BAM Key Details: 

  • A new report from the Consumer Federation of America (CFA) highlights the benefits of recent changes in real estate agent compensation resulting from Sitzer/Burnett and the NAR settlement. 
  • The report author, Stephen Brobeck, argues that commission decoupling will help first-time buyers (as well as all buyers and sellers). 

A new report from the Consumer Federation of America (CFA), authored by Senior Fellow Stephen Brobeck, argues that decoupling real estate agent commissions will help both buyers and sellers get better service from their agents at a lower cost. 

The report begins with a brief overview of recent events in the real estate industry, highlighting the Sitzer/Burnett ruling and the proposed settlement involving the National Association of Realtors® (NAR)

CFA’s press release takes for granted what the Sitzer/Burnett plaintiffs alleged in their claim:

“Currently, mandatory compensation offers from sellers to buyer agents (resulting in “coupled commissions”) are not negotiable and so allow Realtors to collude in setting high and uniform commission rates.” 

Of course, industry professionals know that commissions are, and have been, negotiable. 

From there the report makes the argument that coupled commissions force sellers to pay inflated commissions regardless of the quality of the service provided by the agents involved.

But with industry settlements and the DOJ paving the way for a decoupling of agent commissions, CFA’s report calls attention to a “flurry of statements from the industry” that first-time homebuyers in particular will be hurt by this change—especially those with limited financial resources, many of whom are from communities of color. 

The CFA disagrees. 

Any additional costs to homebuyers are likely to be modest and relatively short-term and will be more than offset by long-term savings and improved service quality. Any transitional costs are likely to be dwarfed by the long-term benefits of uncoupled commissions accruing to all home buyers and sellers.

Stephen Brobeck

A Senior Fellow at CFA and the report’s author

Buyers need the option of financing buyer agent commissions in their mortgages

Brobeck argues that while the practice of seller-paid buyer agent commissions directly impacts seller profits, it also indirectly places a higher cost burden on homebuyers through higher home sale prices. 

In other words, he believes sellers are compensating for the anticipated dent in their home sale profits (from combined agent commissions) by raising the asking price on their home. 

The answer, he argues, is to make the cost of agent services both explicit and negotiable by buyers. 

Put aside for the moment that top agents across the U.S. already prioritize transparency with regard to costs as well as the services they provide. Commissions are already negotiable.

It would seem Brobeck is thinking about agents who do the bare minimum (if that) while discouraging any negotiation from their clients on their commission rates. 

Those agents might be singing the blues right now. Meanwhile, agents who have always prioritized overdelivering for their clients are consistently improving at their craft and delivering a consumer experience that more than justifies their commission rate. 

Back to the CFA report, though, Brobeck calls for regulatory adjustments to allow buyers to include their buyer agent commissions in their mortgages. As of yet, government-sponsored entities (GSEs) and federal housing agent policies make this difficult. 

And buyers who don’t have cash on hand to cover agent commissions up front or at closing need the option of financing those commission costs. 

With the decoupling of agent commissions, Brobeck anticipates more industry leaders will join the CFA in support of changes that permit this financing to preserve buyer agency. 

Seller concessions & commission negotiations

Buyers who sign a buyer representation agreement with an agent can also ask the seller to pay for the agent’s commission as a seller concession. And as the CFA report argues, “they’ll likely receive one.” 

Listing agents can spell out the strategic advantage of seller-paid buyer agent commissions. But even if a seller isn’t fully on board with the idea of guaranteeing buyer agent compensation, they’ll likely see the advantage of compensating the agent who brought them a qualified buyer willing to pay the asking price (or more). 

That concession will allow the buyer to finance their agent’s commission instead of including it in closing costs, where federal agency rules and GSE’s limit financing. 

The report also emphasized that buyers who sign a buyer representation agreement will have the opportunity to negotiate the commission down, giving them another option for lowering their total home purchase costs. 

The opportunity for agents that choose to specialize in buyer agency

Also in regard to buyers, Brobeck’s report highlighted the importance of working with buyer agents who effectively serve their clients throughout the homebuying process. 

To that end, buyers will benefit from referrals from family, friends, and colleagues who have had good experiences with a real estate agent. 

Sidenote: After all, no buyer will want to pay 2% or more of their home purchase price for an agent who is little more than a door-opener. And the majority of buyers and sellers find their agents via referral or use an agent who’s already served them well (and continues to deliver value). 

The report goes on to describe what “effective service” looks like, from negotiating down a seller’s list price to taking advantage of state and federal programs that assist first-time homebuyers in affording their down payments and closing costs.  

Good agents make it a priority to understand each client’s specific needs in order to not only meet but exceed the client’s expectations. 

That’s exactly why the best agents in the business have nothing to worry about from industry lawsuits and settlements, as Lisa Chinatti spelled out in the Knowledge Brokers Panel on the NAR settlement. 

Dual agency: will more buyers turn to the listing agent for help?

For buyers who are unhappy with the cost or the quality of the services provided by their buyer agent, the CFA report also suggests the option of working directly with a listing agent as a transaction broker or dual agent. 

It is important that home buyers find an agent, or attorney, who understands and is capable of taking advantage of a wide variety of purchase options.

Stephen Brobeck

A Senior Fellow at CFA and the report’s author

This wouldn’t be the first time someone brought up dual agency as a potential solution for cash-strapped buyers. But the listing agent’s primary loyalty to the seller can leave the buyer owing more on the home than they might have paid with skilled representation. 

Predictions on commission declines

Brobeck referenced industry reports that raised questions about traditional real estate agents, specifically with regards to their competence. Brobeck has brought up this concern in previous CFA reports decrying the “surfeit of real estate agents.”

To be fair, some agents out there may take the decoupling of commissions as their cue to bail in search of easier ways to make money. But it seems likely the industry will always have a fair number of agents who make skilled and service-oriented professionals look even better. 

Brobeck cites experts who are estimating a 20% to 50% decline in agent commissions as a result of the price-competitive marketplace they’re expecting as a result of decoupled commissions. 

A drop like that could lower homeownership costs by tens of billions of dollars a year. CFA’s own estimate is more modest at 20% to 30%. 

The report urges GSEs and federal housing agencies to prioritize changes that would ease the industry’s transition to a more price-competitive marketplace—one that would be fair and accessible to first-time homebuyers. 

In particular, CFA urges the following: 

  • “Allow home buyers to finance buyer agent commissions while also ensuring that buyers no longer pay these commissions in home sale prices
  • “Provide greater financial assistance to HUD-certified housing counseling agencies and the first-time home buyer programs they offer, and
  • “Commit to providing information to consumers, especially first-time home buyers, about how to deal with a changing residential real estate marketplace.” 

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