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Alright, let’s take a look at the most recent inflation report. According to the Wall Street Journal:
“The Labor Department on Wednesday reported that consumer prices in October rose 2.6% from a year earlier. That marks a pickup from the previous month, when the consumer-price index was up 2.4%. Core prices, which exclude food and energy items in an effort to better reflect inflation’s underlying trend, were up 3.3%. Both results matched the expectations of economists polled by The Wall Street Journal. Investors had been preparing for an inflation reading higher than the consensus estimate, and they took Wednesday’s report as good news. Traders upped their bets that Federal Reserve officials will cut rates by a quarter point at their next meeting in December, rather than standing pat.”
(Source: wsj.com)
According to RISMedia:
“The Federal Reserve’s policy of higher interest rates has significantly reduced inflation, but one sector of the economy — shelter costs — continues to drive the Consumer Price Index (CPI) higher … On an unadjusted basis, shelter costs rose 4.9% year over year. According to Danielle Hale, chief economist at Realtor.com, that is higher than pre-pandemic baselines that averaged 3.3% … In October, housing accounted for more than half of the CPI increase compared to September, rising 0.4% on a seasonally adjusted basis. The rise is in line with shelter cost numbers going back to April.”
(Source: RISMedia.com)
The FOMC cut their benchmark rate by half a point in September and signaled that two additional cuts of a quarter-point each would likely happen before the end the year, followed by four quarter-point cuts next year. Earlier this month the Fed followed through, announcing a quarter-point cut as expected. During the November 7th press conference, Fed Chairman Jerome Powell said:
“We have gained confidence that we’re on a sustainable path down to 2% [inflation].”
(Source: federalreserve.gov)
However, when asked whether the Fed was still expected four quarter-point cuts in 2025, Powell declined to comment on that , saying they would wait until December and take a fresh look at the newly incoming data before commenting again on the outlook for next year. The next Fed meeting is scheduled for Wednesday, December 18th, and the expectation is that we’ll see another quarter-point cut.
Looking back at September 18th, when the Fed first started to loosen its policy and reduce the Federal Funds rate, the average rate for a 30-year fixed-rate mortgage was at 6.031% according to Optimal Blue. As of the time of this recording, on November 15th, rates have risen to 6.822% – An increase of 79 basis points even as the Fed has lowered their rate by 75 basis points over the same timeframe.
Alright, shifting gears over to a couple of recent reports about how average commission rates have been impacted in the immediate aftermath of the new NAR rules that were implemented as part of the proposed settlement agreement.
According to a contract and commission study published by RISMedia on October 29, 2024:
“After months of speculation—and years of trepidation—RISMedia can say definitively that at least in the short term, the percentage of a home’s sale price that agents and brokers claim as their hard-earned compensation has shrunk. Although still very early in the post-settlement era, this news is certain to worry many, as pundits and commentators have long claimed that a significant blow to commissions could permanently alter the residential real estate industry as we know it.”
Before I go into any of the specifics, since the report does include actual average commission rates, I think it’s important to provide an antitrust disclaimer here, since we’re in such a litigious environment. The rates mentioned are averages based on data provided to RISMedia from the agents surveyed. My brokerage, Bluefield Realty Group, did not participate in the study. We’re looking at these numbers simply in an effort to identify trends, and analyze what impact, if any, the new NAR rules have had so far. This should in no way be construed as endorsing or recommending that any agent or company charge a certain commission rate. Commission rates are negotiable, and not set by any REALTOR® Association or MLS.
Alright now that that’s out of the way … RISMedia surveyed approximately 1,300 real estate agents and brokers from across the country, and found that the total amount of seller-paid commission fell by 68 basis points – from 5.64% in the year leading up the the rule changes, down to 4.96% in the post-implementation period from August 17th through October 7th.
Seller-paid commission to listing agents fell by 31 basis points, while seller-paid commission to buyer’s agents fell by 37 basis points.
Looking at a regional breakdown of changes in average commission rates, agents in the South saw the largest reduction in average seller-paid commission rates, with a 74 basis point drop from 5.67% on average to 4.93%. Next, the West has seen a 67 basis point drop from 5.38% to 4.71%. The Midwest has seen a 63 basis point drop, from 6.30% to 5.67%. Finally, the Northeast has seen a 50 basis point drop, from 5.30% to 4.8%.
According to the report, the percentage of Sellers that provided compensation to a Buyer’s Agent fell from 91% before the rule change to 77% afterward.
