Updates from Sally Shiekman

A successful lawsuit against the National Association of Realtors has shifted how commissions are represented in real estate purchase agreements. Here’s what you need to know.

Commissions: Up for Discussion?
Real estate commissions have never been set in stone. Traditionally, these commissions were paid by the seller upon closing and were split between the buyer's and seller's brokers. Factors such as the property's price, market conditions, the level of service, marketing efforts, and the agent’s expertise have always played a role in negotiating these fees. The recent changes in commission structure further emphasize the importance of negotiation, making it even more crucial for buyers and sellers.

The New Commission Structure
While contracts in every state may differ, in Colorado, there is now a clause in the contract that indicates who will pay the buyer’s broker’s compensation and how much the buyer’s broker will be compensated. It’s still possible to negotiate that the seller pays the buyer’s broker’s commission. However, if the seller isn’t willing to compensate the buyer’s broker, this could affect buyers, especially those who can’t pay cash and need financing to purchase the property. If the buyer's broker's commission isn’t part of the deal and the buyer is obtaining financing, the buyer's broker’s commission cannot be rolled into the loan. As a result, buyers must come up with additional funds to pay their broker. This shift requires careful financial planning and a clear understanding of the transaction's nuances. For instance, negotiating a lower purchase price might allow buyers to cover their broker’s commission out-of-pocket, and cash offers that don’t require financing could streamline the process. 

Why Sellers Should Still Pay Both Commissions
Despite these changes, there is still a strategic advantage for most sellers to continue covering both the seller’s and the buyer’s broker’s compensation. Why? Because doing so incentivizes buyer’s brokers to show the property, increases the buyer pool for the property, makes the property more appealing, eases the financial burden on buyers and increases the likelihood of a quick and smooth sale. In a competitive market, this can be a crucial factor in attracting top-notch buyers.
Covering both commissions also simplifies the transaction process, sparing buyers the need to secure extra funds. This convenience can be a significant advantage in a market where ease of transaction can make all the difference.

The Bottom Line
The new commission structure introduces new financial considerations. Buyers may now need to budget for their broker's compensation separately, which could impact their purchasing power. Despite these changes, paying both commissions remains a reassuring approach that benefits both buyers and sellers, providing stability and clarity in these evolving times.

Navigating this new era of real estate requires staying informed and adaptable. With the right approach, these changes can be managed to your advantage. I strongly recommend seeking professional advice to understand and navigate these changes entirely. If you or someone you know is looking to buy or sell real estate in Aspen, Snowmass, or the Roaring Fork Valley, please contact me at 970-948-7530 and let me put my Mountains of Experience to work for you.

Concerns about a potential downturn in the real estate market are growing. Here’s a look at the key factors and predictions for the remaining 2024 year and how they compare to what's happening in Aspen.

National Perspective:

Interest rates and elections have a complex relationship. Historically, rates don’t consistently drop during election years, as the Federal Reserve bases its decisions on economic conditions rather than politics. For 2024, expected interest rate decreases have not yet occurred, affecting the broader market more than the luxury segment.

The National Association of Realtors (NAR) expects housing sales to increase by 13% in 2024, with existing home prices rising by 2.6% by August. Housing inventory remains low, 36% below pre-COVID levels, which could increase prices if interest rates don’t drop. High mortgage rates and slow inflation cooling have delayed potential rate cuts, adding to market challenges.

Experts overwhelmingly say that a housing market crash is unlikely in 2024. The lack of supply, a lingering effect of the last housing crash, prevents prices from falling significantly. Mortgage rates are expected to fall this year as inflation continues to slow, and the Federal Reserve potentially eases its monetary policy. Lower rates make homeownership more affordable and stimulate market activity.

According to a recent report by Forbes Advisor, the challenging housing market has many would-be buyers wondering if home prices will ever go down. However, despite high mortgage rates and prices, home prices increased by 6.49% year-over-year in March 2024. Experts believe that a market crash remains unlikely unless there is a significant increase in supply or a major economic downturn.

In Colorado, Arizona, Texas, Florida, and Tennessee, which experienced a housing boom during the COVID-19 pandemic, the market is now seeing increasing inventory and price cuts. According to Reventure CEO Nick Gerli, up to 30% of the properties in this market are experiencing price cuts. This could signal a shift from a seller's market to a buyer's market in those regions.

Aspen Area Perspective

The luxury real estate market in Aspen is not just thriving; it's booming. High-net-worth individuals and investors continue to seek properties here, driven by Aspen's unique appeal as a premier destination for both winter and summer activities. Unlike the national market, Aspen's buyers are less affected by interest rate fluctuations and often pay with cash, a unique aspect that sets it apart.

Aspen faces a significant inventory shortage, with even more pronounced scarcity due to limited land for new developments and strict zoning regulations. This keeps prices high and competitive. While national home prices are expected to rise modestly, Aspen has seen more substantial increases due to its desirability and the influx of affluent buyers.

Preparing for Market Challenges

For buyers in Aspen, flexibility and understanding the market's competitive nature are crucial. Getting pre-approved for a mortgage can provide a competitive edge, even if it is not strictly necessary.

Sellers should maintain their homes well and work with local agents who understand Aspen's market dynamics. Pricing competitively based on current conditions and comparable properties will help attract serious buyers quickly.

In conclusion, navigating a potential real estate downturn requires staying informed and strategic. While national trends provide a broad overview, Aspen's unique market highlights the importance of localized insights. Buyers and sellers can make the best decisions in this complex landscape by leveraging expert analysis and staying attuned to national and local trends. If you or someone you know has real estate interest in Aspen, Snowmass, or the Roaring Fork Valley, please contact me, Sally Shiekman, at 970-948-7530 or visit me online at www.sallyshiekman.com. Your proactive approach can make a significant difference in this dynamic market.