Congratulations. You’re entitled to a piece of the $418 million Realtor settlement fund.

But don’t expect a big windfall.

Since you will be among 21 million other Americans who are part of the “settlement class,” the amount per seller — after deducting attorneys’ fees — could be as low as $13.

That’s a pittance compared with the $18,000-$22,000 commission Southern California sellers typically pay buyers’ agents — on top of what they paid their own agents.

“It’s not going to be a lot of money,” said Jack Miller, president and chief executive of Orange County-based consulting firm T3 Sixty. “It’s not really a financial thing. The rules changes are the bigger deal here.”

See also: Accused of price-fixing, Realtors talk change at annual convention in Anaheim

The size of the seller payout is one of four key takeaways from the 107-page settlement reached this month between plaintiffs in more than 20 class-action lawsuits and the National Association of Realtors.

Homeowners and their attorneys argued in federal lawsuits across the nation that the decades-old practice of requiring sellers to post compensation offers for buyer agents amounted to price-fixing, keeping the 5-6% commission rate artificially high.

NAR called those claims meritless and vowed to appeal.

Faced with protracted litigation, NAR decided to settle on behalf of its 1.5 million members and more than 200 Realtor-affiliated groups named as defendants.

Under the settlement, announced March 15, NAR agreed to pay $418 million, or less than a quarter of the $1.8 billion a Kansas City jury order it to pay Missouri home sellers in October.

In addition, the trade group agreed to revise its commission rules, dropping the requirement that sellers post offers of compensation in a listing database called an MLS or multiple listing service.

Some billed the agreement as an “earthquake” that’s likely to topple the standard 6% commission rate.

A senior fellow for the Consumer Federation of America predicted commissions could fall as much as 30% over the next few years as buyer agents compete for business.

Some real estate professionals pushed back, denying that commissions will fall much, if at all.

One industry blogger called the settlement a “total victory for NAR,” arguing things will change little.

The settlement must win court approval before becoming effective, possibly in July.

Here are key takeaways from that settlement.

1. Buyers and their agents must sign a contract

While most home sellers sign listing agreements with their agents, only about a fifth of California buyers sign contracts, according to a California Association of Realtors estimate.

Under the settlement, Realtors and buyers must enter into a written agreement before the buyer can tour any homes. The contract must specify the amount or rate of agents’ compensation.

The amount of compensation can’t be an open-ended phrase like, “whatever amount the seller is offering the buyer’s agent.”

See also: Realtor associations deluged with ‘copycat’ commission lawsuits

Agents also can no longer say their services are free unless they’re actually working pro bono.

“It’s going to be a different game,” said Art Carter, chief executive of the California Regional Multiple Listing Service, which covers most of Southern California. “For the first time, buyers and their agent are going to be under contract for the entirety of their relationship, and that discussion is going to happen up front.”

CRMLS General Counsel Edward Zorn called the mandatory buyer contracts “the change that’s going to impact the consumer the most.”

2. How buyer agents get paid will be up for grabs

The settlement doesn’t spell out how buyer agents get paid, so it’s possible sellers will continue to pay buyer’s commissions — or that some sellers will pay buyer commissions while some buyers will pay their own fees.

While the settlement prohibits offers of buyer-agent compensation on the MLS, sellers still can use the MLS to make offers of “concessions,” which buyers can use to pay closing costs, pay for repairs — or to pay their broker fees.

Listing agents also can still make compensation offers by any means outside the MLS — such as on their own websites.

Industry officials are hoping federal lending rules will be changed, allowing buyers to use part of their mortgage to pay their broker fees.

Zorn believes some buyers may include a request in their purchase agreement asking the seller to pay their broker fees.

“Now the buyer and the seller are negotiating how the buyer agent gets paid,” he said.

Since current rules prevent veterans receiving VA loans from paying commissions, the Department of Veterans Affairs also will need to revise those regulations.

Miller, the T3 Sixty CEO, predicted some buyers will face a difficult period as the industry goes through a transition.

“Consumers, especially first-time homebuyers (and) lower-income consumers … are struggling just to get the down payment together,” Miller said. “To place the additional cost or burden on them of paying an agent for representation may make homeownership totally unattainable for them.”

3. Will commissions really drop?

Industry insiders challenge media reports that commission rates or home prices are about to fall because of the settlement.

Rancho Cucamonga agent Laurel Starks was rankled by headlines like “Homebuying’s 6% commission is gone.”

“Blatantly false narratives have been published by mainstream media,” Starks said in an email. “Fictional statements are being published as though they are fact.”

Some observers also question the speculation that home sellers will lower their prices since they’re saving money on commissions. Miller and others note that bidding wars over a limited supply of homes are driving up home prices, not commissions.

“We think (sellers are) going to keep the money,” Miller said. “They are going to sell their home for what the market will bear.”

On the other hand, economists and consumer advocates expect commissions to drop by as much as $30 billion a year because of increased agent competition.

Consumer advocate Stephen Brobeck believes the NAR settlement will make price-fixing much more difficult.

“Buyers as well as sellers will be able to negotiate rates, which will be more transparent,” said Brobeck, a senior fellow at the Consumer Federation of America. “Discount brokers will be empowered to compete more effectively with agents trying to maintain 5-6% rates.”

He predicted commissions will decline by 20-30% over the next several years, “which represents tens of billions of dollars of annual consumer savings.”

Real estate commissions total about $100 billion a year, according to one industry estimate.

Rob Hahn of Las Vegas, a former industry consultant who writes a real estate blog under the moniker Notorious R.O.B., has an entirely different take on the settlement.

Asked how much commissions will drop, he said, “None. Zero. … Nothing changes.”

The settlement doesn’t eliminate seller-paid buyer commissions, he said. And it will do little to end the practice of “steering,” or directing clients to homes offering the biggest commissions.

“Agents already are out there saying, I’m just going to call that agent and say, ‘What are you guys offering?’ ”

If the listing agent says, “Nothing, we’re not required to,” he wrote, some agents will say, “Good luck selling (that house).”

“Steering is illegal, and yet, it happens all the time,” Hahn said. “I don’t know this settlement changes any of that.”

4. Who qualifies for settlement payments?

Anyone who sold a home after Oct. 31, 2019, will be eligible for a payment, so long as it was listed in an MLS and a commission was paid.

Sellers should receive notification if they’re entitled to a payment.

More than 21 million homes sold in that period, NAR figures show.

Assuming legal fees consume one-third of the settlement, that leaves just under $300 million for home sellers, or just over $13 apiece.

“Homeowners will get a cup of coffee, and lawyers will get millions,” Hahn said.

The total settlement pool is expected to reach about $2 billion once payments are included from large brokerages such as Re/Max, Anywhere, Keller Williams and others still negotiating, the Consumer Federation’s Brobeck said. That would raise individual payments to $63 per seller.

“But,” Brobeck added, “the main goal of the litigation was to change industry policies and practices, and that will certainly occur.”

Two California lawsuits filed this month — one in Los Angeles and one in Sacramento — brought to 20 the number of federal court cases seeking to end requirements that home sellers pay agents for the buyers.

The lawsuits name the National Association of Realtors and more than 200 other industry groups in 11 states as defendants. Since the Oct. 31 verdict against NAR and two real estate brokerages, new cases surfaced in New York, Pennsylvania, Illinois, Georgia, South Carolina, Texas, Arizona and Nevada.

