I don’t know if you felt it, but I did. I’m not talking about the backlash associated with the City Council’s vote on short-term rentals or the growing concern about the decline in summer rentals. I’m talking about a nationwide jolt to the real estate community whose initial shock waves are beginning to hit the shores of Nantucket.
From coast to coast, the domino effect has already had an impact with the worst of the explosion expected in mid-summer. With Memorial Day weekend kicking off Nantucket’s traditional summer sales period, what caused this rash that could affect local sales and rentals?
An unprecedented, multimillion-dollar antitrust ruling against the National Association of Realtors (NAR) late last year led to a $418 million settlement announced in March. Assuming the federal judge approves this agreement, the agreement is expected to take effect in August.
Simply put, the lawsuit filed by a group of home sellers accused the NAR of setting kickbacks for real estate agents that ultimately led to inflated home prices. Additionally, it led buyer’s brokers to recommend more expensive homes to their clients, resulting in higher commissions. Once the agreement is signed, among other things, the traditional practice of charging a 6 percent commission would be eliminated and home buyers would now be responsible for compensating their own agent.
Most experts believe that the first thing to fall will be broker commission rates, as they will now be more competitive and sellers will be able to shop around for better rates. In fact, it is expected that some real estate companies and individual agents will now advertise their fees with the possibility of buyers’ brokers charging a flat fee. Given that the average real estate commission in the United States is around 5.5%, a decline towards the international real estate average of approximately 2 percent is not ruled out.
For the seller, this is music to his ears. They would no longer be responsible for a significant amount of money associated with a traditional 6 percent commission that is then typically split equally between buying and selling brokers.
For the buyer, especially a local first-time home buyer, the verdict is still out as the responsibility of paying a portion of the total commission will now shift to their wallets.
With this in mind, how will this historic agreement affect the island’s real estate market and those who are hired to sell properties on Nantucket?
Interestingly, several of the local agents I spoke with took a laissez-faire approach to the antitrust lawsuit and the $418 million settlement, as if Nantucket buyers, sellers, brokers and their listings were immune to national forces. . Others, like Penny Dey, principal owner of Atlantic East, are taking a more proactive approach. In fact, Dey recently met with Catherine Taylor, who is part of the Massachusetts Association of Realtors’ team of legal counsel.
“I think it is important for all Nantucket real estate agents to educate themselves about this deal and the potential impact on Nantucket. Based on the information we have, it appears that compensation for the buyer’s agent will likely come from the proceeds of the sale,” Dey summarized.
While the general consensus among local brokers seems to be “too early to tell,” I believe changes are coming because the “commission door” is about to be kicked open.
According to Lei Wedge, professor of investment and real estate at the University of South Florida, “this agreement will usher in new standards that will give all parties more transparency and bargaining power, which could eventually lead to higher transaction fees.” low”.
While some of Nantucket’s high-profile brokers with a track record of success may refuse to budge, increased competition among agents could drive down commission rates. Whether it’s a single broker or an entire local company, someone will give in and others will follow.
Admittedly, it has always been possible to negotiate commissions on Nantucket, and given the island’s high real estate prices, commission rates have already been below 6 percent for some time. However, sellers generally don’t have much influence unless they are selling a high-end home. In the future, all sellers will have additional leverage to negotiate discounted commission rates.
Ultimately, savvy Nantucket sellers and sophisticated Nantucket vacation home buyers won’t pass up the opportunity to save some money. In fact, there have been predictions that some buyers will not use agents at all and will simply schedule showings directly with sellers.
No matter how you look at it, it appears Nantucket’s commission pie has gotten smaller. Additionally, most local experts are predicting a lower figure for total gross sales in 2024 versus 2023. With the potential for lower commission rates added to the mix, it stands to reason that the total dollar amount of commissions being pay will be reduced. a hit.
In the real estate world here, brokers will have to sell more properties or watch their total annual compensation shrink as commissions shrink along with the number of record sales.
The prospect of that kind of cash flow disruption will not sit well with the power brokers and their bosses on Nantucket. In turn, I anticipate that agents will work feverishly to protect the properties they have under contract to sell. However, increased competition will inevitably lead to brokers stepping up their efforts to secure more quotes, even if they are currently linked to rival offices.
According to Norm Miller, a professor at the University of San Diego, “this deal could cause a mass exodus of brokers from the real estate industry. Potentially, 50 percent of the roughly 2 million agents nationwide could quit as the new rules become unworkable for many brokers…”
A forecast from Keefe Brunette & Woods projected that changes to the commission structure “could cause 60 to 80 percent of American real estate agents to leave the profession…”
Panel Jia Barwick and Parag Pathak predicted in the Rand Journal of Economics that “a 50 percent reduction in commissions would result in 40 percent fewer agents…”
While I do not anticipate the same level of carnage, I do see the possibility of a reduction in the number of agents on Nantucket and a “new normal” coming to the island. Privately, even some of the island’s most loyal brokers have admitted that it is necessary to “slaughter the flock.” This antitrust agreement has the potential to make that move apply even if new compensation models are introduced to the market.
Additionally, among local first-time homebuyers, anxiety is rising. If the buyer’s share of the commission is not negotiated into the sales price, the local first-time home buyer will be required to pay that expense up front. With entry-level homes on Nantucket hovering around $2 million and buyer commissions expected at around 2 percent, that’s an additional $40,000 at closing for the buyer, plus the down payment, closing costs, attorney fees and other charges or fees such as insurance or owner’s fees.
Despite the efforts of many local middlemen to assure the community that “it’s no big deal,” not everyone drinks the Kool-Aide. Since Nantucket real estate is a unique market heavily influenced by a tightly controlled network of brokers, it could be some time before everyone feels comfortable with the effects of the antitrust settlement. Although many local runners are not members of the NAR, Nantucket is no longer Kansas; and as Bob Dylan wrote: “The times they are a-changin’.”
Monitoring the Nantucket real estate market is a full-time hobby for many island residents. In addition to taking into account rumors, secret deals and absolutely unimaginable prices, there are a number of local indicators one can follow to see if this antitrust settlement has had an impact on the island’s real estate market.
For example, we can check to see if another huge $30 million building like the one on Ocean Avenue in ‘Sconset has been sold.
We can review the Land Bank’s income for the week.
Another anecdotal indicator could be whether or not real estate offices continue their generous financial commitments to local charities.
To me, the best “scientific evidence” to follow is simply to keep an eye on the number of leased Range Rovers that are parked all day on Main Street and never get a ticket.
If that fleet is reduced and you can find a parking space near the Hub this summer; So you know, commission rates have gone down and the herd has shrunk.
Keynote USA
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