How the New Rules of Real Estate Will Impact Buyers and Sellers

The National Association of REALTORS® (NAR) recently settled lawsuits regarding real estate commissions, agreeing to pay $418 million and implement nationwide changes to Multiple Listing Services (MLS) while denying any wrongdoing. Here’s what you need to know:

Sellers are prohibited from offering compensation on Multiple Listing Services.

• Sellers still have the choice of offering compensation to buyer brokers, which can serve as a way of marketing the home or making the listing more attractive to buyers, but it cannot be included on the MLS.

Buyer representation agreements are required before touring homes.

• The agreement should clearly outline the terms agreed upon between the buyer and their agent, ensuring the buyer understands the services provided, their value, and the associated costs.

Broker compensation continues to be fully negotiable.

• Buyers will be responsible for paying their own commissions, and sellers will be responsible for theirs.

Ralph’s Take

Who you work with matters. The new buyer representation agreements will outline your relationship with your broker and must include the buyer broker commission. However, it's important to note that financing a commission isn’t practical, as banks would treat it as a personal loan, leading to higher interest rates, increased liabilities, and a tougher time qualifying for a mortgage. Buyers can (and likely will) request the seller cover their agent’s commission or request a closing concession when submitting purchase offers.

First-Time Homebuyers at Higher Risk of Overpaying for Homes

First-time homebuyers are at a higher risk of overpaying for homes due to appraisal gaps, according to a new report by CoreLogic. Appraisal gaps occur when the appraised value of a home is lower than the agreed-upon sales price. These gaps often lead to delays, renegotiation, additional payments from buyers to cover the shortfall, or even the cancelation of the sale. In June 2024, 8.6% of U.S. home sales were appraised below the contract price, down from 10.7% a year earlier. Here's the breakdown:

• Starter Homes: 9.6% had appraisal gaps, down from 12.1%.

• Homes of 3,500sf or More: 7.1% had appraisal gaps, down from 8.3%.

Ralph’s Take

Although we've been fortunate to avoid appraisal gap issues in our transactions, we prioritize discussing them with every client. Buyers should thoroughly review comparable sales and market trends to determine the fair value of the homes they bid on. Sellers, on the other hand, need to understand appraisal gaps and waivers when considering offers, as these factors can greatly influence the outcome of the sale.

Mortgage Rates Plunge to Lowest Level in More Than a Year

Mortgage rates fell to 6.34% on Monday, the lowest since May 2023. Today, they’re at 6.54%, still showing a notable shift from last year’s peak of 8% in October and November, which significantly affected the housing market last year. The Mortgage Bankers Association’s (MBA) Weekly Applications Survey reports that mortgage application volume has now reached its highest level since January 2024. The Market Composite Index, reflecting mortgage loan application volume, increased by 6.9% on a seasonally adjusted basis from the previous week.

• The 10-year Treasury yield dipped to 3.76%, the lowest since June 2023.

• The 2-year Treasury yield slid to 3.88%, raising concerns about a recession.

• Analysts are predicting that the 30-year Freddie Mac fixed-rate mortgage could drop from 6.73% to around 6.3% next week.

• The market is pricing in about 4.6 cuts of 25 basis points each by year-end, and a 50 basis point cut in September is looking highly likely.

Ralph’s Take

Falling interest rates generally lead to lower mortgage rates, boosting buyers' purchasing power and potentially increasing market activity. The rise in mortgage applications reflects this trend. Historically, housing inventory tends to plateau in August and decline into the fall, but if mortgage rates continue to trend downward, this pattern could shift, extending a favorable selling window.

Kenneth Cole Lists his Estate of 37 Years for Sale

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Visual of the Week 🖼️

Consider the Long-Term Wealth-Building Benefits

Homeownership isn't just about having a place to live — it's a key to building wealth. As you pay off your mortgage, your equity grows, and any increase in your home's value adds to your net worth. According to the Federal Housing Finance Agency (FHFA), home values have increased by 315.7% since 1991.

Mortgage Watch 📉

The average 30-year fixed mortgage rate ticks up slightly from Monday’s low of 6.34%, to 6.54%.

> The rate you may be eligible for can vary greatly from the daily average published via Mortgage News Daily. I use this figure as a proxy for how the mortgage market is shifting.

2024 Summer Real Estate Guides 🌞

Learn the keys to home buying and selling with our free real estate guides.

That’s it for this week! Next week, I’ll have a Westchester Market Update with the latest sales statistics from July. Thanks for reading and have a great weekend everyone! 🫡

-Ralph