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When negotiating compensation with an agent, buyers should be sure to pay them no more than 2 percent of the home’s sales price, according to recommendations released Tuesday by the Consumer Federation of America.
Ahead of the Aug. 17 deadline to implement new rules under the National Association of Realtors’ proposed settlement, the CFA released proposed standards for sell-side contracts and buy-side contracts aimed primarily at an industry audience.
But on Tuesday, the consumer watchdog gave consumers advice on how to respond to the settlement’s changes in business practices, including banning listing brokers from compensating buyers’ brokers on multiple listing services and no longer requiring sellers to provide buyers’ brokers It requires brokers and agents to sign contracts with buyers they work with before they can tour a home.
The new regulations require changes in agent practices, which may be confusing to consumers, especially since “many agents will try to retain the buyer agent’s seller compensation in order to maintain 5 [percent]-6% total commission,” according to the CFA.
Steve Brobeck | Consumer Federation of America
“The new regulations provide opportunities but also risks for consumers,” CFA senior fellow Stephen Brobeck said in a statement.
“Knowledgeable homebuyers and sellers will be able to take advantage of opportunities and avoid risks.”
“2% or less” (in U.S. dollars)
The CFA offers three main recommendations, including that consumers discuss and negotiate their agent’s dollar compensation and that the amount add up to no more than 2 percent of the home’s sales price.
“The fundamental reason the industry is being sued by the U.S. Department of Justice and private citizens is that for a century, real estate agents have colluded to set interest rates that are now routinely five times the rate. [percent] or six percent,” the CFA said.
“For the first time, the class action settlement agreement effectively allows buyers to negotiate compensation for their attorneys. Buyers should seize the opportunity to do so, setting a dollar-for-dollar target of two percent or less (of the home’s sales price) The same goes for sellers, who have had the same opportunity but often decided not to pursue it.
When asked how the CFA arrived at the 2 percent figure, Brobeck told Inman, “2 percent or less is my best judgment because that’s what most home sellers and buyers can aspire to and achieve.” Realistic goals. In some markets, most buyer’s agents already charge 2% (but listing agents charge more, which is unfair).
He noted that in areas outside the jurisdiction of the Real Estate Board of New York City (REBNY), commission rules are similar to the NAR, with overall commission rates ranging from 3 to 4 percent.
“I have not changed my forecast from many years ago that with decoupling interest rates would eventually fall to an average of 3% (for a double bottom) and 4% (when two agents are involved), although there will be more movement in rates depending on on the agent’s ability, effort and out-of-pocket expense,” Brobaker said.
Asked why the CFA recommends buyers pay a dollar amount rather than a percentage, Brobeck said he is currently working on a report on the issue.
“In short, because many consumers do not fully understand the dollar cost of small percentage commissions, because percentage commissions disincentivize buyer’s agents to negotiate lower home prices, and because the simplicity of current commissions facilitates industry collusion to maintain 5 [percent]-6% interest rate,” he said.
Regarding negotiations between sellers and listing agents, the CFA stressed that “there is substantial evidence that some real estate agents will attempt to block negotiations” between buyers and buyers’ agents by making sellers promise to pre-emptively compensate buyers’ agents, And ask the buyer’s agent to tell the buyer that the seller will provide compensation.
“We advise, and some industry leaders now agree, that sellers should not pre-agree any buyer agent compensation and should instead wait for a buyer’s offer,” the CFA said.
“If buyers need help compensating their agent, they should request this in their offer. (If the buyer has the opportunity to include agent compensation into the mortgage, this is less of an issue.)”
review agent
The CFA also recommends that buyers and sellers review their agents based on the following three factors:
- Is the agent also a broker or associate broker? Brokers require more training and typically have more experience than agents.
- Has the agent sold a lot of properties recently, and does it have good reviews from customers? Zillow, Realtor.com and Homes.com can provide information on most agents.
- Will the agent provide the contract form and proposed terms at the outset, giving the seller or buyer ample opportunity to read and evaluate both, and then be willing to discuss them?
“Choosing a competent, honest agent is more important than ever, especially for buyers,” the consumer rights group said.
Don’t sign up to pay an agent’s fee just to see a property
Once a consumer has selected an agent, the CFA encourages buyers and sellers to evaluate the contract provided to them by the agent, especially the blank contract that is filled out.
“Many contracts are impossible to read and understand,” the CFA said. “Do not sign it. Always seek advice from an attorney or other independent expert.
When asked for clarification, Brobeck told Inman, “[D]Don’t sign a contract you can’t read and understand. Beyond that, don’t sign a contract that contains anti-consumer content. See if the agency will rewrite. If not, contact the agency that uses consumer-focused forms. If that doesn’t work, consider contacting the listing agent. If you end up becoming a client, make sure an attorney reviews the proposed agreement.
The CFA considered these contract terms to be “particularly unfair”:
- Any promise to compensate an agent before a consumer decides to become a client of the agent. Brobaker told Inman this includes buyers’ agents who want buyers to commit to paying before showings, and “most buyers don’t have enough opportunity to evaluate the agent.” “One industry insider told me that the first showing is like an audition for an agent. Therefore, buyers should sign a tour that is short, easy to understand, short in duration (perhaps just a day or a week), and with no financial obligation. Agreement. Then sign a more permanent contract before making an offer. However, the CFA reminds consumers that if a buyer’s agent shows a home that the buyer subsequently purchases with the help of another agent, “under NAR rules, the first agent One can assert the reason for the purchase and claim a portion of the commission,” Brobaker said.
- Any blanket commitment to dual agency, where one agent (or agency) works with both the seller and the buyer.
- Requires approval of binding arbitration, effectively barring the buyer or seller from going to court if a dispute arises.
- Any seller contract form that combines listing agent and buyer agent compensation, or any seller contract that requires buyer agent compensation. “Both provisions are contrary to the spirit and possibly even the letter of the new estate agent rules,” the CFA said. “Furthermore, any buyer’s contract that allows the buyer’s agent to charge more than the buyer’s negotiated compensation is required. This is prohibited by the new rules.
Send an email to Andrea V. Brambila.
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