Dallas tech worker battles new real estate madness amid historic NAR settlement: ‘It seems like you’re only willing to negotiate up’

Jarai Howard, a 29-year-old tech worker with a growing family, is hunting for his second home in the Dallas-Fort Worth area, but the process has turned into a nightmare.

Howard aimed to snag a $700,000 newly built home with the help of a real estate agent. He figured it’d be easy since he’d already bought a home for $200,000 in 2017 and snagged a sweet 2.2% mortgage rate during the pandemic.

But times have changed — drastically.

The agents Howard encountered were demanding up to $25,000 in fees for a buyer’s agent — something he never had to deal with when buying his first house. One agent even wanted him to sign a contract committing to a 3% commission.

“The answer I got was, yes, it’s fully negotiable, but our standard rate is 3%,” Howard told MarketWatch. “You say it’s fully negotiable, but it seems like you’re only willing to negotiate up.”

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Howard was left feeling ripped off and frustrated. “The form says [commissions are] fully negotiable, but it’s really already set,” he said.

Things are about to get even more crazy for home buyers everywhere. Starting Aug. 17, buyers will have to sign contracts with real estate agents before even viewing a house. Plus, the commission a buyer’s agent gets will no longer be listed on the Multiple Listing Service.

“It’s the most significant change to real estate in over 100 years,” Adam Hopson, chief strategy officer at real estate startup Flyhomes, told the outlet.

The changes come from a $418 million settlement earlier this year between the National Association of Realtors (NAR) and several brokerages after they were accused of inflating real estate commissions. While the industry claims the changes will help consumers, experts are divided.

Ken Johnson, a real estate economist at Florida Atlantic University, slammed the changes, saying they make the market “less efficient” and are “not good news for anyone.”

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The real estate market is already struggling, with home sales dropping to a six-month low in June and prices hitting record highs. Buyers and agents alike are bracing for confusion.

“In the short term, there will be as much confusion … among agents as among buyers,” said Steve Broebeck, a senior fellow at the Consumer Federation of America. But he added that in the long run, the changes should “save consumers tens of billions a year in lower commissions.”

Beginning Aug. 17, buyers will have to sign contracts detailing how they’ll compensate their agents. This is like having to sign a contract with a car salesperson before a test drive, said Hopson.

“If they don’t understand the contract or think it’s unfair, they should refuse to sign,” Broebeck advised.

In Texas, Howard experienced firsthand how confusing these new contracts can be. When he pointed out the negotiable commission rate, the agent suggested he get legal help to understand it.

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“I understand this is a brand-new process for everyone,” Howard said. “I’m sure in the past, maybe this never came up, because this whole process is new.”

With the new rules, buyers will also have to pay their agent’s commission, a cost previously covered by the seller. This added expense could push buyers towards alternative real estate models.

“A service which was once essentially free for the buyer will suddenly come with the commitment to pay $15,000,” Hopson explained.

David Dworkin, president of the National Housing Conference, compared the end of the traditional commission structure to a “venus flytrap situation” trapping home buyers in bad deals.

For now, analysts expect the changes to slash real estate agents’ annual commissions by 30% or more. Meanwhile, Howard has ditched traditional agents in favor of ShopProp, a company that charges flat fees for their services.

“We’ve been anti-commissions for a long time. I believe it should be free,” Rob Luecke, managing broker and CEO of Seattle-based ShopProp, told MarketWatch. The company operates in six states. “Our goal is, over time, to make it completely free to buy and sell a home.”

“I’m attempting to make the largest purchase I ever have in my life,” Howard said. “I just don’t want to mess it up, so I feel like a real-estate agent would be able to walk me through it, to make sure I don’t screw myself out of $700,000.”

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