At least four of the cases were filed on behalf of a nationwide class of home sellers or buyers. A state case also has been filed in the Florida Panhandle, according to news reports.

The actions accuse real estate industry groups of conspiring to keep agent compensation artificially high by requiring sellers to offer payment as a condition for listing homes in broker-affiliated databases, often called the MLS.

Using terms like “anticompetitive” and “conspiracy,” law firms have blamed Realtors for pocketing rising commissions tied to escalating home prices, even as technology has cut sales costs.

See also: Accused of price-fixing, Realtors talk change at annual convention

“Defendants conspired and continue to conspire to restrain trade by causing (homeowners) to pay buyer broker fees and inflated commissions on home sales,” said the latest California lawsuit, filed on behalf of a Sacramento home seller. “Because housing prices significantly increased, … the dollar amount of commissions is increasing at the same time the work done by buyer brokers is decreasing.”

Typically, home sellers make commission payments to all the agents in a transaction, and buyers pay no compensation. If the lawsuits are successful, buyers would have to pay their agents directly.

In addition, the possibility that damages in the Missouri case could be trebled to $5.3 billion raises the prospect that NAR — the nation’s largest trade group, according to the New York Times — could be forced into bankruptcy.

Consumers benefit

NAR vowed to appeal the Missouri verdict, maintaining that the current practice is in their clients’ best interest, adding that all commissions are negotiable.

“The cooperative compensation practice makes efficient, transparent and accessible marketplaces possible,” Mantill Williams, NAR’s communications vice president, said in an email. “Sellers can sell their home for more and have their home seen by more buyers while buyers have more choices of homes and can afford representation.”

Agents attending NAR’s annual conference in Anaheim last November argued that first-time and minority buyers — already struggling to cover down payment and closing costs — won’t be able to hire an agent if they have to pay commissions.

Meanwhile, plaintiffs’ attorneys are seeking to have all the cases consolidated before a single judge, preferably Missouri Western District Judge Stephen R. Bough. Bough presided over the trial with the $1.78 billion verdict.

NAR attorneys responded on Tuesday, Jan. 23, saying they prefer to have the cases heard in Chicago, where NAR is based.

“The Northern District of Illinois is not only the district in which the original actions were filed … but also the district with the largest number of actions,” the trade group’s motion says. Four of the 20 federal lawsuits were filed in Illinois.

California cases

On Dec. 8, Marin County home seller Christina Grace sued NAR, several local Realtor associations and a multiple listing service on behalf of sellers in five Bay Area counties.

On Jan. 17, a second California lawsuit accused NAR and almost three dozen Realtor enterprises on behalf of home sellers in Los Angeles, Fresno and Madera counties.

According to the lawsuit, plaintiffs Gael Fierro and Patrick Thurber paid 6% in commissions — $51,300 for the sale of Fierro’s home in Hollywood and $27,000 for the sale of Thurber’s home in the Sierra Nevada foothills. Half of those amounts went to agents working for the buyers.

In addition to NAR, their lawsuit names the California Association of Realtors and 20 local Realtor associations as defendants, including Realtor groups in Los Angeles, the South Bay, Pasadena and the San Gabriel and San Fernando valleys.

“We believe these allegations are without merit for many reasons, and we will present those arguments in court,” CAR General Counsel June Barlow said in a statement.

See also: Realtors’ national president steps down alleging blackmail threat

On Jan. 18, Sacramento home seller Willsim Latham LLC sued MetroList Services Inc., a multiple listing service for a dozen Northern California counties. In addition, 18 local Realtor associations and brokerages are being sued, seeking compensation for anyone who listed homes for sale on the MetroList MLS.

While not a defendant in the Sacramento case, NAR is named as a “co-conspirator.”

The Sacramento lawsuit, like other lawsuits across the country, cite a NAR-commissioned 2015 study by Orange County-based industry analyst Stefan Swanepoel finding that real estate commissions in the U.S. are inflated compared with countries like Great Britain and Australia.

“Currently, total broker compensation in the United States is typically, on average, 5% to 6% of the home sales price,” the lawsuit said. “According to (the Swanepoel) report, the average total commissions range between 1% and 3% in countries such as the United Kingdom, Singapore, the Netherlands, Australia and Belgium.”

Ed Coulson, director of the Center for Real Estate at UC Irvine, believes the Fed should have acted sooner. And because rent is now leveling off, he thinks the Fed should halt future interest rate hikes.

Rent inflation plays an outsized role in determining the overall rate of inflation, the housing economist said. And the government’s method for measuring it is off-kilter, causing the Fed to misinterpret an important metric in the Consumer Price Index.

We asked Coulson to explain his reasoning and to share other insights about the housing market. His comments have been edited for space.

Q: You believe the Bureau of Labor Statistics’ method of measuring rent inflation is flawed. Why is that, and why is it important?

A: The Fed’s policy is driven by their perceptions of inflation. And I argue with some co-authors that that perception is incorrect. And the reason it’s incorrect, ironically, has to do with the housing market.

The problem is rent is the biggest component of the Consumer Price Index. Depending on which measure of inflation you want to look at, it can be anywhere from just over 30% to 45% of the basket of goods, which is used to measure inflation. So it’s a big chunk. And so you got to get it right.

Q: What are they getting wrong?

A: They go around, they ask people what their rent is. And they look at what your rent is now compared to what it was six months ago. And then, they combine all those answers and figure out the rental inflation rate from that.

That’s great if you want to measure the cost of living. But you’re not using it to measure the cost of living, you’re using it to advise you on macro-economic policy. That’s not contemporaneous information because the rent you’re paying right now depends on a lease that you signed six, eight, 10 months ago.

So, it is very sluggish and lags the true state of the housing market by six months at least.

If (the Fed) had measured inflation properly, they probably would have raised rates very much sooner than they did. And they should stop raising rates now because rents now have leveled off. In fact, our measure of current rental inflation is zero when the Fed still is measuring it at 3% to 4%.

Q: Are you saying rent inflation should be based on new leases for vacant units?

A: That’s what you want. We have a more recent technique, which simply takes Real Capital Analytics data on the multifamily market, and we can convert that into an apartment rent inflation index.

And if you input that into the CPI and take out the Fed’s rental measure, it shows a drop in the rental inflation rate.

Q: How has the pandemic affected housing?

A: From 2020 to 2022, we had 4 million new households form nationwide. That’s a lot. Four million in two years is a lot of new households.

Why did this happen? It’s because people were adjusting their housing preferences because of the pandemic. They didn’t want as many roommates as they did before. They didn’t want dense living. They wanted larger spaces because they needed separate space devoted to a home office.

That increased the demand for housing. And so prices and rents shot up. At the same time, the pandemic induced inflation.

In light of that inflation, interest rates rose, and they rose dramatically because the Federal Reserve thought it was their duty to put a cap on this inflation.

Q: Is there enough housing to meet all this new demand?

A: Normally, we always have churn in the housing market. Empty nesters want to move to smaller units; people who are increasing their family size want to increase their space.

But that’s not happening now.

The incentives are all misaligned because we are in this period of very high mortgage interest rates that follow a period of very low interest rates. And so people are experiencing what we call mortgage lock, meaning that they don’t want to trade that low interest loan for a high interest loan.

