Will New Regulations Make Selling Houses Harder and More Expensive?

July 3, 2024 by Mark Ferguson

Will the Department of Justice (DOJ) and new regulations make selling houses harder and more expensive? The landscape as we know it is poised for some dramatic shifts, and I want to unpack what that means for home buyers, sellers, agents, and investors. While we do not know for sure what will happen the DOJ has given many hints as to what they want to happen. The DOJ may think what they are doing is helping consumers, in my opinion it will do the opposite if these ideas come to fruition.

Video: How the DOJ is Making Buying and Selling Houses Much Harder and More Expensive

The Disappearance of Open Houses

One of the potential changes is the disappearance of open houses. This traditional method of showcasing properties might become much harder to execute, which could complicate the buying and selling process. The intention behind these changes is to lower costs and make it cheaper for buyers. However, the reality might be quite the opposite, making it more expensive and challenging for buyers to purchase homes, ultimately impacting sellers and agents negatively.

One of the major changes the DOJ wants to see implemented is all buyers must have a buyers agency agreement signed with an agent before viewing homes for sale. It has been rumored the DOJ does not want buyers and sellers working with the same agent which could make open houses very difficutl!

Government Intervention and Lawsuits

A significant driving force behind these changes is the involvement of the Department of Justice (DOJ). Previously, I discussed some lawsuits from home buyers and sellers against the National Association of Realtors (NAR) and other agencies. What I didn’t realize then was the extent of the DOJ’s involvement. They have been working on these lawsuits from the beginning, essentially approving or disapproving changes that could alter laws and regulations across states.

Commission Transparency on the Chopping Block

One of the most contentious issues is the DOJ’s push to remove buyer commissions from being listed on the Multiple Listing Service (MLS) and other sources as well. Traditionally, the seller pays both their listing broker and the buyer’s broker, making it easier for buyers who might not have the funds to pay their agent directly. The DOJ’s stance is that this information should not be visible, aiming to avoid the misconception that buyer agents are “free” for buyers, even though their commissions come from the seller’s proceeds.

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The Impact on Agents and the Industry

This move has stirred a lot of debate, as it fundamentally changes how transactions have been handled. Buyers will now likely have to sign a buyer agency agreement, committing to an agent and agreeing on their compensation before even seeing a property. This could make open houses and for-sale-by-owner situations much more complicated. Furthermore, there’s talk about potentially banning dual agency, where an agent represents both the buyer and seller, adding another layer of complexity.

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The Economics of Regulation

Many believe these changes could weed out less competitive agents and streamline the industry. However, basic economic principles suggest otherwise. Reduced competition typically leads to higher prices, not lower. With fewer agents and more complicated processes, costs are likely to rise. Agents might start charging more due to the increased complexity and reduced competition.

Federal vs. State Control

The DOJ’s involvement also raises concerns about federal overreach. Traditionally, states have had the authority to regulate real estate practices within their borders. Now, the federal government seems to be stepping in, overriding state laws and regulations, which could lead to a one-size-fits-all approach that might not be suitable for every market.

Potential Consequences for Buyers and Sellers

For buyers, this could mean higher out-of-pocket expenses, as they might have to pay their agent’s commission directly, on top of other closing costs. This change could particularly affect first-time buyers or those with limited financial resources. Sellers might feel pressured to still offer commissions to make their properties attractive, but the lack of transparency could create confusion and miscommunication.

The Broader Economic Impact

Real estate has long been a cornerstone of wealth building in the United States. Making the buying process more complicated and expensive could hinder people from purchasing homes, leading to fewer homeowners and more renters. This shift could drive up rental prices and decrease housing affordability overall, impacting the broader economy and wealth distribution.

The Road Ahead

As these changes loom closer, the real estate industry must brace for a period of adjustment. The outcomes are still uncertain, and the industry will need to adapt quickly to navigate the new rules and regulations. The hope is that these changes, though challenging, will eventually lead to a more transparent and fair market for all participants.

In the meantime, if you have any questions or comments, feel free to share. I will continue to keep you updated on these developments and provide insights into how they might impact your real estate ventures. Stay tuned for more videos and updates on real estate trends, my flips, rentals, and other projects.

Why do you think? Let me know in the comments below.