First-time homebuyers are being held back by slow market conditions. Will it last?

Editor’s note: This is the third in a series of articles that will examine the results of the landmark Sitzer/Burnett case, which was decided on Oct. 31, 2023, and has since reformed the business practices of brokerages and real estate agents across the country.

It’s no secret that many first-time home buyers struggle. Stubbornly high interest rates, low inventory levels and high home prices are putting a strain on the often limited budgets of first-time buyers.

So, while many in the real estate industry are rightly anticipating changes in the agent’s commission structure – fueled by the The National Association of Realtors’ (NAR) settlement following the jury’s decision in the Sitzer/Burnett case almost a year ago – there was little apprehension about how first-time buyers would be affected.

Despite the initial concerns, many industry experts say that first-time buyers are currently no worse off than other buyers — for now, at least.

Competitive strength

“Nothing much has changed right now,” said James Dwiggins, CEO of the NextHome. “The market is not good, so we don’t often face oversupply situations. It’s still early, but some data I’ve looked at shows that sellers are continuing to pay buyer’s agent compensation. “

Due to these conditions, Dwiggins and other industry experts believe that there will not be a significant impact on first-time buyers until the housing market stabilizes, leading some sellers to stop offering buyer’s compensation.

“If the market changes and becomes more competitive for buyers, buyers may see more sellers who are not willing to help with their agent’s fees,” said Aja Adair, an agent at Berkshire Hathaway HomeServices Drysdale Properties. “I think in the end, sellers should look at their net (profit). The seller is probably more willing to look at the best offer for them, even if it includes a buyer’s agent commission as part of the terms.”

Bryan VantHof, a member of the RE/MAX Advantage Plus– brokered Minnesota Real Estate Groupand believes that the seller’s net worth is critical to getting the deal closed. But he also said that in the case of a bidding war, first-time buyers may not have to offer an asking price to win.

“I don’t see that those who are buying houses for the first time will have a problem competing with the types of houses they will buy,” said VantHof.

“So, in a first home, where you can get multiple offers, competing first-time buyers will almost certainly all have similar buyer profiles and will almost certainly all be asking for help with buyer’s compensation. So, just asking for it in the application probably won’t hurt them.”

On the hook

But even before first-timers get to the buying stage of their home-buying journey, some agents say they’re seeing problems with the new requirements mandated by the NAR settlement.

Since the new policies went into effect nationwide on August 17, agents have been required to get a signed buyer representation agreement before showing a home. In terms of the settlement agreement, the agreement must specify how much the buyer will be compensated – pending successful closing of the transaction. And the buyer must accept that if the seller is unwilling to pay this amount, he will be on the hook for nearly tens of thousands of dollars.

According to Mandy Nichols, based in Dallas Brixstone Real Estate agent, this requirement causes some first-time buyers to leave representation if the property is not specified.

“Many first-time home buyers don’t have enough to pay for an agent and all the closing costs,” says Nichols. “The problem I see is that the agents do not properly explain the agreement to represent the buyer or explain to the buyer how they can help him.

“Because of this, they may come out and deal directly with the listing agent who represents the seller and not have their best interest at heart.”

When faced with the prospect of paying an agent out of pocket — and possibly combined with working with an agent who didn’t properly explain the buyer’s representation agreement — Nichols said some first-time buyers feel they’re better off not being represented. This is concerning, he added, because of the complex nature of real estate transactions.

These same issues are why Joanne Mendoza makes sure she’s prepared for buyer presentations, especially when working with first-time buyers.

“There’s always change in our industry and this was a change we had to make, so I fully embraced it,” said Mendoza, the California agent for Berkshire Hathaway.

“How you make a change is about how you think. And with this change, if you are going to be afraid, that will transfer to your customers and you will not be able to speak to them properly, because you are already prepared and they are also afraid. with it.”

As the real estate market continues to change and agents become more comfortable and confident with buyer representation agreements, it remains to be seen what the NAR’s ultimate impact will be on first-time buyers.

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