First-time homebuyers are being insulated by slower market conditions. Will it last?

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

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

So, when many in the real estate industry correctly anticipated changes to the agent commission structure — which were solidified by the National Association of Realtors’ (NAR) settlement following the jury verdict in the Sitzer/Burnett lawsuit nearly a year ago — there was quite a bit of fear about how first-time buyers would be impacted.

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

Competitive dynamics

“Nothing has changed a whole lot at this point,” said James Dwiggins, the CEO of NextHome. “The market is not great, so we aren’t often dealing with multiple-offer situations. And it is a little bit early, but some of the preliminary data I have looked at show that sellers are continuing to pay buyer agent compensation.”

Due to these conditions, Dwiggins and other industry professionals believe there won’t be much of an impact on first-time buyers until the housing market strengthens, leading some sellers to potentially stop offers of buyer broker compensation.

“If the market shifts and it is a lot more competitive for buyers, buyers may see more sellers who aren’t willing to help with their agent’s fees,” said Aja Adair, an agent at Berkshire Hathaway HomeServices Drysdale Properties. “I think ultimately, though, sellers should be looking at their net (profit). A seller is probably more willing to look at an offer that nets them the most, even if it does include a buyer’s agent commission as part of the terms.”

Bryan VantHof, a member of the RE/MAX Advantage Plus-brokered The Minnesota Real Estate Team, also believes the amount the seller nets is central to getting a deal closed. But he also said that in a bidding war situation, first-time buyers may not have to offer way over asking price to emerge victorious.

“I’m not seeing that the first-time homebuyers are going to have a real competitive disadvantage for the types of houses they are going to be buying,” VantHof said.

“So, on a starter home, where you might get multiple offers, the first-time buyers who are competing are all going to probably have similar buyer profiles and will probably all be asking for help with buyer broker compensation. So, just asking for it in the offer probably won’t disadvantage them.”

On the hook

But even before first-timers get to the offer stage in their homebuying journey, some agents say they are seeing them run into issues with the new requirements mandated by NAR’s settlement agreement.

Since the new terms went into effect nationwide on Aug. 17, agents have had to obtain a signed buyer representation agreement before showing a home. Per the settlement, the agreement must outline how much the buyer broker will be compensated — pending the successful closing of a transaction. And the buyer must acknowledge that if the seller is unwilling to pay this amount, they will be on the hook for potentially tens of thousands of dollars.

According to Mandy Nichols, a Dallas-based Brixstone Real Estate agent, this requirement is causing some first-time buyers to forego representation if it is not property explained.

“Many first-time homebuyers don’t have enough to pay the agent and all the closing costs,“ Nichols said. “The main issue I see is agents not really explaining the buyer’s representation agreement correctly or explaining to the buyer how they can help them. 

“Because of this, they may go out and deal directly with the listing agent that is representing the seller and does not have their best interest at heart.”

When faced with the possibility of having to pay an agent out of pocket — and possibly compounded by working with an agent who has poorly explained the buyer representation agreement — Nichols said some first-time buyers feel they are better off going unrepresented. This is concerning, she added, given the complicated nature of the real estate transaction.

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

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

“The way you approach a change is really about your mindset. And with this change, if you are going to be fearful of it, that is going to convey to your clients and you are not going to be able to articulate it well to them, because you’ve already prepared yourself and them to be fearful of it.”

As the housing market continues to shift and agents become more comfortable and confident with buyer representation agreements, it remains to be seen what the ultimate impact of the NAR settlement on first-time buyers will be.