US Real Estate: No More 6% Commission? Will Your Home’s Value Plunge?

Hello, and welcome to Snowball Rentals’ WeChat account, where you can read about recent developments in the US short-term rental market.

Airbnb has long become a preferred source for people seeking authentic experiences and good-value vacations.

On the 15th of last month, the National Association of Realtors (NAR) agreed to pay US$418 million to settle a class-action lawsuit brought by representatives of home buyers and sellers. The lawsuit accused NAR of deceiving buyers and sellers by imposing high commissions.

This means that the standard 6% commission, which has persisted in US home transactions for a century, may disappear. The real estate industry could undergo major changes that might reduce the costs of buying and selling homes.

After the news broke, shares in real estate companies such as Zillow fell, partly because of expected changes to how agents would be paid.

Under the settlement, NAR agreed to change its commission rules and remove the fixed-commission system.

The New York Times said the industry would see four major changes:

Home prices would fall substantially.

The 6% commission would become history.

Agents would be less likely to steer buyers toward expensive homes.

A million agents would soon lose their jobs.

But will that really happen?

Here is the answer immediately: no.

That is because this so-called US$418 million settlement barely makes a dent. Home prices will not fall substantially because of it, commissions of 5–6% will remain normal, and a million agents will certainly not lose their jobs.

Why?

First, although the settlement says sellers cannot be required to offer a buyer’s agent commission on the Multiple Listing Service (MLS) website, sellers can still offer that commission. The commission amount simply cannot be displayed on MLS.

Sellers are also allowed to offer cash incentives to buyers to offset transaction costs. These can still appear on MLS, provided they are not called commissions.

Have you noticed, homeowners? Getting around this rule is very easy.

Buyer’s agents are not robots. Even if the commission information is absent from MLS, an agent can call and ask whether the seller offers a commission.

Alternatively, the listing agent can show the commission amount on their own website, Show Time or elsewhere without violating the rule. It is a little more inconvenient, but not an obstacle.

Second, the settlement requires buyers and their agents to sign a commission agreement before they can begin working together.

This is a very good proposal. A buyer might want an agent who offers a rebate or charges a fixed fee. A first-time buyer might be willing to pay a high commission for full service. Signing this agreement allows both sides to have a healthy conversation at the start and avoid misunderstandings later.

This will certainly improve efficiency and is a win for both sides.

So will home prices fall because commissions fall substantially? The key question is whether the settlement might cause sellers to stop offering a buyer’s commission and require buyers to pay it themselves.

Of course the answer is no. As mentioned, the buyer’s agent commission agreement must be signed at the beginning. The buyer will know clearly that if the seller does not offer a commission, the buyer must pay it.

But here is the problem: for a typical household, the biggest obstacle to buying a home is an insufficient down payment. If the buyer also has to pay commission, there is even less money for the down payment. If the seller pays it, however, the buyer can finance the purchase even if the price is a little higher.

As a buyer, then, would you buy a home where the seller pays commission, or one where you pay it yourself?

Certainly the former.

This is also why renovated homes sell well even at higher prices: buyers have no money left for renovations after paying the down payment. A slightly higher home price is therefore acceptable because it can be financed.

Returning to the essence of business, buyers and sellers will ultimately choose seller-paid buyer’s commissions to maximize their own interests. Buyers can put up less cash, and sellers can achieve higher prices.

I read comments from several experienced industry professionals. Their general prediction is that buyer’s agent commissions will eventually fall from 2.5% to around 2%.

They predict that listing-agent commissions will not be affected and will remain at 3%.

So home prices will not fall substantially because of this. Commissions will fall a little, without a major change, and a million agents will not lose their jobs. This is the real reason NAR immediately chose to accept the settlement rather than appeal.

The settlement barely makes a dent.

As a homeowner, you may now be wondering: my home is quite good, but how much could it earn on Airbnb? Would it earn more than a long-term rental? Would it involve a lot of trouble?

Contact us right away! We will evaluate it for you free of charge.

If you:

Hope to increase rental income through short-term rentals;

Cannot spare a great deal of time to handle the small details;

Occasionally need to use the home yourself, making it unsuitable to empty out the furniture for a long-term rental;

Then:

Snowball Rentals’ management team is your best choice.

From pre-launch vacation-rental styling, big-data analysis and online marketing to tenant screening, dynamic pricing, customer service and sales, cleaning and repairs, Snowball Rentals provides everything as one complete service for your home.

Vacation-Rental Styling

Competition on Airbnb is becoming increasingly intense. The days of piecing together secondhand furniture, taking phone photos and earning easy money on Airbnb are over. Airbnb hosts have moved toward professional operations.

Careful design and furnishing before launch, followed by professional short-term rental operations, will be the only choice for a rental that continues to generate high income.

Here is another of Snowball Rentals’ core services: vacation-rental styling.

After our professional styling work, a vacation rental’s appearance improves substantially, followed by more bookings and higher rental income.

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Snowball Rentals Management

1. Full service — We provide pre-launch rental design, furniture procurement, furnishing, professional photography, online marketing, copywriting, tenant service and sales, cleaning, supply purchasing and property repairs. You only need to be a hands-off owner; we handle the rest.

2. Multi-platform promotion — We promote the home on Airbnb, VRBO, HomeAway and other mainstream platforms for maximum exposure.

3. Dynamic pricing — Using big data, we adjust prices every day according to seasonal demand, holidays, last-minute vacancy offers, weekends and local activities, maximizing the owner’s income.

4. Income-improvement SOP — We follow 44 secrets for maximizing short-term rental income, optimizing each property’s online marketing, on-site operations and other aspects to work toward maximum income.

5. Flexible owner stays — Owners can flexibly choose when to stay themselves. This is especially suitable for owners with multiple residences around the world.

6. Terminate at any time — Management does not require an annual commitment. The owner can end the agreement with one month’s advance notice.

7. Corporate housing — In addition to nightly rentals, we work with insurers and assignment companies to provide executives with hotel-style managed accommodation for stays longer than 30 days.

8. Transparent fees — For rentals longer than 30 days, we charge 15% of accommodation revenue. For nightly rentals under 30 days, we charge 20% of accommodation revenue.