Several real estate groups recently criticized the Consumer Federation of America’s support for decoupling buyer and seller agent real estate commissions, saying in house line “The CFA appears to have lost sight of its core purpose of advocating for those who need consumer protections most.” The CFA has long maintained that joint commissions, in which a seller splits the commission between a seller’s agent and a buyer’s agent, allow real estate agents to set prices , which charges tens of billions of dollars in fees to all home buyers and sellers every year. Unfortunately, house line This article completely ignores this fact.
While REALTORS’ criticism is aimed at isolating the CFA, a prominent national pro-consumer organization since 1968, the CFA is in good company. The independent commission is supported by independent economists, law professors, right-wing (Cato Institute) and left-wing (Brussels Institute) think tanks, Federal Trade Commissionand most importantly the U.S. Department of Justice (DOJ). Since the 1940s, the Justice Department has repeatedly sued the industry to introduce more price competition. Now, thanks to their efforts and a class-action lawsuit, there’s a chance for price competition, and ultimately the jury ruled against the industry.
Today’s controversy was sparked not by political lobbying or legislation but by a jury’s verdict in a class-action lawsuit alleging price fixing and consumer injury and a settlement offer from the National Association of Realtors, one of the lawsuit’s defendants.
As the jury concluded, real estate agents in the current system do not compete on price. They don’t mention commissions at all in their marketing and website. Mandatory commissions offered by listing agents (and sellers) to buyer’s agents are now required to be included in the Multiple Listing Service (MLS) listings operated by NAR, allowing the industry to maintain near-uniform commission rates of 5-6% and preventing Negotiate through these services. The authors argue that pricing and overcharging for services are necessary to help first-time and low- and moderate-income homebuyers achieve homeownership And only wealthier and repeat buyers benefit from these changes.
Groups critical of the CFA and the Justice Department argue that decoupling commissions would harm first-time homebuyers, especially Black and Hispanic homebuyers, who may have limited resources for down payments and closing costs. We acknowledge and share their concerns and urge industry and housing advocacy groups to work with us on solutions to end price fixes in the real estate agency industry while ensuring that the most vulnerable consumers are not harmed in the transition to the new status quo. . However, these real estate groups claimed violations of antitrust laws and price manipulation were only Ways to maintain accessible markets. While transitioning to a new system is always challenging, we believe all consumers benefit when prices become negotiable and lower.
The class action settlement has not yet received final approval from the courts or the Department of Justice, which would be damaging. New industry rules prohibit mandatory compensation through multiple listing services. Under the industry’s initiative, the rules effectively require buyers to work with a buyer’s agent to sign an agreement before viewing a property. The CFA has never supported this requirement, instead advocating for early price disclosure through signed contracts before the first quotation. The timeline for this signing, along with the unreadable anti-consumer buyer contracts created by the industry, creates unnecessary confusion.
One problem here is that federal regulations, strongly supported by the industry, severely limit buyers’ ability to fund their agents’ commissions. Financing commissions will truly decouple rates and allow buyers to negotiate. Today, buyers already pay these commissions because economists and industry experts broadly agree that they should be included in the financed purchase price. If commissions could be funded, federal agencies, appraisers and the market would insure them from being affected by the sales price, thereby lowering home prices.
The Kansas City jury’s decision sets in motion these developments requiring trade associations and large companies to pay Missouri plaintiffs US$5 billion (Treble Damages) because they believe it is unfair to require home sellers to pay commissions to the buyer’s agent and their listing agent. However, the lawsuit settlement does allow buyers to request a buyer’s agent commission from the seller, and we expect buyer’s agents will urge their clients to make this request, and listing agents will urge their clients to accept the request. This capability will aid the transition to a fairer, more price-competitive market.
In this new market, all consumers will benefit. Because of their ability to negotiate commissions, we predict average rates will eventually drop from 5-6% to 3-4%, saving consumers tens of billions of dollars annually in lower commissions. A price-competitive market will force all agents to aggressively pursue services and price their services competitively, which is a hallmark of a free market, and those who offer the best combination of service and price should succeed.
CFA remains committed to promoting the interests of all consumers and proudly prioritizes the needs and interests of low- and moderate-income consumers. Ending non-competitive practices in real estate will benefit all buyers and sellers. We also firmly believe that policies should be developed to redress inequalities. To this end, we strongly support allowing real estate commissions to be funded through mortgage proceeds, encourage consumers and their buyer’s agents to ask sellers to share consumers’ costs through direct and transparent negotiations, and unanimously support effective home ownership education. and advisory efforts to provide adequate financing to empower consumers to buy or sell a home. In our broader housing work, we also helped lead a broad coalition to pressure the Federal Home Loan Bank (FHLB) system and Fannie Mae and Freddie Mac to do more to empower LMI consumers to become homeowners.
We believe industry members will continue to play an important role in educating home buyers and sellers. But we also believe these consumers, especially those with limited resources, need independent advice about the home buying process. Currently, HUD-certified housing counseling agencies and first-time homebuyer programs are limited in scope. We encourage groups critical of the CFA to join us and nonprofit housing groups in supporting more financial assistance for these programs.
Stephen Brobeck is a senior fellow at the Consumer Federation of America.
This column does not necessarily reflect the opinions of the HousingWire editorial staff and its owners.
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