Q: Would building more homes increase supply?

A: I think we do need denser housing. … (But) building more housing isn’t necessarily going to reduce housing prices. The price of housing in California — and everywhere — is based on some fundamental factors. How prosperous the place is and how many amenities it has, and what kind of amenities.

And places with sunshine and coastline are always going to be more expensive. And when people talk about how high housing prices are in California, you have to remember that that’s not just the price of the housing. It’s the price of the sunshine as well.

If house prices were to drop considerably in Southern California, there would be people in other places who would say, “Hey, California is pretty cool.” There’s big demand out there for living in California.

Q: With home prices and mortgage rates so high and so few homes on the market, will homeownership decline?

A: You’ve got the worst of both worlds because you got high prices and high interest rates. People who are looking to buy a home are currently stuck.

Q: Does this mean in the long run, that people are more often going to become renters than owners?

A: Well, there’s still going to be wealth-building advantages to owning a home. And there’s the pride of ownership that comes with owning a home.

Traditionally, if you wanted to have a single-family property, you had to become a homeowner. Now, of course, the single-family rental market has been expanding, so the people who have families, who have dogs (are no longer) limited to becoming homeowners.

I do worry because I have written papers that suggest that homeownership is a net benefit for neighborhoods because they have more invested in the property than either a renter or what is, in effect, an absentee owner would.

And so, if there’s a transition to a lower homeownership society, we would need to worry about people’s shorter stays and less investment in their neighborhood. I’m not saying that renters are bad people. Not at all.

California’s always had a lower homeownership rate. And people in places that have high housing costs relative to rents are always going to have lower homeownership rates.

Are we are we heading there? Well, I don’t know.

ED COULSON PROFILE

Title: Professor of Economics and Director of the Center for Real Estate

Organization: Paul Merage School of Business, University of California, Irvine

City of residence: Dana Point

Education: Bachelor’s in economics from UC, Riverside; doctorate in economics from UC San Diego

Previous jobs: Professor of Economics and King Faculty Fellow in Real Estate at Pennsylvania State University; professor of Economics and director of the Lied Institute for Real Estate Studies at the University of Nevada, Las Vegas.

It’s not because of the sentimental value of the family homestead. And it’s not because she still needs four bedrooms, 2 ½ bathrooms and a big backyard.

“Why don’t I sell?” said Sue, who lives alone and doesn’t feel safe using her last name in print. “(A sale) leaves many homeowners, like me, with a huge capital gains tax.”

Also see: It’s a ‘bubbly’ housing market, says 2008 bank regulator

Capital gains — a term most commonly associated with investment property — has seeped into the vocabulary of residents living in long-held suburban tract homes.

In the past, most homeowners were sheltered from the tax on their primary residences. The first $250,000 in value gains are excluded from the tax for single taxpayers while $500,000 in gains are excluded for married couples filing joint returns.

But skyrocketing home values exposed more people to the tax because the exemptions haven’t changed in the past 26 years.

Also see: Why house payments will likely soar along with rising insurance rates

When the exclusion was adopted in 1997, the median house price was just $129,000 nationwide and $186,490 in California, Realtor figures show. As of August, the U.S. median had tripled to $407,100, and the California median jumped five-fold to $859,500.

In Sue’s case, the house she and her ex-husband bought for $125,000 in 1983 is now worth about $1.1 million. If she were to sell today, her accountant estimates, the capital gains tax would be at least $104,000.

“(If) I’m going to move … (it would be) with a lot less money to buy the next house,” she said. “This is really a big problem and, if addressed, could solve a huge shortage of good family homes that are being underutilized by seniors.”

Some argue that the tax is more than offset by soaring profits owners made on their homes.

But a handful of lawmakers and at least one housing economist believe the capital gains tax is discouraging people from selling. That, in turn, is contributing to a major shortfall in the number of homes on the market. In Southern California, for example, for-sale listings are running about a third below normal.

A bill pending in Congress seeks to remedy that problem by doubling the amount of profit that’s exempt from the tax.

The California Association of Realtors hailed the bill as a possible solution to the lack of housing. In a separate analysis, CAR determined the bill could shield two-thirds of homeowners now exposed to such a tax.

‘A simple fix’

Called the “More Homes on the Market Act,” the measure would increase the capital gains exclusion from $250,000 to $500,000 for single filers. For married couples filing a joint return, the exclusion would go from $500,000 to $1 million.

The bill, co-authored by Rep. Jimmy Panetta, D-Carmel Valley, and Rep. Mike Kelly, R-Pa., would also index the exclusion so it keeps pace with inflation.

“The existing exemption was created in 1997 and fails to take into account inflation and the sharp increase in home prices,” Panetta said in a statement. “A simple fix would allow homeowners to downsize, sell their homes, and keep their nest-eggs intact while providing one solution that can help the affordable housing issue.”

Designed to protect homeowners rather than investors or flippers, the exemption can only be used for a primary residence that owners have lived in for at least two of the last five years.

The bill has drawn support from 27 co-sponsors from both parties, including Democratic Reps. Katie Porter and Ted Lieu and GOP Reps. Mike Garcia and Michelle Steel.

Because the bill has yet to be reported out of committee, the Congressional Budget Office hasn’t done an analysis to determine how much a doubling the exemption will cost the U.S. Treasury.

A good problem

Most economists attribute low for-sale inventory to high mortgage rates, not the capital gains tax.

With rates up 4 percentage points in the last two years, most homeowners prefer to stay put in their current home than buy a new one that doubles their monthly house payment.

“I think the interest rates are the much bigger issue,” said Fred Mihaylo, a Coldwell Banker agent in Laguna Niguel. “I don’t believe people are not selling only because of capital gain.”

At the same time, homeowners benefit from a wide array of government protections, ranging from the federal mortgage-interest tax deduction to California’s Prop. 13 property tax limits.

Mission Viejo accountant Mark LeWinter believes the cost of the tax is more than offset by the profits homeowners reap.

“Of all the problems to have in this world, this is a good one,” LeWinter said. “I’m aware that the California Association of Realtors would like to sell more properties, but when (homeowners) pay a tax, it’s not the end of the world.”

But Jordan Levine, chief economist for the California Association of Realtors, begs to differ. He believes the capital gains tax accounts for a significant portion of the homes being withheld from the market.

CAR calculated that just over 2.7 million California homeowners would be subject to paying a capital gains tax if they sold today. That number would drop to just over 1 million if the bill were to pass and exemptions were to double.

If just 5% of those homes were to go on sale, that could add about 85,000 listings to the statewide market.

“Even a small fraction of those units coming onto the market would result in a significant number of new listings,” Levine said.

Levine noted that those facing the capital gains tax most often are long-term owners with paid-off mortgages. That means they can pay cash for their next home without worrying about today’s high mortgage rates.

Barbara, another single senior who didn’t want her last name used, would have to pay as much as $130,000 in capital gains taxes were she to sell her four-bedroom house in Orange. She drained her pool because nobody’s using it and it cost too much to maintain. The upkeep on her 10,000-square-foot lot is a burden as well.

“I would consider (selling) if I weren’t looking at capital gains,” Barbara said.