(Source: RISMedia.com)
However, a study published by Redin on October 31st paints a different picture. According to Redfin:
“Commissions paid to real estate agents representing buyers have remained essentially unchanged since new rules on commissions went into effect on August 17. The average buyer’s agent commission for homes sold in October was 2.34%, ticking down just one basis point from 2.35% for homes sold in August, when the new changes took effect. That’s down from an average of 2.45% a year ago … Commissions for homes listed under $500,000 have risen slightly since August, while commissions for homes listed above $500,000 have fallen slightly … Commissions may face more downward pressure next year if we see a resurgence of bidding wars. Sellers are becoming increasingly aware that commissions are negotiable and that if they have a desirable home, they may be able to get the buyer to cover some, or even all, of the buyer’s agent commission … Of course, as in all real estate deals, any negotiation is dependent on how much demand there is for a property. Sellers who are struggling to find a buyer may even offer more to help attract more interest.”
(Source: Inman.com)
Several of the publicly-traded real estate companies have addressed this issue in recent earnings calls, according to Inman. For example, Anywhere CEO Ryan Schneider commented:
“Our commission rates were down four to five basis points this quarter.”
According to Redfin CEO Glenn Kelman:
“Most homeowners are still willing to pay the buyer’s agent, but many aren’t setting that agent’s fee in advance, instead planning to negotiate it alongside other offer terms. This by itself has been a major change (emphasis added). But to our surprise, the fee that is negotiated often seems nearly identical to what buyers’ agents were earning before the settlement.”
According to RE/MAX President Amy Lessinger:
“I do think not enough time has passed to draw any large conclusions. The difference in average rates was very negligible.”
(Source: Inman.com)
At our brokerage, average commission rates have basically been unchanged over the last couple of months. This is one of the KPIs that I track on a weekly basis, and this number has bounced up and down within a fairly narrow range over the last several years. Looking at the graph, you certainly wouldn’t be able to identify any type of inflection point when the rule changes went into effect. Just anecdotally, from talking with our agents, it seems like the initial offer of buyer’s agent comp from sellers is a bit lower than it was before the changes went into effect, but our agents largely haven’t had any issues negotiating that amount up either before presenting an offer, or including higher compensation as a term of the offer.
Meanwhile, the National Association of REALTORS® wrapped up its annual conference in Boston this week, with the Executive Committee voting on several important measures – Perhaps the most important of these being According to Inman:
“NAR membership was at 1,526,631 members as of Oct. 31, the trade group reported separately on Monday. That’s a 2 percent decline compared to the end of 2023, but higher than the 1.4 million originally forecast for 2024 … For the end of the year, forecast results reflect a significant uptick in membership dues revenue because of the higher than anticipated membership levels. This will result in a modest increase to NAR’s overall reserves, rather than a decrease as planned in 2024 … In May, the board voted to keep membership dues as-is in 2025 … despite a proposed $418 million antitrust settlement that, if it receives final approval on Nov. 26, will require NAR to make its first $197 million payment 90 days later, in first-quarter 2025 … For anyone wondering where the funds to pay for the NAR settlement will come from, votes held by the Executive Committee held at least partial answers: NAR’s reserve funds, including operating reserves and those that were collected from members specifically for lobbying and to advertise the Realtor brand. Before the BOD meeting, the NAR Executive Committee separately approved a motion that advocacy and consumer advertising campaign reserves “be used to fund NAR’s settlement obligations … and that the board designation for these funds be suspended for the duration of the settlement period.”
(Source: Inman.com)
So the good news is that membership dues will not increase in 2025, and NAR leadership is confident that they can make the settlement payments by diverting funds that would have otherwise been used for lobbying and national ad campaigns.
Back in 2014, NAR commissioned The Swanepoel | T3 Group (now T360) to research and report on the state of the real estate industry. According to the report, its purpose was to:
“…research threats, opportunities, key trends and issues, particularly from the fields that may impact the industry, our members, the Association, and the real estate consumer.”
(Source: DangerReport.com)
In order to accomplish this, the team at T360 interviewed the leadership at 70 of the top real estate companies across the country. The result was the D.A.N.G.E.R. Report, an exhaustive list of the top dangers facing Agents, Brokers, NAR, State and local Associations, and MLSs.
Last month, a decade after publishing the D.A.N.G.E.R Report, T360 released the Opportunity Report. According to T360:
“As the real estate industry grapples with its most transformative period in decades, The Opportunity Report, authored by Stefan Swanepoel and T3 Sixty, provides key insights and a strategic roadmap for agents and brokers to navigate the future. The Opportunity Report builds on Swanepoel and T3 Sixty’s prior work, including the influential DANGER Report, which was released a decade ago and forewarned of the potential risks facing the industry. This new study shifts the focus to uncovering opportunities that lie ahead, based on interviews with more than 50 of the industry’s most influential CEOs and leaders. The report explores key themes such as decoupling buyer and seller agent compensation, embracing artificial intelligence to digitize transactions and addressing the ongoing affordability crisis.”
(Source: TheOpportunityReport.com)
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