Sweeping changes to the way realtors conduct business came into effect across the US last Saturday (8/17/24) that could have significant knock-on impact on the mortgage and housing markets. The new law now requires homebuyers to negotiate directly with their selling agents regarding payment of fees while sellers are no longer required to offer to cover the cost of the buyer's agent.
In November 2023, a federal jury in Missouri ruled that the National Association of Realtors, a powerful real estate organization that owns the trademark to the title Realtor and controls much of its members’ activities, and several other large brokerages conspired to inflate agent fees. This ruling will force buyers to negotiate a fee with their agent and it will make it easier for lower-priced agents to catch the attention of buyers and lead to greater price competition. But some argue that this case could leave most Seattle-area homebuyers to fend for themselves in an ultracompetitive and pricey market and that homebuyers to shell out more money upfront to buy a home. If co-op fees are prohibited, homebuyers might have to pay their agents out of pocket. This will further erode purchasing power for our veterans, minority buyers, and first-time homebuyers who are struggling for loan qualification to begin with.
In March 2024, the National Association of Realtors (NAR) reached to a Settlement Agreement to resolve a series of lawsuits against the organization. The key issue in the lawsuits was the practice of "tying," whereby NAR members require the commissions paid to buyers' agents to be set by the seller's agent. When a home is listed under tying agreements, the compensation for a buyer's agent is established before the buyer can be sure of the quantity or quality of their services their agent will provide. Tying also means that sellers may have to offer higher commission to maximize the chance they sell their home through the practice of "steering." If the agreement is approved, tied compensation will no longer occur on MLSs. Furthermore, buyers and their agents will have to explicitly agree about what services agents will provide, online MLS databases will no longer display commission rates, and NAR will also be required to permit real estate agents to be paid for their work without subscribing to MLS.
Here in Washington state and the Northwest Multiple Listing Service (NWMLS) which serves most of Washington have already made several changes to make the system more consumer-friendly. In 2020, NWMLS, which is not affiliated with the National Association of Realtors or subject to its rules started publishing agent commissions on its webpage. The seller is also not required to offer the buyer’s agent a fee – which is a key issue in the federal class action lawsuit. On January 1, 2024, important revisions to the law that governs real estate brokerage relationships (RCW 18.86) in Washington State – otherwise known as the “Agency Law” – become effective. These are the first significant revisions since the Agency Law took effect in 1997. The revisions, which are explained in detail in this bulletin and set forth in Senate Bill 5191, include the following:
NWMLS revisions to the state’s Agency Law will require agents to have a written agreement between buyers and sellers that spell out the scope of the agent’s services and compensation. Here's more information on Form 41.
Please keep in mind that in addition to a fully filled out form 41(buyer agency agreement), both fields on Line 17 (on form 21) must be fully filled out completely. Attention Buyer Brokers: You must complete both the "Seller's Offer (if any)" AND the "Amount to be Paid by Seller" fields. On page one of the purchase and sale agreement, the specific term titled “Buyer Brokerage Compensation” displays two fields: the “Seller’s Offer (if any)” and the “Amount to be Paid by Seller.” Both of these fields must be completed and should not be left blank.
The “Seller’s Offer (if any)” is a statutory disclosure required so the buyer knows how much the seller is offering, if anything.
The “Amount to be Paid by Seller” specifies how much the seller will pay toward the buyer brokerage firm compensation at closing.
Both fields must be completed even if the amount of the “Seller’s Offer” (e.g., 2.0%) is the same as the “Amount to be Paid by Seller” (e.g., 2.0%).
Please see below examples:
Example A: On page one of the purchase and sale agreement, the specific term titled “Buyer Brokerage Compensation” displays both the “Seller’s Offer (if any)” and the “Amount to be Paid by Seller.” Both of those terms must be completed and should not be left blank. This is true even if the amount of the “Seller’s Offer” (e.g. $7,000) is the same as the “Amount to be Paid by Seller” (e.g. $7,000).
Example B: If the “Seller’s Offer” is greater than the “Amount to be Paid by Seller”, the buyer can request a credit toward buyer’s obligations at closing. To do this, fill in the amount of “Seller’s Offer” (e.g. $7,000) and the “Amount to be Paid by Seller” (e.g. $5,000). Check the “Addendum for Buyer Credit” box and attach and complete the Addendum for Buyer Credit (Form 41C) for a $2,000 credit to the buyer.
*Note, if the buyer is not requesting a credit in this scenario, do not check the Addendum for Buyer Credit box and the seller would only pay $5,000.
Example C: If the “Seller’s Offer” (e.g. $7,000) is less than the amount that the buyer has agreed to pay in the buyer brokerage services agreement (e.g. $9,000) – and the buyer requests that the seller pay the additional buyer broker compensation, fill out the terms accordingly.
Example D: If the seller is not offering any buyer brokerage compensation – and the buyer requests that the seller pay all or a portion of the compensation that the buyer has agreed to pay in the buyer brokerage services agreement (e.g. $6,000), fill out the terms accordingly.
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Mortgage applications surged 11.2% last week, continuing a strong start to the spring homebuying season, according to the latest Mortgage Bankers Association (MBA) report. Falling mortgage rates have fueled demand, with the average 30-year fixed rate dropping to 6.67%, its lowest level since October 2024.