Instead, she’s thinking of moving elsewhere and renting out the house. Then, after two years, she’d be able to sell the house, transfer the gain to a new rental property and defer the tax.

It’s not that the tax would impoverish her, Barbara added.

“It’s more of what is a financially wise decision? Is it financially wise to sell and pay the capital gains or should you do the rental?”

Sue, the Fountain Valley homeowner, noted that when the current capital gains exclusions were adopted in 1997, median home prices were well below the $250,000 threshold.

“People thought, that’s just for rich people. And now you have middle-class people paying that,” she said, noting that median house prices now top $1.2 million in Orange County.

“You know, (my house) is a great home for a family. Great schools, park around the corner, nice backyard. (But) it’s underutilized,” she said. “So, if you’re going to penalize me to move, I might just stay.”

While sales are down and mortgage rates are up, home prices are still rising because there are so few homes for sale.

And after a decade of rising prices, commercial real estate values have been dropping steadily over the past 18 months, particularly for offices. It’s going to take two to nine years for building and warehouse values to get back to 2022 levels, creating some risk for banks holding real estate debt. Another 311 banks will likely fail in the near future — equivalent to three Silicon Valley Banks, but not enough to tank the banking system.

Those are among the conclusions from more than a dozen economists and analysts speaking at a gathering of real estate journalists in Las Vegas earlier this month.

“We don’t foresee home price declines on a year-over-year basis nationally,” Selma Hepp, CoreLogic chief economist, told the National Association of Real  Estate Editors conference held in Las Vegas June 6-9. “We have had a lot of volatility on prices. … But in most markets, we are basically going back to long-term trends in terms of home price appreciation.”

Hepp predicted that home prices for 2023 will be up 4% from last year.

A more conservative outlook from the National Association of Realtors projects that prices will be up 1.8% this year and 2.8% next year.

Rising prices may be good news for home sellers, but they don’t spark a chorus of hosannas from already cash-strapped buyers faced with unaffordable home values and increased mortgage payments.

The average U.S. homebuyer needs to spend almost 38% of his or her income on house payments based on June prices and mortgage rates, said Zillow Chief Economist Skylar Olsen. That’s up from 27.1% in December.

In the Los Angeles region, the typical sale would eat up 84% of an average income, up from 61% at the end of December.

Home sales remained depressed in the nation and in Southern California, creating some chaos for industry players who rely on transactions, like real estate brokers. As of April, existing home sales were down 23% nationally and by almost 38% in the L.A. metro area, Realtor figures show.

CBRE Global Chief Economist Richard Barkham predicted a “mild recession” will occur in late 2023, with the gross domestic product dropping by less than 1% next fall and winter.

Ted Jones, chief economist for Stewart Title, predicted the Federal Reserve’s plan to curb inflation will raise the unemployment rate to 5-6%, cutting 2.8 million to 3.9 million jobs.

“What’s going to happen to the housing market and the economy if you cut that many jobs?” Jones asked. “I think our economy has got 12 more months of pretty tough headwinds.”

Mortgage rates to fall

Nevertheless, most economists at the conference expect the housing outlook to improve for sellers thanks to a limited supply of new listings and easing  mortgage rates.

After averaging 6.4% this year, rates for the 30-year fixed home loan will fall to 5.6% by the end of the year, averaging in the low 5% range in 2024, predicted Joel Kan, deputy chief economist for the Mortgage Bankers Association.

“This is a new normal,“ said Shashank Shekhar, chief executive of San Jose-based InstaMortgage. Buyers are adapting to higher mortgage rates and the need to buy lower-priced homes.

Offsetting high rates is a scarcity of listings coming onto the market, now at a four-year low.

Hepp noted that 97% of U.S. mortgage debt is at 6% or lower. Of that, 80% is below 4% and 41% is below 3%.

“People feel locked in,” Hepp said. “They don’t want to give up that really comfortable, super low mortgage rate.”

The locked-in effect is worse in California, where tax considerations like Proposition 13 and capital gains taxes create a disincentive to sell, she said.

While sellers typically receive an average of 2.4 offers per home, they now are getting an average of 3.1 offers, said Jessica Lautz, NAR’s deputy chief economist.

Meanwhile, American homeowners are sitting on a mountain of untapped equity, thanks to the meteoric rise in home prices during the pandemic, when 30-year loan rates averaged 3% or less.

During the first quarter of the year, the average U.S. homeowner with a mortgage had more than $274,000 in equity — meaning their homes were worth that much more than what they owed, CoreLogic reported recently.

In Orange County, equity averaged $749,801; in San Francisco, equity averaged $1.044 million.

All that equity translates into more sales without a mortgage, NAR’s Lautz said. Twenty-eight percent of buyers paid cash for their homes in May, versus 25% in 2022. Because half of older boomers paid cash, boomers now outrank millennials as the biggest group of homebuyers.

With all that value over debt, foreclosures also will remain contained, said Odeta Kushi, deputy chief economist for Santa Ana-based First American Financial Corp.

“I don’t anticipate anything on the magnitude of what happened during and after the Great Recession because of all the equity that homeowners are sitting on today,’ Kushi said.

Offices not dead

Rising interest rates caused values to drop in all sectors of commercial real estate, CBRE’s Barkham said.

Industrial property values have fallen 16% in the last 1 ½ years, CBRE figure show. Retail is down 17%, apartments are down 22% and offices are down by 34%.

Office vacancy rates are at a 30-year high, prompting Barkham to predict the office sector could take up to nine years to recover.

But Barkham noted that 80% of the increase in office vacancies is in 10% of the buildings. Generally, those are smaller buildings built from 1980 to 2009 and tend to be in downtown areas or weaker submarkets with high crime rates and fewer amenities, he said.

“Office vacancy is concentrated in the worst buildings,“ Barkham said.

But despite the increase in working from home, office space is not dead. According to CBRE, 77% of companies are committed to maintaining an office for creating a corporate culture and training new employees.

In the end, their new baby girl and their escrow both turned out fine.

Their daughter, Aurora, was delivered by C-section on March 2. Three and a half hours later, they got a text saying the two-bedroom condo the family of five had outgrown had been sold as well.

“(The sale) seemed like a shoo-in, and we were on the edge of celebrating when we started getting messages from the Realtor that there’s some kind of problem with the building,” Jeff Brill said. “My wife was already concerned about the pregnancy situation. Now we’re adding to the stress of ‘do we sell this place or not?’ ”

Unbeknownst to the Brills, their real estate agent or their homeowners’ association, mortgage giant Fannie Mae had put their building, the Harbor Lofts condominiums in downtown Anaheim, on a secret list of condos ineligible for Fannie-backed mortgages.

They didn’t find out about it until their buyers applied for a loan near the end of a three-week escrow.

All over America, condo buyers and sellers have been getting similar surprises.

In response to the Surfside, Fla., condo collapse that killed 98 people and caused more than $1 billion in property losses, conventional lending giants Fannie Mae and Freddie Mac drafted new lending standards last year to weed out condos and co-ops with deferred maintenance, structural safety issues or shaky finances.

As a result, a growing number of complexes wound up on what some call Fannie Mae’s “blacklist.”

Many, like the Harbor Lofts, got put on the list because of construction defect litigation between the owners and the builder. In February, residents of 6,102 condos at Laguna Woods Village learned their homes were added to the list because their HOA’s insurance is insufficient.

