Washington, D.C Recent changes in how real estate agents are compensated will not reduce first-time buyers’ opportunities, according to a new report from the Consumer Federation of America (CFA) — Why Commission Uncoupling Will Help First-Time Home Buyers (As Well As All Other Buyers and All Sellers). Instead, the report suggests, all buyers and sellers will benefit from uncoupled real estate commissions.
“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,” said Stephen Brobeck, a Senior Fellow at CFA and the report’s author. “Any transitional costs are likely to be dwarfed by the long-term benefits of uncoupled commissions accruing to all home buyers and sellers,” he added.
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. In October 2023, a Missouri jury found industry defendants in a class action (Sitzer v. National Association of Realtors et al.) guilty of price-fixing. In March 2024, the National Association of Realtors agreed to settle this lawsuit and a similar one (Moehrl v. NAR et al.). This decision has led to a flurry of statements from the industry that first-time homebuyers with limited financial resources, many of whom are from communities of color, will be the buyers most adversely affected by these changes.
The CFA report found that even as sellers pay buyer agent commissions under the current model, they still charge homebuyers indirectly through higher home sale prices. As a result, a major challenge is to make this cost explicit and negotiable by buyers. This would occur if buyers could easily include buyer agent commissions in their mortgages, which current government-sponsored entities (GSEs) and federal housing agency policies make difficult. The report notes that some industry leaders are calling for regulatory adjustments to permit this financing and predicts that more leaders will join them in order to preserve buyer brokerage.
The report also explains that in the future, buyers who request a seller concession to pay for the buyer agent commission will likely receive one. This concession will allow the commission to be financed instead of included in closing costs, where GSE and federal agency rules limit financing. But buyers, who will now be required to sign a buyer agency contract, will have the opportunity to first negotiate the commission down, increasing opportunities to lower their overall home purchase costs.
The report emphasizes that in the future it will be especially important for buyers to work with buyer agents who effectively serve their clients, not simply promote a sale in order to receive compensation. Effective service will include negotiating down list prices and, especially for first-time home buyers, taking advantage of state and Federal programs that assist these buyers in affording closing costs. The report also notes that buyers dissatisfied with the cost or quality of buyer agent services can work directly with a listing agent who facilitates the sale as a dual agent or transaction broker.
“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,” said CFA’s Brobeck. Industry reports have raised questions about the competence of many traditional agents.
The CFA report cites experts who have estimated that in a price-competitive marketplace, commissions will decline by 20 to 50 percent, lowering homeownership costs by tens of billions of dollars annually. CFA’s own estimate is a reduction by 20-30 percent.
The report urges federal housing agencies and GSEs to make this issue a priority to greatly ease the transition to a more price-competitive residential real estate marketplace that is fair and remains accessible to first-time homebuyers. CFA urges them to work to:
- 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.