July 3, 2024 Mark Ferguson
Will the Department of Justice (DOJ) and new regulations make selling a home more difficult and expensive? As you know, the home selling landscape is about to undergo a dramatic change. I want to dig into what that means for home buyers, sellers, agents, and investors. We don't know what will happen, but the DOJ has given many hints about what they hope will happen. The DOJ may think that their actions are helping consumers, but in my opinion, if these ideas come to fruition, the opposite will likely happen.
Video: How the Department of Justice is making it harder and more expensive to buy and sell a home
The demise of the open house
One possible change is the elimination of open houses. This traditional method of showing properties will become much more difficult to execute and could complicate the buying and selling process. The intention behind these changes is to reduce costs and make it more affordable for buyers. However, the reality is quite the opposite, making home buying more expensive and difficult for buyers, which could ultimately have a negative impact on sellers and agents.
One of the big changes the DOJ wants to implement is that all buyers must sign a Buyer Representation Agreement with an agent before touring any homes for sale. It's rumored that the DOJ doesn't want buyers and sellers to deal with the same agent, which could make open houses very difficult.
Government intervention and litigation
A big driver of these changes has been the involvement of the Department of Justice (DOJ). I have previously covered lawsuits by home buyers and sellers against the National Association of Realtors (NAR) and other agencies. At the time, I was unaware of the extent of the DOJ's involvement. The DOJ has been involved in these cases from the beginning, approving or disapproving changes that could have essentially changed statewide laws and regulations.
Committee transparency at risk
One of the most contentious issues is the Department of Justice's attempt to remove buyer's commissions from the Multiple Listing Service (MLS) and other sources. Traditionally, sellers have paid both the listing agent and the buyer's broker, making it easier for buyers who don't have the funds to pay an agent directly. The Department's position is that this information should not be made public. This is to avoid the misconception that buyer agents are “free” to buyers, even though the buyer agent's commission comes from the seller's revenue.
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Impact on agents and the industry
This move has generated a lot of discussion because it fundamentally changes the way transactions are handled. Buyers would be required to sign a buyer representation agreement, hire an agent, and agree on compensation before even viewing a property. This could make open houses and direct-sale-by-owner situations much more complicated. Additionally, there is also discussion of the possibility of banning dual agency, where an agent represents both the buyer and the seller, adding even more complexity.
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The economics of regulation
Many believe that these changes will eliminate less competitive agents and streamline the industry. But basic economic principles dictate otherwise. Less competition typically leads to higher prices, not lower. Fewer agents and more complex processes will likely lead to higher costs. Agents may begin to raise their fees in response to increased complexity and less competition.
Federal and state control
The Justice Department's involvement also raises concerns about federal overreach. Traditionally, states have had the power to regulate real estate transactions within their states. Now, it appears the federal government is stepping in and ignoring state laws and regulations, which could lead to a one-size-fits-all approach that may not suit all markets.
Potential impacts for buyers and sellers
For buyers, this could mean increased out-of-pocket costs as they may have to pay an agent's commission directly, in addition to other closing costs. The changes could particularly affect first-time buyers or those with limited funds. Sellers may feel pressured to continue offering commissions to make their property look attractive, but the lack of transparency could lead to confusion and misunderstandings.
Impact on the wider economy
Real estate has long been the foundation of wealth creation in the United States. Making the buying process more complicated and expensive could make it harder for people to buy a home, leading to fewer homeowners and more renters. This change could drive up rental prices and reduce home affordability overall, with implications for the overall economy and wealth distribution.
The Road Ahead
As these changes approach, the real estate industry should prepare for a period of adjustment. The outcome is still uncertain, and the industry will need to adapt quickly to navigate new rules and regulations. Although these changes will be difficult, the hope is that they will ultimately lead to a more transparent and fair market for all participants.
In the meantime, please feel free to reach out with any questions or comments you may have. I will continue to keep you updated on these developments and provide insight into how they may affect your real estate business. Stay tuned for more videos and updates on real estate trends, my resale, rental, and other projects.
Why do you think so? Let us know in the comments below.