⚠️New Rules Could Make Waiting to Buy a Home More Costly

Posted on by Mike Padlo

Will Sellers Stop Paying for Buyer Agents while YOU Foot the Bill?

The recent National Association of Realtors (NAR) lawsuit settlement has sent shockwaves through the real estate market. A core issue was the traditional commission structure, where sellers typically covered buyer agent fees. Although this practice is still currently the norm, this could soon change when the mandatory changes resulting from the lawsuit go into effect on August 17, 2024. Here’s what you need to know as a potential buyer:

From Seller-Funded to Buyer Beware:

For years, the NAR advocated for a commission structure where listing brokers shared their commission with the buyer’s broker and agent, often a 50-50 split . This meant buyers felt their representation was “free” since the seller’s broker paid the commission. Although the lawsuit challenged this practice, it was not eliminated. The main problem was actually with the requirement that home listings in the MLS (multiple list service) were required to show some amount of compensation offered to buyer agents. This made sellers feel that they had no choice regarding the sharing of the commission they are paying to their listing broker. If the settlement requirements remain unchanged when they go into effect they will result in a ban on disclosing any shared commissions amounts in the MLS. Bottom line, this will require listing agents to provide a more complete and transparent explanation to seller’s regarding their options related to offering shared commission.

Here’s how the shift could impact your wallet:

  • The Seller Subsidy Shuffle: Sellers might be less inclined to automatically cover buyer agent fees. They could list their homes with lower commissions for buyer agents, or even zero compensation. This could leave the responsibility – and potentially the cost – of agent representation squarely on your shoulders. NOTE: Although this would be seriously poor judgement by the seller, that is the subject of a different article.
  • The Rise of a La Carte Fees: The traditional bundled commission might be broken down into separate fees for various buyer agent services. This can be transparent, but it also means you’ll be paying directly for things like showings, negotiations, and paperwork – services previously covered by the seller commission.
  • Locking in Potentially Higher Fees: Another requirement of the proposed settlement is that buyer agent fees be negotiated between the buyer and their agent and locked in by a buyer agency contract. Sellers paying for the buyer agent’s commission will not be permitted to pay more than that contract amount even if they were offering more. Therefore, it will be necessary for buyer agents to lock in contract agreement fees high enough to be profitable. Presently, buyer agents can agree to accept whatever the seller is offering, even if LESS than they would normally charge. With the proposed changes, buyers would have to cover the difference.

Why Choosing to Buy Without an Agent Can Cost You More :

You might be thinking of just not hiring an agent to help you buy your home. Going unrepresented can be risky. Here’s a look at why:

  • Losing Out: A good agent can help you prepare an offer that not only meets your criteria and budget. but also checks enough boxes for the seller to make them choose yours. In the current market we’re in right now, this can be a valuable benefit of working with an agent and can make or break your ability to find and purchase you’re ideal home.
  • Negotiation Nightmare: A skilled buyer’s agent can negotiate a lower purchase price, seller concessions, seller funded repairs and other various purchase terms, potentially saving you tens of thousands of dollars. Negotiating on your own can be stressful and lead to leaving money on the table.
  • The Knowledge Gap: The real estate market is complex. An experienced agent can navigate legalities, paperwork, and market trends, ensuring a smooth and successful transaction. Going solo can lead to costly missteps, delays and possibly overpaying for your home.

Bottom Line

The lawsuit settlement changes are currently scheduled to take effect on August 17, 2024. You can avoid dealing with any of these potential negative implications of the settlement changes by BUYING BEFORE August 17, 2024. Doing so will allow you to take advantage of the current system and ensure you will be able to get the valuable Realtor representation you need. If you have any questions about this subject or would like to get started with the home buying process don’t hesitate to reach out.

First Time Home Buyer Mistakes – Failing to Understand the Cost of Owning a Home

Posted on by Mike Padlo

Are you thinking about buying a house but not sure if you can afford to own one? Well, to be sure you would have to have thought about the true cost of owning a home. I’m not talking about the cost to buy one, that’s just the start of it. I’m talking about the cost to own maintain one over time. You need to have thought about and budgeted for that. If you’re not sure how to do that, keep reading.

I would like to walk you through creating a sample budget that represents an example of the cost of owning a home. Now, the actual numbers involved in this budget can vary depending on a lot of different factors. Consider your heat/cooling costs, for example. The type of home you live in, how well it’s insulated and the layout of the home (among other factors) can affect its energy efficiency and subsequent costs. So, keep in mind, this is just a hypothetical monthly budget. But you have to have somewhere to start. You can always add or remove budget items to tailor this example to fit your needs.

Our hypothetical monthly budget will be based on some national averages that I found in various, reliable places on the internet. If you want more personalized estimates of the numbers you’re about to see in this example, I’m sure it would be fairly easy to find more regional or even local county or city level numbers for these budget totals.

Let’s put together a sample monthly budget for a homeowner starting, of course, with a sample monthly mortgage payment, which will base on a hypothetical home purchase of $200,000 for the house, with a 20 percent down payment. This would result in a loan amount of $160,000. We’ll use six percent for the interest on the loan, $2,000 for your annual property taxes and $1,000 for your annual homeowner’s insurance. Using those numbers for our example results in a mortgage payment of $1,209.

Now, let’s add some monthly utility costs. Nationwide monthly averages for utilities are as follows: for electrical, $114, for water $71 and for natural gas $63. Internet, which I would not have considered a utility 20 years ago but now I think most people probably look at it that way, averages about $60 a month. Streaming, which to some might be considered a luxury, will be included here just to be conservative, costs consumers on average another $60 a month. If your trash is not picked up by your local municipality as part of the services paid for through your taxes, then it will cost homeowners on average $14 a month to pay for it themselves. All together that gives us a monthly utility budget of about $382.

Another possible monthly budget item might be HOA (home owner’s association) fees. If you buy a house in a home owner’s association monthly membership fees average $300 a month. Of course, you can eliminate that cost by just not buying a house that’s part of home owner’s association. 😊

As a homeowner, it is important that you budget for repairs and maintenance. I would advise that you set aside in your budget 1% of your home’s value for annual maintenance. You’ll inevitably need to attend to minor things like replacing fixtures, painting, landscaping, replacing window treatments etc. Slightly more costly items like replacing an appliance, like a dishwasher a refrigerator or something along those lines, will eventually be necessary. I would advise keeping any unused portion of that annual 1% set aside in a fund for larger repairs and maintenance, such as the need to replace a furnace, air conditioner or roof somewhere in the future. One percent of our sample $200,000 house would be $2,000 a year or $166 per month.

So, all together we have a monthly budget from being a homeowner of $2,057 per month. I hope this example helps to give you some direction in estimating your potential monthly homeowner budget. Hopefully you can use this plan to determine whether or not there’s room in your budget to include being a new homeowner.

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