The key potential change centers on who foots the bill for real estate agents who represent homebuyers.

Currently, an agent or broker representing a home seller typically splits a commission — often around 5% to 6% of the home’s sale price — with the agent working on behalf of the homebuyer. Such an arrangement is known in the industry as “cooperative compensation.”

Under the proposed NAR settlement, a broker who represents a seller would no longer be allowed to include a blanket offer of cooperative compensation to a prospective buyer’s agent when they advertise the property on NAR-affiliated Multiple Listings Services, where a majority of U.S. homes are listed for sale. This is meant to remove any incentive from a buyer’s agent to steer their client away from home listings that don’t include a cooperative compensation offer.

However, the proposed rule change leaves it open for individual home sellers to negotiate such an arrangement with a buyer’s agent outside of the MLS platforms, essentially creating a loophole for agents to keep things as they are now.

Homebuyers could also ask the home seller for a concession that includes money to help cover the buyer’s agent compensation.

What happens if a seller doesn’t want to offer to pay the buyer’s agent commission? Homebuyers would be on the hook to shop around for an agent they can afford. They’d also have to sign a contract with an agent before they enlist their services, spelling out how much the agent’s compensation will be.

Having to factor in another expense into their homebuying budget could be challenging for homebuyers without a lot of savings or financial flexibility, making it tougher for them to navigate the housing market.

Still, many variables are at play when it comes to buying or selling a home, not the least of which is how motivated each party is to close the deal.

“If I’m a buyer and I know this seller is not going to reimburse my agent, then I may make a lower offer,” said Kling. “Now, obviously in a hot market, that strategy’s not going to work. But then in a hot market, I would have paid over listing price anyway.”

HOW MIGHT THIS AFFECT HOME SELLERS?

The biggest change for homeowners looking to sell is they could push back against paying for buyer-agent commissions, which could translate into considerable savings.

Consider a seller who agrees to pay a 3% commission for their listing agent — instead of potentially twice that to cover the buyer’s agent, too — and sells their home for February’s national median sale price of $379,100. That homeowner would save roughly $11,373 paying only their agent’s commission.

“The settlement will also encourage more sellers to negotiate the compensation of their listing agents,” said Brobeck.

Still, sellers may still face some pressure to cover buyer-agent commissions.

The NAR built in an exception to its proposed rule change that would allow a buyer’s agent to see offers of cooperative compensation on home listings being advertised by their own brokerage.

That workaround could tempt buyer agents to “steer” clients away from any listings that don’t come with an upfront compensation offer, which could prompt sellers to offer more competitive commissions to be split between their agent and the buyer’s, analysts with Keefe, Bruyette & Woods wrote in a research note Monday.

“So long as steering incentives still exist, home sellers may be compelled to offer supracompetitive commissions to buyer agents in order to avoid steering,” the analysts wrote.

HOW MIGHT THIS CHANGE THE REAL ESTATE INDUSTRY?

One concern is that by making it easier for sellers to opt out of making a cooperative compensation offer to buyer agents, some buyers will opt against hiring an agent or only doing so toward the end of the process after they’ve gone through most of the home hunt themselves. That could end up weeding out some “lower-performing brokers,” Kling said.

Another scenario is that alternative types of real estate business models will become more popular. This includes using discount brokers that will list a home for a flat fee of $500.

“They don’t offer any compensation to the buyer agent because the buyer agent negotiates their own conditions if they want more,” said Mike Downer, a broker associate with Coldwell Banker Realty in Naples, Florida. “That business model has been around for a long time.”

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Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

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TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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Homelessness: Tiny home village to open next week in Halifax suburb

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HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

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Here are some facts about British Columbia’s housing market

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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.

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