The ongoing commission battle has a recent report calling for some major changes in how commission rates are determined, but is that the right choice?
How much commission agents earn for selling a home has been a hot topic for some time now. Some say it’s not right that homebuyers end up paying toward these commissions as part of the purchase price and that there’s no room to negotiate since the agent’s commission is generally set by the sellers.
Calling real estate commission rates just “one step below fixed,” a Consumer Federation of America report recently called for some changes. Among them is the uncoupling of both seller and buyer agent compensation, something the report says will help spur price competition, reduce the commissions consumers are paying and align agent compensation to a much greater extent with agent service.
The report recommends federal agencies and courts prohibit the tying of listing agent and buyer agent commissions, so buyers can negotiate buyer agent compensation rather than having it set and paid for by listing agents and sellers.
But the National Association of Realtors says the uncoupling of both agent buyer and seller compensation could be detrimental to first-time, low- and middle-income buyers. NAR officials told Boston Agent magazine that many consumers may not be in a position to pay the extra funds that would result from uncoupling broker commissions.
“Uncoupling broker compensation would require buyers to come out of pocket to pay real estate broker commissions, and that could freeze out many from the homebuying process,” Mantill Williams, NAR’s VP of communications, told Boston Agent. “Or could lead to those going into the homebuying market without representation.”
This isn’t the first time the issue of commissions has raised its head. The Justice Department was involved, investigating commissions, and President Biden in July signed an executive order asking the Federal Trade Commission to adopt new rules to address unfair or exclusionary practices.
“The American real estate system is set up to create a win-win for both buyers and sellers,” Williams said. “The buyer benefits because they do not come out of pocket for real estate services, and the seller benefits because the proceeds from the sale — which comes from the buyer — pays for the seller’s representation.”
Williams added that the current system creates more competition because it allows all types of buyers (first-time, low- and middle-income buyers) the opportunity to participate in the homebuying process. “And in addition, that would result in the largest pool of buyers for the sellers,” he said.
Last November, the National Association of Realtors, took steps to ensure transparency for buyers by approving several MLS recommendations including listing the broker’s compensation on each active listing on consumer-facing websites and in MLS data feeds.
NAR President Leslie Rouda Smith told Boston Agent the NAR believes the guidance regarding cooperative compensation that appears in the organization’s Handbook on Multiple Listing Policy serves the best interests of both consumers and brokers. She says it gives consumers and listing brokers the freedom to choose how much commission to offer the buyer broker, including as little as one penny.
“This broker cooperation keeps local marketplaces from fracturing, which would be paralyzing to consumers and small businesses,” she said. “It also encourages buyer and seller brokers to share their information in their local, independent broker data hub, enabling maximum options for consumers and allowing even the smallest brokerages to compete with the largest brokerages.”
Because of this policy, Smith said the result is the largest, most accessible and most accurate source of housing information available to consumers. “Without it, the lack of complete, transparent and accessible data for all would mean smaller brokerages have to piecemeal information and couldn’t offer as many options to sellers and buyers,” she said.