But it’s hard to know that a building is on the list, let alone why it got put there. Fannie’s list is confidential, available only to lenders and servicers.

As a result, condo buyers and owners are often unaware they can’t get cheaper conventional financing until they apply for a loan — sometimes while in the middle of a sale.

“It’s a crapshoot,” said Orest Tomaselli, project review president for CondoTek, a Philadelphia-based company that provides documents and services to condo and co-op lenders. “The only way for you to find out if a (condo) project is on that list is if you apply for a mortgage and the lender runs that project to see if it’s unavailable. And only then, typically, is a buyer informed.”

Small but growing

The number of buildings on Fannie’s list is relatively small, but it’s growing fast.

In the 16 months since the new standards took effect, Fannie Mae’s list of ineligible condos and co-ops grew from about 900 nationwide to more than 1,400, Tomaselli said. Of those, just over 60 are in Southern California.

But once a property lands on that list, buyers or owners seeking to refinance can’t get cheap, conventional mortgages.

For a median-priced Southern California condo, that means paying 2.5 percentage points more in interest and $769 more per month in mortgage payments.

That affects the pool of buyers, limiting sales to those who are paying cash or willing to get higher-cost financing.

“You’re essentially blacklisting the (condo) community, and that affects values,” said David Gaylord, a mortgage broker with Arbor Financial in Laguna Niguel.

There are 132,000 to 157,000 condo and co-op complexes in the U.S., according to the Community Associations Institute. California accounts for at least 18,500 of those complexes.

While Freddie Mac doesn’t maintain a list of ineligible condos or co-ops, both Freddie and Fannie adopted “temporary” guidelines in January and February 2022 making such communities ineligible for conventional loans if they have significant deferred maintenance or lack the reserves or insurance for future repairs.

Both Fannie and Freddie required HOAs to complete a new questionnaire to determine if complexes are in serious disrepair or lack the financial wherewithal for renovations, Tomaselli said.

Lenders who sell their mortgages to Fannie and Freddie also are expected to take a deeper dive into condo or co-op documents, reviewing six months of HOA meeting minutes and examining inspection and engineering reports from the past five years.

Soon after the new guidelines took effect, the Mortgage Bankers Association and the National Association of Realtors called for a pause in their implementation, saying Fannie and Freddie need to clarify the requirements and overhaul the HOA questionnaire.

Fannie and Freddie defended the new guidelines, saying they’re meant to protect lenders and borrowers, adding that just 1% of the nation’s condos and co-ops are on Fannie’s list.

“These measures help protect borrowers from physically unsafe or financially unstable (condo or co-op) projects,” a spokesperson said in an email.

Double secret probation

Like Fannie Mae, the Federal Housing Administration keeps a list of condos and co-ops ineligible for FHA mortgages. But the FHA makes its list public, even providing an online search engine to look up the eligibility status of condo complexes.

A Fannie Mae spokesperson declined to explain why its list is private.

But real estate agents, mortgage brokers and industry insiders say it should be public.

“Shouldn’t homebuyers, shouldn’t Realtors, shouldn’t HOAs themselves know if somehow they wound up on this bad list?” asked Kelly Richardson of Pasadena, an HOA attorney and a contributing writer for the Southern California News Group.

“It reminds me of double secret probation from that famous old comedy (“Animal House”). … We’re not going to tell you that you’re on that status, but we’re also not going to tell you why you’re on that status.”

Fannie Mae said a complex’s status can change when sufficient documentation is provided to confirm eligibility issues have been resolved.

But because the list is secret, HOAs have a hard time finding out why they’re on the list or how to get off it, industry officials said.

It’s easy for a local loan officer to input the wrong data or check the wrong box, they said.

Making the list public provides “greater transparency,” said Ken Fears, NAR’s director of conventional finance and valuation policy.

“We think it would be a real benefit to the industry — not just servicers and lenders but also real estate agents or the HOAs,” Fears said. “If there’s erroneous information about the property on this registry, there’s no way for an HOA or agent to know about it or to contest it, and that’s very problematic.”

Finding out mid-escrow you can’t get conventional financing could put a condo purchase out of reach for some buyers because they might need a bigger down payment or because they don’t meet stricter credit requirements, said Los Angeles mortgage broker Joshua Wolfson, owner of Executive Funding Solutions.

“If you haven’t met any of those other requirements, you may not be able to buy that property,” Wolfson said. “You may fall out of escrow.”

Some HOA attorneys advise their clients not to fill out the new questionnaires, saying there’s too much risk, Richardson said.

HOA board members and community managers aren’t engineers or architects, yet they’re asked to answer questions as if they were, industry officials said.

“What if you say everything’s great, but it’s not? Or what if you say there is a structural deficiency, and they don’t get their loans, but you were wrong?” asked Natalie Stewart, president of FHA Review, a Huntington Beach firm that helps condo developments qualify for FHA and Veterans Affairs funding. “You’re putting a lot of pressure on somebody who doesn’t have the resources to answer the question correctly.”

Two deliveries

At the Mariposa in Plum Canyon condos in Santa Clarita, word has gotten around about being on Fannie’s list, Re/Max agent Chad Hartman. The complex of attached townhomes has been on the list for at least a year because of its construction defect lawsuit against the builder.

“My guess would be it was a pretty painful process the first few deals when people found out. (But) it’s been known since,” Hartman said. “The local agents, we’ve known about this for a long time.”

But nobody knew about the list at the Harbor Lofts — until the Brills’ escrow almost fell through and saddled the couple with an extra mortgage they couldn’t afford.

Expecting their third child, the Brills decided to sell their 1,859-square-foot condo after they looked around and asked, “Where do we put the nursery?” They already were sharing their condo with their two sons, Eli, 4, and Levi, 2.

“We needed to move somewhere that had more bedrooms,” Jeff Brill said.

The couple bought a four-bedroom, two-story house in Anaheim Hills and moved last December. Then they put the condo up for sale. Jeff Brill, who works at Blizzard Entertainment, calculated he could pay overlapping mortgages for just two or three months.

Despite a slow housing market, the Brills’ condo sold within a week at $100 over their asking price. The buyers were eager to move in, offering to close in just three weeks.

“We had really good buyers who loved the property,” said Cindy Uhrik, the Brills’ agent. “About two weeks into the escrow, we found out they couldn’t get their loan.”

The reason shocked her since the Harbor Lofts didn’t show up on the FHA’s ineligible list, and “FHA is more stringent than Fannie Mae and Freddie Mac.”

The escrow got extended one week. Then another.

The Brills considered selling their new house to avoid paying two mortgages for a fourth month.

“Sleepless nights? For sure for my wife,” Jeff Brill said. “What does it look like if we have to box the stuff up again and tell the kids this isn’t our home?”

The buyers, meanwhile, went from lender to lender, finally getting approved for a loan, but at a higher cost. The Brills coughed up $15,000 to cover the buyers’ added finance costs.

Then, it was on to the next challenge: Melaina’s labor, scheduled for March 2.

The C-section took a little longer than expected. But in the end, little Aurora was delivered, beautiful and healthy.

Meanwhile, Uhrik had a delivery of her own. She was determined to close escrow before Aurora was born. Instead, both deliveries occurred simultaneously.

