“Whether it’s government intervention or voluntary innovation, as the DOJ vs. NAR battle shows, change is coming to the industry. Consumers are asking for it. Agents and brokers who choose innovation over resistance and do right by clients will be the ones who thrive,” Homie CEO Johnny Hanna wrote in an Inman piece “Agent commissions are headed for a reckoning: 3 things to consider” on Oct. 4.
I generally agree with Hanna that change is good, as he noted. It’s critical for the National Association of Realtors (NAR) to consider and reconsider how it supports transparency, competition and consumer choice in the real estate industry.
That’s precisely why NAR regularly reviews guidelines for local MLS broker organizations.
A recent example of that is in September, NAR’s MLS Technology and Emerging Issues Advisory Board passed a series of motions that are designed to make sure multiple listing services best meet the needs of consumers, agents and brokers alike.
The changes would ensure local MLS market participants do not represent their services as free, do not restrict listings based on compensation being offered to a cooperating broker and disclose the listing agent offer of compensation to buyer’s agents. These motions also ensure participants are not filtering listings in any way by brokerage or agent.
NAR and the Advisory Board moved forward with these recommendations to ensure these local brokerage organizations are up to date with advancements in technology and maintain practices that improve the consumer experience and make it more transparent.
Of course, even though some updates to this structure might be prudent, the foundation remains exceptionally sound. The fact is that independent, local broker organizations and local real estate agents continue to work together to benefit the American consumer.
In fact, I cannot think of any other industry that has more cooperation among competition for the good of the consumer than in real estate.
Please consider these six critical things and why these changes aren’t necessarily good for consumers:
1. Paying commissions on top of closing costs
As NAR president Charlie Oppler stated in “REX CEO calls on NAR to repeal ‘anti-consumer’ rules at conference,”
“Sellers making offers of compensation to buyer brokers gives first-time and low/middle-income homebuyers a better shot at affording a home and professional representation.”
The math here is simple. Saving for a down payment is hard enough for most Americans.
When you consider how mortgage lenders and GSEs don’t allow broker commissions to be included in their mortgage, a buyer would be forced to pay commissions on top of closing costs, which would make first-home purchases more expensive or, worse, out of reach altogether.
Also, it’s not only legal but beneficial for competition for a seller to offer commission to a broker who brings forth a ready, willing and able buyer. That’s open-market capitalism. Stopping that would go against the idea of ensuring a free and open market.
2. Lack of competition
Local MLSs advance competition for consumers and small businesses.
Local broker MLS organizations level the playing field among brokerages, enabling small brokerages to compete with large ones, and newer Realtors to compete with experienced top Realtors and so on.
What follows is unprecedented competition among agents and brokers, especially when it comes to service and commissions.
This includes flat-fee brokerages like Hanna’s. At the same time, they provide homesellers equal access to the largest possible pool of potential buyers and create the greatest number of housing options for buyers in one place.
3. Unstable local markets
Listing brokers paying buyer brokers’ commissions keeps these local marketplaces from fracturing, which would be paralyzing to small businesses and competition.
This payment approach encourages buyer and seller brokers to share information in their local, independent broker data hub. Lack of complete, transparent and accessible data for all would mean smaller brokerages and new entrants have to piecemeal information and couldn’t offer as many options to sellers and buyers.
As a result, larger brokerages would dominate markets, limiting competition and increasing costs for local consumers. Furthermore, a listing agent willing to share part of their fee to compensate a buyer’s agent for bringing a buyer is again totally legal and in accordance with an open market. A listing agent and a seller agreeing to an amount to offer is open-market capitalism.
4. Buying a home is intense and fraught with pitfalls
Real estate agents help consumers navigate the most complex and essential transaction of their lives for many.
Research has shown that while most buyers begin their home search online, nine out of 10 consumers still choose the assistance of a trusted real estate agent to guide them through this infrequent, complex transaction.
Realtors provide incredible value and earn every bit of their commission. They help people navigate everything from state and federal forms to walking them through the process, which is lengthy and confusing. Not only is there incredible value to everything Realtors do, but each of us should make it clear to everyone we encounter the part our expertise plays in making homeownership and generational wealth possible.
5. Buyer agency representation is pro-consumer
When buyer agency really came into play 20-30 years ago, consumer advocates pushed it hard and supported it because it’s good for homebuyers.
Homebuyers should have the right and option to have someone represent them if they so choose, and under the current setup, it’s easy for a buyer to obtain one.
If the naysayers are successful in their quest to stop sellers (deny them of their right as homesellers) from offering compensation to a buyer’s agent who brings a buyer, you will see a dramatic drop in represented buyers.
It will be back to the old days where the seller mostly ruled the roost, and it was buyer beware in most cases. I would like all the consumer advocates who think our system is broken to tell me how that would be better?
6. It furthers the perception that agents are overpaid
In Hanna’s article, he talks about how $85 billion in commissions were paid out from consumers to real estate brokerages last year. I’m not even sure that number is accurate, but even if it is, let’s remember a couple of things.
Roughly more than 5 million homes are sold annually across America, and there are over 1.5 million Realtors and roughly another million real estate licenses. This is a big industry that supports the American dream.
Home prices have gone up over 20 percent in the past year, and average prices are now at all-time highs. Those factors often drive up commissions as well. Lastly, know that the average Realtor makes $43,000 in gross annual income, so it isn’t like anyone can say that we are somehow unfairly overpaid.
As I said initially, the reality is that NAR is constantly evaluating its guidelines to ensure pro-consumer, pro-competitive marketplaces work together to make possible real estate transactions that drive America’s economy.
In the end, small businesses contributing to their local economies and consumers searching for their own slice of the American dream are among the biggest beneficiaries.
Anthony Lamacchia broker-owner of Lamacchia Realty and owner of REAL Training and Systems. Lamacchia is a member of the NAR.
