Big changes came into effect on August 17
Sweeping changes to the way realtors conduct business came into effect across the US on Saturday (August 17) – and that adjustment could have a significant knock-on impact on the mortgage and housing markets, according to a leading mortgage executive.
As part of a much-discussed National Association of Realtors (NAR) settlement, homebuyers will now negotiate directly with realtors regarding payment of fees, while sellers are no longer required to offer to cover the cost of the buyer’s agent.
Anthony Casa (pictured top), president and chief executive officer of UMortgage, told Mortgage Professional America that the changes were likely to have much more significant consequences than many were anticipating.
Especially concerning, he said, is the fact that many appear unprepared for the “massive shift in behavior” the changes will likely bring about. “The entire real estate agent community is not trained and prepared,” he said. “Of the top five real estate brokerages, only one of them has actually rolled out their plan on how they’re instructing their agents to handle this going forward.”
The changes could prove especially troublesome for buyers who’ve spent several months shopping around for a home without knowing about the impending changes, Casa said – meaning that while they may have been house hunting with a certain budget in mind, the new rules could see thousands of extra dollars added to their closing costs.
In some markets, buyers may still be able to negotiate a seller concession but with affordability already stretched elsewhere for many would-be homeowners, the prospect of even higher mortgage costs is a daunting one.
How will mortgage professionals be impacted?
An exodus of sorts from the real estate agent profession has been mooted as a possible repercussion of the changes, with that trend set to spill over onto the mortgage side, according to Casa. “I think you’re going to see a lot of agents get wiped out [and] I think you’re going to see a lot of loan officers get wiped out,” he said, “because the low-performing agents that are not going to be prepared for this work with low-performing LOs that are not prepared for this.
Kurt Brandly of Greenside Capital stressed the importance of strong referral partnerships in the US mortgage market, noting a shift from high-volume client interactions to cultivating key relationships with realtors, banks, and title companies.
— Mortgage Professional America Magazine (@MPAMagazineUS) August 16, 2024
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“So it’s going to have an impact on both the mortgage side and the real estate side and I think in the short term, what you’re going to see is… a lot of chaos. You’re going to see buyers on the sidelines. It’s going to be a barrier to entry.”
That stumbling block is the likely reluctance of buyers to sign a contract that makes them exclusive with an agent committing to paying 3% commission. It could also have an upside, Casa said – namely, a stabilization in home prices and values because of the potential homebuying hurdle.
What should loan officers keep in mind?
For LOs and brokers, a proactive approach to the changes has been essential – getting ahead of the new reality instead of scrambling to adjust when they came into effect. That entails a comprehensive explanation to hopeful buyers of additional fees that supplement their downpayment – even if that’s not the direct responsibility of the mortgage professional.
Casa said those stipulations are often not effectively explained to the borrower. “We’re taking the approach that we’re going to disclose it because it’s such a big number that we want to make sure people are prepared for,” he said. “Our approach is, from the time we initially preapproved the client, we’re going over their fees, we’re going over everything, and we’re making sure they understand what this is.”
Two different approaches to the new reality have been evident in the loan officer community, according to Casa: those who have taken proactive measures (“I think those will be the winners in the market,”) and those who are shifting all responsibility to the real estate side.
The latter could be playing a dangerous game. “I don’t think that’s an effective approach. I think you’ve got to lead on this one – it’s too big of a change,” he said. The onus should be on LOs to “explicitly disclose to the buyer that while your agent may try to negotiate this 3% commission to be paid by the seller, that’s not a guaranteed outcome.
“We want to prepare you that you could be responsible. You’re responsible for this – unless told otherwise.”
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