First-time homebuyers are being isolated by slower market conditions. Will it last?

Editor’s note: This is the third in a series of articles examining the effects of the landmark Sitzer/Burnett case, which was decided on October 31, 2023 and has since reshaped business practices for real estate agents and brokers across the country.

It is no secret that many first-time buyers in the housing market are having a hard time. Persistently high interest rates, low inventory levels and high house prices put pressure on the often limited budgets of first-time buyers.

So when many in the real estate industry correctly anticipated changes in real estate agent commission structures – which were reinforced by the National Association of Real Estate Agents (NAR) settlement after the jury verdict in the Sitzer/Burnett lawsuit almost a year ago – there was quite a bit of fear about the consequences for first-time buyers.

Despite the initial concerns, many industry professionals say first-time buyers are currently faring no worse than other buyers — at least for now.

Competitive dynamics

“Nothing much has changed at this point,” says James Dwiggins, the CEO of NextHome. “The market isn’t great, so we don’t often deal with multiple offer situations. And it’s a little early, but some of the preliminary data I’ve looked at shows that sellers are continuing to pay buyer agent compensation.”

Because of these circumstances, Dwiggins and other industry professionals believe there won’t be much impact on first-time homebuyers until the housing market strengthens, which may cause some sellers to stop offering buyer agent compensation.

“As the market changes and there is much more competition for buyers, buyers may see more sellers unwilling to help with their agent’s fees,” said Aja Adair, a broker at Berkshire Hathaway HomeServices Drysdale Properties. “However, I think ultimately sellers need to look at their bottom line. A seller may be more willing to look at an offer that gives them the most value, even if it includes a buyer’s agent commission as part of the terms.”

Bryan VantHof, member of the RE/MAX Advantage Plus-mediated The Minnesota Real Estate Teamalso believes that the amount the seller receives is crucial to closing a deal. But he also said that in a bidding war situation, first-time buyers may not have to offer much more than the asking price to come out on top.

“I don’t see that first-time homebuyers will have a real competitive disadvantage in the types of homes they buy,” VantHof said.

“So on a starter home, where you can get multiple offers, the competing first-time buyers will likely all have similar buyer profiles and will probably all ask for help with buyer agent compensation. So if you just ask for it on offer, you’re probably not at a disadvantage.”

On the hook

But even before first-time buyers reach the listing stage of their homebuying journey, some agents say they are encountering problems with the new requirements imposed by NAR’s settlement agreement.

Since the new terms went into effect nationwide on August 17, agents have been required to obtain a signed buyer representation agreement before showing a home. According to the settlement, the agreement must specify how much the buyer’s agent will be compensated – pending the successful completion of a transaction. And the buyer must recognize that if the seller is unwilling to pay this amount, he may have to pay tens of thousands of dollars.

According to Mandy Nichols, who lives in Dallas Brixstone real estate As a real estate agent, this requirement causes some first-time buyers to forego representation if there is no title declaration.

“Many first-time homebuyers don’t have enough to pay the agent and all the closing costs,” Nichols said. “The main problem I see is that agents don’t really explain the buyer representation agreement properly or explain to the buyer how they can help them.

“This allows them to go out and deal directly with the agent representing the seller who does not have their best interest in mind.”

Faced with the possibility of having to pay an agent out of pocket — and possibly made worse by working with an agent who poorly explained the buyer representation agreement — Nichols said some first-time buyers feel they are better off unrepresented. are. This is concerning, she added, given the complicated nature of the real estate transaction.

These same issues are why Joanne Mendoza makes sure she’s prepared for buyer presentations, especially when working with first-time buyers.

“There is always change in our industry and this was a change we had to make, so I fully embraced it,” said Mendoza, a California-based agent for Berkshire Hathaway.

“The way you approach change is really about your mindset. And with this change, if you are afraid of it, you will convey that to your clients and you will not be able to express it well to them because you have already prepared yourself and them to be afraid. of it.”

As the housing market continues to change and agents become more comfortable and confident with buyer representation agreements, it remains to be seen what the ultimate impact of the NAR settlement will be on first-time buyers.