The Brills were in the recovery room feeding their newborn when Jeff Brill’s phone made a little pop.

“Escrow’s closed,” the text read. “Everything’s complete.”

Despite falling prices, homes are more unaffordable than ever. Mortgage rates are fluctuating but look to rise. Demand is down, but so are listings.

Tea leaves are easier to read.

“It’s a great pause,” Olsen says of the current housing market. “Holding one’s breath. Suspended animation.”

Olsen joined the online real estate firm’s research team in 2012, returning last summer as chief economist after a two-year break working as a consultant and at a startup.

We spoke with Olsen during a recent visit to Zillow’s Southern California office in Irvine. We asked her about the current housing slowdown and prospects for priced-out home shoppers to get a crack at homeownership this year.

Here are highlights of that conversation, edited for length and clarity.

Q: What’s happening with the market?

A: It’s holding a breath. Expect mortgage rates to bounce between 6% and 7% at least for the next quarter and early home shopping season. If interest rates drift back down to 6%, you will see more people ready to move forward.

Buyers do have more bargaining power right now. So, buyers are probably asking (sellers) for mortgage rate buy-downs and other concessions to handle the monthly affordability challenge as opposed to, say, dropping that price.

High mortgage rates are a challenge, and without inventory coming to the market, prices are not really able to come down fast enough to resolve that challenge.

Q: The market frenzy of the past two years pushed a lot of home shoppers to the sidelines. Will 2023 be more accommodating to buyers?

A: It will not. I don’t think I can promise future first-time buyers a dramatic improvement in affordability over the next couple of years.

Things don’t get better than 2022 … (until) December, if not early 2024. So, I think we’re holding our breath over this (spring’s) home shopping season.

Inventory numbers went down again. In Los Angeles, homes available at any time throughout February were 40% lower than pre-pandemic. San Jose looked a little better (with inventory) down 28%. And so, inventory has really been unable to return, and that keeps some competitive pressure on.

You know, numbers kind of vary, but I’m pretty sure this would have been the record number of 25- to 45-year-olds in terms of population this year. And they’re facing a housing market that’s so unaffordable, and we’re just not processing sales.

They’d probably like to get married, have kids and progress, as we all do. But in terms of that milestone, buying a house (and) settling down, I can’t imagine a harder market.

Q: Will priced-out home shoppers still be moving from California to Las Vegas, Phoenix or Dallas? Or continue renting?

A: You might want to consider that if your future is to be a homeowner. You might have to actually explore further out or different areas. And I know that’s hard. But that’s a reality for many households.

To save up a 10% down payment, using 5% of the local median household income per year, you’re looking at two decades — like 19 ½ years — in Los Angeles. That’s crazy.

It’s 17 years in San Francisco, and 18.8 years in San Jose, based on local incomes.

You probably have to get a gift from family or friends to make it happen. Or you need to inherit a home to be a homeowner in California. This is prohibitive.

And notice how low the numbers can get if you look elsewhere. In Dallas, 8.7 years. Phoenix, 11 years. Las Vegas, 11.7 years.

Q: What about inland parts of California?

A: In Riverside (and San Bernardino counties), it’s 13.9 years. In Sacramento, it’s 12.6 years.

Q: What advice do you have for home shoppers who have been waiting for the frenzy to die down?

A: Make sure you’re working with a quality local expert, first and foremost, because low inventory means it’s actually hard.

But I think more relevant at a time like this is the mortgage rate. That’s really a challenge, right?

People spend more time shopping for their appliances, according to our massive consumer survey, than they do shopping for a mortgage rate. And yet, that mortgage rate can be so impactful.

So, make sure you’re forming relationships with multiple lenders as you start to explore what’s actually possible.

Then, there are programs to avoid high rates. You could do a 2-1 (mortgage rate) buy-down, where that first year, your rate is 2 percentage points lower, and then 1 percentage point lower (in year two), and then you’re back at whatever you locked to.

There also are 3-2-1 buy-downs (starting at 3 percentage points lower the first year). These programs are fairly popular right now. These are usually within the context of seller concessions, where a seller will buy down your rate for you.

That kind of strategy is only good if you know you’re going to be leaving after (three or) four years or if you anticipate mortgage rates coming back down.

Q: Are we facing a recession?

A: If you talked to me last month, I was pretty optimistic. Now, I do feel more pessimistic and more worried about a recession to come. I think it will be painful for job loss, but I think ultimately we need inflation to come down.

Q: With home sales down, you’d think there would be more demand for rentals. But vacancies are up and rent growth is down. How come?

A: Rents slowed down from an incredibly aggressive pace. It had to slow down because the previous pace was unsustainable.

Some of it was making up for lost revenues during the pandemic. Rental markets were just frozen with eviction moratoriums and everything else. So, some of the second-year rent growth was about reopening. The rental market (was) becoming unfrozen and catching up for lost revenues.

I’m not surprised that rent slowed down from what it was. That was kind of wild. We hit a year-over-year rent growth of 16.3% in Los Angeles in May 2022 and 11.5% in San Francisco in February 2022.

(By comparison, rent growth is now 3.6% in L.A. and 8.3% in San Francisco, according to Zillow.)

Q: What’s the solution to California’s insanely high housing costs?

A: It really will come down to adding more homes. You can see that this is not easy, and it’s very contentious, even though we know that this is the long-run solution.

The way that I think about it is when we support someone on the demand side with downpayment assistance or housing vouchers or any of these things, we are handling the emergency side of it. We are not fixing the problem.

Supply-side solutions are the only way to actually fix the problem.

SKYLAR OLSEN PROFILE

Job: Chief economist

Company: Zillow

Experience: Researcher and principal economist at Zillow from 2012-20, leaving to found the consultancy firm Reimagine Economics and to serve as head of economics at Tomo, a digital mortgage startup. She returned to Zillow in July 2022.

Age: 37

Residence: Bainbridge Island

Family: Married with two children.

Education: Bachelor’s in economics from Cal Poly San Luis Obispo, doctorate in environmental economics from the University of Washington.

Next year, their prayers might be answered – sort of.

Home prices and sales both are projected to drop in 2023, according to a new California Association of Realtors forecast released today.

However, prices still will remain relatively high, and for those using a mortgage, homes will be even less affordable in 2023 than this year thanks to rising interest rates.

The median price of an existing California house will drop 8.8% next year, falling to $758,600, the CAR forecast said. That’s down from this year’s projected median of $831,500 and the lowest since 2020.

Even after falling almost 9%, 2023’s median house price still would be 15% higher than in 2020, the year the pandemic hit, and up 28% from 2019.

House sales, meanwhile, are forecast to decrease 7.2% next year to 333,400 transactions. That would be the lowest number of house sales since the housing bubble burst in 2007. And this year’s projected tally of 359,200 sales would be the second lowest since then.

Slower sales are good news for home shoppers weary of bidding wars. But it’s bad news for real estate agents, escrow officers and mortgage and title insurance providers, who rely on transactions to make money.

If next year’s forecast is accurate, house sales will be 25% lower than in 2021, when 444,520 single-family homes changed hands.

“Sales and prices are predicted to temper next year,” Bay Area real estate broker Otto Catrina, CAR’s 2022 president, said in a statement. “All point to a more favorable market environment for those who were outbid or sat out during the past two years when the market was fiercely competitive.”

