Realtor commission change delivers a boon to homebuilders, a blow to real estate platforms | Canada News Media
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Realtor commission change delivers a boon to homebuilders, a blow to real estate platforms

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A change to the real estate commission structure is shaking the industry — and homebuilders and consumers appear to be the winners.

This week, Compass (COMP) agreed to pay $57.5 million to settle antitrust claims related to commissions. It’s the first major brokerage to announce a settlement since the National Association of Realtors (NAR) agreed to pay $418 million as part of a lawsuit alleging the industry conspired to inflate agent fees.

Experts say the NAR settlement — which essentially decouples buyer and seller agent fees — is a win for consumers because it will create transparency around how commissions are set and paid and ultimately lower costs.

“This will reshape the housing market in the greatest fashion we’ve seen in over 50 years,” KBW analyst Ryan Tomasello told Yahoo Finance Live (video above).

US Realtor commissions have ranged from 5% to 6% since the 1950s, and are usually split between the seller’s and buyer’s agents, with the home seller footing the entire bill.

Increased transparency will make it easier for buyers to negotiate fees or bypass the use of agents entirely. Buyer agent usage in most countries is uncommon, averaging 33% compared to the US’s rate of nearly 90%.

For buyers who decide to use an agent, advocates say fee costs are likely to substantially decline. Right now, US commission rates are among the highest in the world. Commissions on a $500,000 home sold in the US would be about $25,000 to $30,000 — compared to roughly $6,500 in the UK.

As a result, the total commission pool, currently $100 billion nationally, could be slashed to $70 billion, according to KBW’s analysis.

A ‘major boost’ for homebuilders

Changes resulting from the NAR settlement are a “major boost” for homebuilders, who typically paid the buyer agent’s commission.

In a note to clients, Evercore ISI’s Stephen Kim wrote that agent commissions have been a “significant drag” to builders’ profitability, therefore a “shift in broker fees represents a significant positive for builder margins.”

“This would disproportionately advantage large homebuilders, who have their own salespeople and robust online shopping environments; it is far easier to buy a new home without a buyer’s agent than an existing home,” wrote Kim.

Homebuilder stocks have already been on the rise as high mortgage rates continue to limit the supply of used homes for sale. A reduction in commissions could help further drive demand, National Association of Home Builders CEO Jim Tobin told Yahoo Finance Live.

“As commissions come down, I hope we will see costs to builders come down as well,” Tobin said. “That translates into lower home prices for consumers.”

Shares of Lennar (LEN), Toll Brothers (TOL), and PulteGroup (PHM) have rallied to record highs this year, powered in part by the NAR settlement but also on the prospect for Fed rate cuts. Toll Brothers is up about 25%, while Lennar and PulteGroup are up 12% and 14%, respectively.

Brokerage models ‘at risk’

While homebuilder stocks have clocked gains in the past week, investors dumped shares of Zillow (Z), Redfin (RDFN), and Compass (COMP) on fears a change to agent fees will be costly for major brokerages.

Analysts warn of downside risk ahead, arguing the shift in cost structure is only partially priced in at current levels.

In a note to clients, Morgan Stanley’s Matt Cost wrote that while there is a “credible bull case where commission levels remain stable”, shares of Zillow, RE/MAX, and Compass “could decline further to the extent the market fully prices in material downside to commission rates going forward.”

Cost emphasized Compass as the brokerage most at risk, given “substantially all of its revenue is tied to broker commissions.”

But the new changes don’t signal doom and gloom for all listing platforms. In an environment where more buyers will do the house hunting themselves, platforms that help sellers advertise their listings have room to grow.

KBW’s Tomasello thinks that CoStar Group (CSGP) is a “winner” and “key beneficiary” because it caters to seller agents — a focus he expects other platforms to pursue.

“Real estate portals that have historically relied more on the buy-side piece of this commission pool for their revenue models, [such as] companies like Zillow, Realtor.com, may need to reconsider the role that they play in the housing market and potentially shift that focus more to the sell side in terms of advertising homes,” Tomasello said.

CoStar shares rallied 8% after the NAR settlement was announced last Friday. Shares are up 12% year to date.

Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email seanasmith@yahooinc.com.

 

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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.

The Canadian Press. All rights reserved.

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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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