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Propmodo Daily

By Franco Faraudo · Apr. 17, 2024

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The recent settlement by NAR et al. has changed the rules surrounding residential agent commissions. But what happens if sellers or their agents want to continue the decades-long tradition of paying for the buyer's representation? This is the question we'll explore today in light of a recent rule update issued by Freddie Mac.

Veritas Investments CEO, Yat-Pang Au, is optimistic about the company's future despite recent setbacks. In a new interview, he told Propmodo that he sees a rebounding market and aims to capitalize on distressed multifamily properties in San Francisco and Seattle with a tech-driven approach.

Is your city's office market on shaky ground? The pandemic changed the work landscape, but some cities are weathering the storm better than others. On May 7th, I'll be joined by Placer.ai's Caroline Wu for a Propmodo Live webinar as we reveal which cities are finding success despite low occupancy, the surprising impact on other property types, and innovative strategies for downtown revival. Register now for "Which Cities Are Still Thriving Even With Low Office Occupancy?"

This week in Propmodo Technology, we're tackling multifamily development. Learn how sustainable trends like passive house and 3D printing are changing construction. Discover AI's impact on development finance, and explore the viability of franchise models within modular housing.

Now, let's dig in!

Freddie Mac Opens the Door for Buyers To Pay Agent Commissions

Barring an appeal, the real estate commission lawsuits have been settled. The settlement releases the National Association of Realtors and some of the country's biggest brokerages from future litigation. It also allows for different commission structures in residential transactions. Buyers' agents can now be paid directly by the buyer and can negotiate their own commission splits.

There were concerns about how the traditional commission structure would work under the new rules. If sellers or their agents pay the buyer's agent, it might be considered an "interested party contribution." This distinction has important consequences, as Freddie Mac places limits on interested party contributions for loans they purchase on the secondary mortgage market. These limits are nine percent of the total house price for primary residences and only two percent for investment properties.

To address these concerns, Freddie Mac recently released a clarification to their interested party contribution guidelines. It excludes broker's commissions in its definition of interested party contributions: “Typical fees and/or closing costs paid by a seller in accordance with local custom, known as common and customary fees or costs, are not subject to the IPC limits,” The memo said. “If a seller or seller’s real estate agent continues to pay the buyer’s real estate agent commission in accordance with local common and customary practices, these amounts are not required to be counted towards the IPC limits for the transaction.”

While this rule change may only be relevant to a limited number of transactions, the government's attention to the matter suggests that the current commission structure could persist even after the rules have changed.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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