To be sure, the state Realtor outlook is far less gloomy than in 2009, when home prices were down 51% from the market peak.

Realtor economists foresee a “modest recession” next year caused by the Federal Reserve’s battle to curb inflation. The 2023 gross domestic product is forecast to drop 0.5% — the first annual decline since the pandemic throttled the economy in 2020.

Meanwhile, interest rates are projected to average 6.6% for a 30-year, fixed-rate mortgage next year, up from this year’s projected average of 5.2% and last year’s 3% average.

As a result, the monthly mortgage payment is projected to increase even though prices are expected to fall – unless you’re paying all cash.

And more buyers are doing just that.

More than 22% of California buyers paid in full without a mortgage when buying a home in 2022, CAR figures show, up from 18.6% last year.

“High inflationary pressures will keep mortgage rates elevated, which will reduce buying power and depress housing affordability for prospective buyers in the upcoming year,” CAR Chief Economist Jordan Levine said in a statement. “As such, housing demand and home prices will soften throughout 2023.”

A back-of-the-envelope calculation shows the typical 30-year mortgage payment for a median-priced house will average $3,875 a month next year based on CAR’s forecast. Despite falling prices, that’s up from $3,652 a month this year.

According to the Realtor forecast, just 18% of California households will be able to afford a median-priced home in 2023, down from 19% this year and 32% in 2020.

A CAR calculation based on Ventura County listings last August shows how rising mortgage rates are putting more houses out of reach of ordinary buyers.

If mortgage rates still were at 3%, 350 Ventura County listings — or 43% of homes on the market — would be affordable to buyers able to make a $3,750 monthly house payment. But at a 6% mortgage rate, the number of homes affordable to those buyers falls to 129, or just 16% of listings.

“Stubbornly high inflation and growing economic concerns will keep the average … mortgage interest rates elevated,” the Realtor forecast said.

As rates rose this year, homes started taking longer to sell, and more sellers dropped their asking prices.

Forty-three percent of California homes sold below their initial asking prices by the end of the summer, compared with just 15% last spring.

The U.S. inflation rate – the culprit behind the latest housing slowdown – is projected to slow, CAR reported, using St. Louis Federal Reserve projections. By next winter, the inflation rate is expected to slip below 6% and drop to 2.2% by the fall of 2023.

“Buyers and sellers are adapting to the new realities of the market,” said Catrina, the CAR president. “As sellers adjust their expectations, well-priced homes are still selling quickly. And for buyers, (there are) more homes for sale, less competition, and fewer homes selling above asking price.”

The high school teacher and real estate agent racked up more than $200 in tenant screening fees, which they had to pay each time they applied to rent a unit.

“Every place we went, we would have to do a credit check of like $25 to $40, and you had to turn in everything before they would even show you the apartment,” said White, 40, of Newport Beach. “And then every place that you would try to look at would use a different credit company or a different type of online portal. And if I tried to give them my own credit report, … they would say no, we only accept it through this portal.”

With vacancies at a two-decade low, rental shoppers often must apply again and again before they can find a new place to live.

And each time they apply, they typically pay fees ranging from $25 to $55 per adult for credit checks and employment and criminal background verification. Because each landlord uses their own screening service, tenants often must make repeated payments with each application — sometimes even when using the same portal over and over.

That’s on top of the already high cost of renting a new unit, which includes the first month’s rent, a security deposit and moving expenses. And it’s on top of galloping rent hikes that saw lease rates jump 14% year over year in Los Angeles County, 16% in the Inland Empire and 18% in Orange County, according to RealPage.

A bill now pending before the California Legislature seeks to reign in those costs by allowing tenants to purchase a reusable tenant screening report from a consumer reporting agency and submit it to multiple landlords. 

Assembly Bill 2559 already has cleared the Assembly and is awaiting a vote in the state Senate. The goal, said bill author Christopher Ward, D-San Diego, is to reduce costs for people “that unfortunately have to apply to multiple places given the limited vacancies that we have.”

To ensure the reports are timely and free from tampering, they would be good for just 30 days and could be accessed from “a third-party” tenant screening provider. The reports would include a credit check, employment verification and a seven-year eviction history.

“The competition (for rentals) is fierce. Sometimes there can be 30 or more applicants for one unit,” Ward said. “You have to go around and apply to 10 or 12 units to try to get lucky in and be able to secure the right to lease that unit. And that means you have to pay $40 or $50 times 10 or 12 applications or more. So, it really does add up to hundreds of dollars.”

Standard practice

Tenant screenings are standard practice among landlords since they’re keenly interested in protecting their assets and ensuring that the rent gets paid, industry officials say.

“In California, it could be a $1 million property that they’re renting out, and they’re giving it to a complete stranger,” said Alexandra Alvarado, marketing director for Calabasas-based American Apartment Owners Association and its sister company, TenantAlert. “It’s not easy for a landlord to just give that to somebody that they don’t know. They want to make sure there’s something there that can make them feel a little better about the decision.”

It’s rare to find landlords who don’t do background checks unless they’re renting to a relative, Alvarado said

“If anything, they’re just upping it more,” she said. “They want more data.”

Landlords often bill the tenant through a provider’s online portal instead of collecting the fees themselves. And landlords often won’t consider an application unless tenants first log in and give their providers a credit card number.

For White and her husband, who are both real estate agents, it was hard to shell out that cash because of the uncertainty of getting the rental they applied for.

“And no one would respond to you once you filled out the whole app and paid the fee,” White said. “We did get that feeling, like, oh, is this a scam?”

It cost John Baxter and his partner, Jorge Herrera, $160 to apply to two apartments when moving last month to Long Beach from Costa Mesa.

They paid $30 each for the first credit check and $50 apiece for the second one.

“It had to be cash or money order. It couldn’t be a card,” Baxter said of his two background checks. “They’re quick enough to take your money and say we need to start processing you right away because there’s a lot of people applying for this apartment. And then, once you pay, you don’t hear from them.”

Andrew Hornyak, 26, of Los Angeles said he and three roommates paid more than $1,000 in application fees — or $50 apiece for each application – during a futile search last summer and fall for a house or large apartment.

“I felt we already paid for the (background check). The info was already there,” said Hornyak, a television industry worker. “I felt like this is an extra thing they can ask for. Because it’s so competitive, we can’t say no.”

Top stressor

Twenty-six percent of U.S. renters who moved in the past two years listed multiple application fees as the top stressor of a rental search, according to a recent Zillow survey conducted by The Harris Poll.

The typical renter submitted two applications during their search, and 68% paid an application fee, according to Zillow’s Consumer Housing Trends Report, a separate analysis released last month. Typical fees nationwide ranged from $40 to $59 per check.

Industry officials resist the creation of state and local laws regulating screening fees, saying the creation of a universal, reusable data search can be complicated.

One reason is landlord preferences vary, said Eric Ellman, senior vice president for public policy and legal affairs for the Consumer Data Industry Association, which serves background check providers.

Some landlords only want a credit check, while others are willing to order more expensive searches that include employment verification, eviction, criminal and bankruptcy records as well as sex offender screening.

“You’re oftentimes paying for a different service,” Ellman said. “Landlords are not always necessarily ordering the same product.”

Industry officials also worry about getting doctored reports from tenants.

