Competition in Real Estate - The Multiple Listing Service

1. Commissions are always negotiable.

Commissions can be negotiated at any point throughout the transaction, including at the outset, after the results of a home inspection and after an offer has been made. Sellers negotiate with their broker what fee they are willing to pay for their broker’s services and the amount the listing broker offers to pay a cooperating buyer broker who brings a buyer for their home.

2. There are different commission models to choose from.

Buyers have many different choices about which broker they want to work with in terms of everything from the commission model to a real estate agent’s particular expertise to the agents’ customer service approach. In the full-service approach, commissions are negotiable at any point during the home buying process. The reduced service/discounted fee model allows for flexible offerings and pricing. The flat fee approach allows buyers to negotiate a set price per service.

3. Commission rates are set by the market.

The free market organically establishes commission costs within local real estate markets based on service, consumer preference and what the market can bear, among other things. National Association of REALTORS’® guidelines ensure that the listing broker advise all other participants in their local broker marketplace what the amount of compensation to the buyer’s broker will be for closing the sale. That amount is determined by the seller and the seller’s broker. Commissions fluctuate over time, including having decreased steadily in recent years and having fallen to a new low of 4.94% in 2020.

4. Commissions cannot be included as part of a mortgage.

The vast majority of mortgage lenders do not allow commissions to be added to home loans. For many, saving for a down payment is difficult enough. If buyers had to pay commissions directly on top of their closing costs, it would increase their out-of-pocket expenses in a way that would freeze out many from an already competitive market. That’s especially true for first-time and low- and middle-income buyers, and communities of color that disproportionately fall in those categories.

5. REALTORS® are bound by a strict code of ethics in the home buying process.

REALTORS® are bound by NAR’s Code of Ethics to always further clients’ best interests, including showing homes that meet buyers’ needs regardless of commissions offered. Additionally, in November 2020, NAR introduced its Fair House Action Plan, abbreviated ‘ACT,’ which emphasizes (A)ccountability, (C)ulture Change, and (T)raining in order to ensure America’s 1.5 million REALTORS® are doing everything possible to protect housing rights in America.

6. Broker cooperation keeps local broker marketplaces from fracturing.

Because of broker cooperation, buyer and seller brokers are incentivized to share their information in their local, independent broker data hub. Without it, lack of complete, transparent and accessible data for all would mean smaller brokerages and new entrants have to piecemeal information and couldn’t offer as many options to sellers and buyers, and larger brokerages would dominate local markets, creating emerging behemoths that would drive up costs.

7. Broker cooperation sets the U.S. real estate industry apart from the rest of the world.

The U.S. model has long been – and is still – viewed as the best option for consumers around the world. Buyers abroad are forced to wade through a complex and fragmented market where they have to work with multiple brokerages and where there is no exclusivity so sales can fall through. Generally, the homebuying process abroad is similar to buying a car in the United States where you have to go dealer to dealer, it’s very time consuming and impersonal. It’s also common for brokers to charge fees and taxes in other countries that add up to the equivalent or greater of costs associated with buying and selling property in the U.S., yet only provide a fraction of the services consumers receive here.

Check your credit

Your credit score plays a huge part in your ability to secure a mortgage and improving your credit score can take months of healthy spending habits and paying down debt. Check your credit with your credit card company, online, or with a major credit bureau such as Equifax or Experian. Typically, if your score is below 700, you will likely pay more for your mortgage¹.  

Figure out what you can afford

You need to sit down and decide how much you can afford to spend on a down payment, monthly payments and expenses. A mortgage lending rule of thumb is that your total monthly home payment should be at or below 28% of your total monthly income before taxes². However, lenders still have the ability to provide you more or less depending on your overall financial history.

Hire a professional

Having an expert, local professional to manage the process is more important than ever before. The internet only does so much–real estate agents help people traverse complicated, data-heavy and voluminous information, details and decisions.

Find your dream home

Through the Multiple Listing Service (MLS), Realtors® have instant exposure and access to the largest, centralized database of residential real estate listings in your area to find the perfect home for you within your budget. The MLS system makes it possible for all kinds of brokerage services to compete on a level playing field because they all have access to the same information. This gives consumers a lot of different choices about what broker they want to work with in terms of everything from the commission model to their particular expertise to their customer service approach.

Choose a lender and mortgage type

In a typical year, most buyers take out a mortgage to finance their home purchase, most commonly 30-year, fixed-rate financing using a conforming loan. However, there are other options including an adjustable-rate mortgage (ARM), where your payments often start out lower, but could increase over time. When choosing your mortgage you need to acknowledge and be aware of the risks you are taking on when making this decision.

Make an offer

Once you’ve found the right home and financing option, the next step is to make an offer to purchase your new home.

Home inspections

To ensure that the home is safe and won’t incur large, unexpected expenses in the future, be sure to get a home inspection before closing on your new home.

Closing

Once the inspection is complete and you’ve come to an agreement with the seller, you will then close on the deal and sign all of the necessary paperwork. It typically takes a couple of days for your loan to be funded.

¹ https://homeownershipmatters.realtor/wp-content/uploads/2016/01/201503_cfpb_your-home-loan-toolkit-web.pdf(link is external)

² https://homeownershipmatters.realtor/wp-content/uploads/2016/01/201503_cfpb_your-home-loan-toolkit-web.pdf(link is external)

You don’t have to look very far for examples that illustrate why.

This past December, my mother and father closed on their home of 35 years in Limerick, Ireland, after 10 months “in escrow.” They also recently closed on their purchase of a new home. In the process, they had to rent a home for four months between their sale and their purchase given “simultaneous closings” are not a practice there. That kind of drawn-out timetable is typical for the majority of western nations that use the auctioneer system where a seller works with one, perhaps two, auctioneers.

FULL TEXT: Why the U.S. MLS system is the envy of other countries – HousingWire(link is external)