The March MCT Indices Report showed a 27.91% increase in mortgage lock volume, aligning with seasonal trends. Analysts expect continued strength in mortgage activity through March and April, with possible slowing in the summer.
Looking ahead, market watchers anticipate the Federal Reserve will hold rates steady in March and May, with a potential rate cut in June, depending on economic indicators like tariffs, Nonfarm Payroll, and inflation data.
As of 10/14/2024 - just less than a month before the election - current market sentiment is more of a "wait-and-see" mode, with inventory levels rising and interest rates at 20-month lows, but yet most potential home buyers are holding off on making purchases. Other factors contributing a wait-and-see include affordability constraints, buyer exhaustion after the pandemic-driven housing book and a record level of pessimism about the housing market.
In June 2024 - The spike in home prices and interest rates has significantly impacted first-time homebuyers. In April 2024, the median home price in King County topped $1 million. Buyers are finding little relief from high mortgage rates. Many buyers in the region are facing monthly mortgage payments between $4K and $6K. The following three tips can help such buyers successfully navigate the market as they look to purchase their first home.
1. Expect to move quickly. Inventory remain very low so buyers will likely need to move quickly and make an offer if they see a home they like. Chances are the property won't be on the market too long before it's sold.
2. Apply for mortgage Pre-Approval. The market's competitive nature for buyer means it's in their best interests to arrange financing before beginning their home search. A mortgage Pre-Approval indicates to sellers that buyers' won't ben denied a mortgage or lack financing after making an offer. Gather these documents and with a local mortgage broker for your pre-approval letter.
3. Set a realistic budget and expect to offer over the asking price. In the current market, buyers should know that they will likely need to pay more than the asking price for a home.
Compare our rates here and let me assist with your Pre-Approval Letter.
Since 2020, the income needed to afford a typical house in the Seattle-area has almost doubled from $120,000 in 2020 to $214,000 in 2024 – thanks to skyrocketing home prices and interest rate hikes. Mortgage rate increases over the last 18 months drove up the monthly cost of buying a home. At the same time, a shortage of homes for sale kept Seattle-area home prices from plummeting.
Real estate economists expect interest rates to dip some in 2024, but not to drop dramatically since it's an election year and the Fed seems happy with it's current inflationary policy. Fannie Mae projects the rate on a 30-year fixed mortgage will average 6.7% in 2024 and 6.2% in 2025, as the Fed continues to try to fight inflation. Lawrence Yun, chief economist at the National Association of Realtors, has a similar, but slightly lower, projection that rates will average 6.3% in 2024.
Despite the modest cooling in late 2023, a buyer in the Seattle area now needs an annual household income of nearly $231,000 a year or twice the city's median household income to afford the area median price of nearly $750,000.
While the income needed to afford a home shot up 79% from January 2020 to January 2024, median income in the region increased only about 22%, the analysis found. According to Zillow’s based on the housing affordability index from the Washington Center for Real Estate Research at the University of Washington, homebuyers earning the median income can afford a median-priced home in only two of Washington’s 39 counties, Lincoln and Columbia. The index assumes a 20% down payment and a household spending only 25% of its gross income on mortgage payments. People are renting longer instead of buying a home.
Despite recent rate cuts from the Federal Reserve, a major structural problem remains - close to 60% of homeowners have outstanding mortgages that are locked in at rates below 4% according to Redfin. Few homeowners are listing their properties for sale due to this “lock-in-effect” or golden hand cuffs" either they bought their house or refinanced during the pandemic era (2020 – 2022). Even, if they are willing to sell – their purchasing power is reduced drastically due to high mortgage rates. That combination has throttled the housing market as homebuyers struggle to get in the door.
So, how are homebuyers coping?
For those who succeeded in the current market – congratulations since property appreciation and Return on Investment (ROI) have been in double digits.
Since 2020, home values have skyrocketed particularly in outlying areas that offer more space and affordability. For example, according to ZIP-code-level data from Zillow, the value of a typical home in a zip code covering Seattle’s Capitol Hill and Central District neighborhoods increased about 8% from 2020 to 2024, compared to 51% in a Renton zip code and 61% in Mill Creek.
Since March of 2020 and the COVID-19 Pandemic, "normal" has been difficult to describe and for those thinking of buying a home over the last few years, the market has been anything but what used to be though as "normal". Property appreciation ascended rapidly due to high demand and lack of inventory and mortgage rates jump significantly due to economic concerns.
To buy now or wait. Higher mortgage interest rates generally mean a larger monthly payment. Mortgage rates change daily and PLEASE do not expect rates will come back down to 2021 level again. There are options to lower your rate such as with temporary rate buy-down option or with an Adjustable Rate Mortgage (ARM).
Your goal is to have a monthly mortgage payment that is within your budget and not to overstretch yourself financially leaving nothing for repairs, living expenses and emergency savings. If you can comfortably afford the mortgage payment, then now is the time to buy. Else, waiting would be more prudent.
Timeline. If you are planning to stay put for only a year or two, in this current economic cycle, waiting would be more prudent.
Housing market. Buying a house in a more balanced or "normal" market when you are up against 1 or 2 other buyers rather than 20 and where you can actually inspect the house may be better fit your risk appetite than buying during the 2021 housing market.