“If you’re talking about this as a paper document, well there’s a lot of fraud out there,” said Terry Clemans, executive director of the National Consumer Reporting Association.

Clemans also worries that a reusable screening report could run afoul of the Fair Credit Reporting Act, which among other things, requires that everyone who sees the report has a “permissible” right to see it.

“Like so many things, it gets complex,” Clemans said. “(It sounds like) a consumer-friendly concept that makes sense at face value. But then when you dig into the logistics of it and realize that there’s a federal law, that actually makes it very challenging.”

Yet, reusable screening reports do exist. Zillow, for example, allows renters to use one $29 fee to cover all their background checks — including credit checks and records on a tenant’s eviction and criminal history — for applications to rentals listed on its site.

Pasadena resident Sean Pike applied to about a dozen apartments when he and his girlfriend needed to move for his new job at UC San Diego. But he saved a bundle because half of the units he applied to were through the Zillow site. It still cost the couple $400 in application fees for the six units he applied to directly. 

“In our experience, places are going very fast. There are many, many people applying, and so just to get our foot in the door, we thought we had to put in an application to be considered,” said Pike, 29, who just earned his doctorate in astrophysics. “I think it’s interesting that we’re paying these fees to big companies multiple times when there’s no reason they couldn’t do something like Zillow, where you pay them once, you do one application and kind of share it.”

Revenue up

As rentals get scarcer, it’s logical to assume tenant applications – and tenant background checks — would be on the rise. Yet, there is no data to confirm whether that trend is occurring, industry officials said.

Industry research firm IBISWorld.com reported in June that U.S. revenue for both employment and tenant screenings is projected to total nearly $4 billion this year, up $591 million, or 17%, in the past five years. It’s unclear, however, how much of that revenue is for tenant screenings and how much is due to rising employment.

Assemblymember Ward said his bill is patterned after reusable tenant screening laws already in effect in Washington and Maryland.

New York state capped credit and background check fees at $20 and allows tenants to avoid those fees by providing a current version of their own background check.

If AB 2559 gets signed into law, accepting a reusable report would be voluntary – a concession made after the California Apartment Association objected to its original wording. But no screening fee could be charged if the landlord accepts a reusable report.

How widely accepted will reusable reports be under a voluntary system?

“We will see,” said Ward. “We know that they are being utilized in the states of Washington and in Maryland.”

Current California law caps application fees and background checks at $55.58 per application, an amount that rises annually based on inflation.

In addition, the fee can’t exceed the landlord’s costs for screening an applicant, and landlords must refund any unused portion of the fee. Tenants are entitled to a receipt itemizing a landlord’s screening expenses. The landlord also must provide a copy of the credit report if requested. In addition, the law specifically forbids landlords without a vacant rental from charging application fees.

Some tenants expressed concern that property managers may be pocketing fees without actually running background checks because so many tenants are applying.

San Dimas renter Amanda Valles, 32, an estimator for a commercial heating and air conditioning provider, said she was one of at least 20 tenants submitting applications for one apartment last year. But she never heard back from the manager.

“You couldn’t submit your application without the fee, and it had to be a check or money order,” said Valles, who eventually gave up her search and didn’t move. “I don’t even know whether they even ran my background. I wish there was a way to know that.”

The state still has a long way to go. The amount approved so far represents less than 5% of the total amount Congress allocated to the state for tenant relief under stimulus bills passed in December and March.

“Just last week, I received an email from a property owner who wrote to me saying the rent relief program has been a blessing,” said Lourdes Castro Ramirez, secretary of the state’s Business, Consumer Services & Housing Agency. The email said, “Our tenants can breathe a sigh of relief.”

But many more are still waiting. As of Tuesday, the state had received more than 132,000 rental assistance applications from nearly 91,000 households, new state data show. Nearly 80% of those who applied are waiting to have their back rent paid off.

Applications received so far requested just over $1 billion in rent relief. The amount paid represents 23% of the amount requested, state figures show. By comparison, the average paid by 26 states reviewed by NBC News was less than 10%, said Gustavo Velasquez, director of the state Housing and Community Development Department.

“California is leading the nation in fund disbursement,” Velasquez said during the briefing. “We are really getting to the level of speed that we need to ensure that all the people out there that are still struggling with rent and utilities can get the assistance they are entitled to.”

California lawmakers authorized $5.2 billion in funds to pay off 100% of rent debt owed to landlords by low-income renters. An additional $2 billion has been approved to help tenants cover unpaid water, electricity and other utility bills.

The money comes from about $46 billion in rental assistance allocated by Congress.

Until now, the nation’s emergency rental assistance program has been plagued by a slow rollout, raising fears of a wave of evictions after federal eviction protections expire. As of June 30, for example, just over $1.5 billion in rent relief had been paid out nationwide, U.S. Treasury Department figures showed.

A Centers for Disease Control eviction moratorium that expired Saturday, July 31, was reinstated through Oct. 3 on Tuesday but only for portions of the country facing the most severe COVID-19 outbreaks.

In California, there’s less urgency to pay out rental assistance. The state’s own eviction moratorium remains in effect through Sept. 30. And tenants who have paid at least 25% of their rent during the pandemic cannot be evicted for that back rent even after the moratorium expires.

“California has the strongest eviction protections in the nation,” Castro Ramirez said. “California’s eviction protections extend beyond Sept. 30 for eligible renters.”

The state figures don’t include payments made by 38 local jurisdictions administering all or part of their own federal rental assistance allocation.

A month ago, the state had paid $73 million in rent assistance – less than half the amount paid out in July alone. Just 7,600 households had received payments.

Applications are up, too, jumping to an average of 7,500 applications a week, up from an average of 4,500 in June.

“We’ve seen a dramatic increase in the applications coming in and the payments going out,” Velasquez said.

State officials cited a number of improvements to the state’s online portal used to apply for assistance. Those include fixing errors in language translation caused by relying on translation software, Velasquez said. The application process also has been streamlined, cutting the average time needed to complete the application to around 30 minutes. The amount of documentation needed to support an application also has been reduced, officials said.

Eighty-five percent of the applications received so far have been from households earning less than 50% of their area’s median income – a group designated as “very low income” households. Federal legislation limited rental assistance to “low-income” households that earn 80% or less of their area’s median income, although some jurisdictions are prioritizing the poorest tenants first.

Some low-income tenants responding to an online Southern California News Group survey complained they were deemed ineligible to get assistance because their incomes are too high. One renter said his annual income of $40,000 a year was $500 over San Bernardino County’s limit of $39,500 for a family of four.

Other tenants complained they have yet to get a response to applications filed in March.

In some of the locally administered programs, as in the cities of Los Angeles and Anaheim, application periods ended in March or April.

But at least one tenant who responded to the SCNG survey said after going through “a horrible three months” of waiting, her state rental assistance came through “big time.”

Once a tenant is deemed eligible for assistance, a dedicated team reaches out to his or her landlord to complete the application, clearing the way for payments to go directly to the property owner. If the landlord doesn’t respond or declines to participate, the payment goes to the tenant, who then has 15 days to pay off the rent.

Applications for state rental and utility assistance can be filed at HousingIsKey.com or by calling the state contact center’s toll-free line at 833-430-2122 from 7 a.m. to 7 p.m. seven days a week.