The Hidden Risks of Real Estate Law Changes

The real estate industry has long operated under a familiar structure: buyers typically work with real estate agents, and sellers cover the commission for both the buyer's and seller's agents. This system ensures buyers are protected throughout what is often the largest purchase of their lives. However, recent changes in real estate law have upended this traditional model. As of 2024, buyers in many states are no longer required to have a buyer’s agent, and even more surprising, they are not obligated to pay any commission to agents when purchasing a home.

At first glance, this may seem like a welcome change for homebuyers, especially in light of the steadily declining federal interest rates on mortgages, which began in September 2024. More people are rushing to the market, eager to take advantage of lower interest rates and the opportunity to purchase homes without paying the traditional 2-3% commission. However, beneath the surface of these changes lies a potential minefield of fraud and pitfalls, especially for those buyers who are navigating the complex real estate process on their own.

How the Traditional Real Estate System Protected Buyers

In the past, real estate agents played a critical role in safeguarding buyers from fraud and navigating the complexities of home purchases. Buyer’s agents acted as experienced professionals whose sole purpose was to represent the buyer’s best interests. They provided expert advice on pricing, helped negotiate favorable terms, ensured contracts were correctly drawn up, and conducted due diligence on the property. Importantly, they also had the experience to spot red flags in deals and property listings that a first-time buyer may not notice.

Beyond their professional expertise, real estate agents also had access to Multiple Listing Services (MLS) that gave them a real-time view of available properties. They could spot inflated prices, identify scams, and advise buyers on appropriate offers to make. Furthermore, they handled all communications with the seller or the seller’s agent, streamlining the process and shielding the buyer from potential manipulation or miscommunication.

In a post-buyer-agent world, these protections are largely absent unless the buyer opts to pay for these services themselves—something many might overlook, given the allure of saving on commissions. Unfortunately, what might seem like savings upfront could lead to costly mistakes or worse: outright fraud.

The Growing Threat of Fraud in a Buyer-Driven Market

Without the safety net of a professional agent, buyers are now more vulnerable than ever to fraud. Real estate fraud is not a new problem, but the new legal environment will likely make it more pervasive. Scammers can take advantage of the fact that many buyers lack the expertise to verify the legitimacy of listings, contracts, or sellers.

One of the most common types of real estate fraud is property misrepresentation. Without an agent, buyers may not know how to assess whether the listing accurately reflects the property's condition, zoning restrictions, or even its legal ownership. Unscrupulous sellers or third-party fraudsters might create fake listings or manipulate property details to trick buyers into overpaying, or in worst cases, transferring money for a property that doesn't even exist.

Another form of fraud on the rise is wire fraud. When buyers handle transactions on their own, they may fall victim to phishing schemes, where they are tricked into wiring funds to the wrong account. These funds, once sent, are nearly impossible to recover. In the past, buyer’s agents would work closely with escrow companies to ensure all funds were securely transferred, adding a layer of protection that now falls solely on the buyer’s shoulders.

The absence of a buyer’s agent also opens up the possibility of title fraud, where buyers unknowingly purchase properties that have unresolved legal disputes or unpaid debts attached to them. Without someone to perform the due diligence, buyers could find themselves responsible for unexpected liens or worse—discovering that the seller did not have the legal right to sell the property in the first place.

The Perfect Storm: Lower Interest Rates and a Flood of New Buyers.

As if the removal of a buyer’s agent wasn’t problematic enough, the timing couldn’t be worse. In September 2024, the Federal Reserve began lowering interest rates on mortgages, sparking a rush of new buyers eager to lock in favorable rates. With mortgage rates declining, the cost of borrowing is more affordable, enticing a wave of first-time homebuyers into the market.

This influx of buyers, many of whom are new to real estate, combined with the removal of the buyer’s agent requirement, is creating a perfect storm of chaos. Unaware of the intricacies of the market, these buyers are going in blind, excited by lower monthly payments but oblivious to the risks they’re walking into.