Washington, D.C. – Three major lawsuits have been filed against real estate industry leaders for “coupled” commissions that are paid by home sellers to both listing and buyer brokers involved in the sale. Industry attempts to dismiss the first two lawsuits have been rejected by judges who at some length refuted industry arguments. While this litigation may lead to settlements requiring only improved disclosures, mirroring the proposed National Association of Realtors (NAR), settlement with the U.S. Department of Justice (DOJ), the courts could well require uncoupled commissions.
Stephen Brobeck, a senior fellow at the Consumer Federation of America, offers ten predictions as to how uncoupling commissions might impact consumers and real estate brokers. Uncoupling would require buyer brokers to charge commissions to their clients and free sellers from paying these buyer broker commissions.
- Mortgage lenders and the GSEs (Fannie Mae and Freddie Mac) will quickly accept the desirability of buyer broker commissions being financed, then work with brokers to facilitate this transition. These lenders will understand that to afford a new home, many buyers will need these fees to be included in their mortgage. Lenders will also know that these fees are currently largely or wholly included in the sale price, so the size of loans will not change appreciably.
- Listing and buyer brokers will need to revise sales forms. With the help of NAR, they will do so quickly and at a relatively modest one-time expense.
- Consumers will remain focused on the sale and the sale price of the home or homes, not on commission levels. And they will depend on their real estate agent to help them sell or find a property at a desirable price.
- For some time, probably well over a year, average commission levels will not decline. Many sellers will think they benefit by being charged commissions of 2.5-3 percent rather than 5-6 percent. Buyers will accept the fact that they now must pay their brokers 2.5-3 percent when brokers explain to them that this commission was previously included in the sale price.
- A flurry of press coverage about uncoupling will not be seen or fully understood by most consumers; however, sporadic but continuous coverage of new opportunities for negotiating commissions will eventually be heard by many. These opportunities will be amplified by stepped-up marketing from discounters who no longer will be constrained by anti-rebate laws or compulsion to offer commission splits.
- Over time, average commission levels will decline but not for most successful, full-time agents and brokers. The many marginal agents, a large percentage of some two million licensed agents whose median annual gross income is less than $50,000, will feel pressure to cut commissions. Confident in their long-time success serving clients, well-established agents will not feel such pressure.
- As marginal agents increasingly have difficulty generating even modest incomes, a number will cease active practice. Their clients will then be available to established agents, whose expanding clientele will allow some reduction in commission levels while maintaining gross incomes. Overall, clients will receive better customer service.
- Discounters will increase market share but this share will remain relatively small because most consumers want effective personal service from a single agent. While technology can routinize much paperwork, most buyers and sellers will still desire the assistance of a professional who can guide and reassure them.
- Increasingly, entry to the profession will be gained through internships, apprenticeships, and administrative positions. The current trend to shift routine work to salaried administrators will accelerate.
- To a greater extent the industry will look like a profession – with well-established, full-time agents dealing with clients and their issues while delegating routine tasks to salaried administrative staff. As a professional association, NAR will continue to lead a more economically efficient and respected industry that provides better overall value to consumers.
Contact: Stephen Brobeck, email@example.com