The Consumer Federation of America (CFA) and its former CEO, Steve Brobeck, have long advocated for policies that protect consumers. However, in its recent efforts to rein in real estate professionals, the Court of Final Appeal appears to have lost sight of its core purpose: to advocate for those who need consumer protection most.
Ending brokerage compensation unfairly favors wealthy sellers and buyers.
Broker cooperative compensation, in which the seller and buyer’s agents split the seller’s agent’s commission, has been standard practice nationwide for more than a century. This practice benefits both buyers and sellers by allowing homebuyers to choose their agent without incurring out-of-pocket costs and expanding the pool of potential buyers.
The CFA said it believed the payment of agent commissions should be “decoupled”, meaning buyers would pay agent fees independently of sellers. The assumption underpinning this approach is that it will allow buyers and sellers to better negotiate commissions. But this is far from certain.
However, it is more likely that by terminating broker compensation, buyers will have to pay broker representation fees out of their own pockets, a huge expense that will put homeownership out of reach for many first-time buyers. Given that homeownership is the primary source of wealth for most middle-class families, any housing policy changes that negatively impact first-time homebuyers could significantly exacerbate the wealth gap in the United States.
Changes favor older, wealthier individuals compared with newer generations.
The CFA’s proposed reforms favor older, wealthier individuals who are less affected by agency fees. In contrast, new generations and first-time homebuyers who rely on accessible routes to home ownership may find these changes difficult to overcome. This shift could prevent new generations from owning homes, perpetuate economic inequality, and limit upward mobility.
The interests of the wealthy rarely filter into society.
Brobeck and the CFA don’t have a clear answer as to how eliminating agent compensation would benefit first-time homebuyers. They speculated that lower seller commissions would lead to lower home prices, but these assumptions lacked key details on how this would work. There is no evidence that agent commissions affect house prices in any way. The reality is much more complex. The principles of supply and demand have a greater influence on setting home prices, with sellers almost always selling to the highest bidder. The idea that reduced seller commissions will trickle down to less affluent buyers in the form of lower home prices is wishful thinking.
CFA stance could put minority-dominated homeownership growth at risk
The CFA and its political allies call the current home-buying process “inadequate” and “anti-competitive,” but the current system, despite its many flaws, has created 75% homeownership and trillions of dollars in wealth for white Americans. Far larger than anywhere else in the world. It’s unfair to suggest that race is a driving factor in all of this, but it’s equally irresponsible not to acknowledge that these fundamental changes supported by CFA are gaining traction because, for the first time in American history, a majority of people have housing. Now is not the time to experiment with unproven and potentially damaging theories.
The proposed changes would also have a negative impact on small businesses.
Unlike many other sectors of the economy, the real estate industry is not dominated by a few giant companies; It’s primarily served by hundreds of thousands of small businesses—real estate agencies, mortgage brokers, home inspectors and settlement service providers—that, in many cases, have been in families for generations. One of the possible outcomes of the changes proposed by the CFA is that buyers who cannot afford to pay an agent will try to transact without an agent, exposing themselves to a range of risks and negatively impacting small businesses across the country .
Well-intentioned organizations sometimes make mistakes.
The CFA does not adequately consider the disparate impacts on minority and low-wealth consumers. Homeownership is a cornerstone of the American dream, a stabilizing force and a gateway to the middle class. When considering major housing policies and industry practices, advocates and policymakers must carefully consider the potential impacts on first-time homebuyers, especially those in communities of color. Rolling the dice based on speculative theories is too risky.
Gary Acosta is co-founder and CEO of the National Association of Hispanic Real Estate Professionals (NAHREP).
Courtney Johnson Rose is president of the National Association of Realtors (NAREB).
Hope Atuel is CEO of the Asian Real Estate Association of America (AREAA).
Ryan Weyandt is CEO of the LGBTQ Real Estate Alliance.
This column does not necessarily reflect the opinions of the HousingWire editorial staff and its owners.
To contact the editor responsible for this article: [email protected]
