Bryan Greene

I share Lew Sichelman’s observation in his Aug. 25 column that, in the wake of the settlement, we must make sure that we “do no harm” in advancing options for buyers to pay agents for these services.

We must keep in mind the perspective of many first-time buyers and civil rights groups; they are concerned that many sellers will seek to forego compensation to buyers’ agents not to pass on savings to homebuyers, but instead to retain for themselves more proceeds of the sale. If this becomes common, this generation of homebuyers, who are increasingly homebuyers of color, may not enjoy the opportunities that helped generations before them enter the middle class.

With these points in mind, some of the options Sichelman puts forward, in fact, would harm first-time buyers. It’s important to dispel these misconceptions.

Column’s Misleading Claims

First, the settlement did not “uncouple” sellers and buyers compensation altogether as his opening paragraphs suggest. As Sichelman later notes, sellers may continue to offer and pay compensation to the buyer’s agent, provided those offers are made off the multiple listing service. It will continue to be of great benefit to buyers that many sellers will continue to see the utility of offering compensation to buyers’ agents.

Second, it is misleading to say that “sellers bake the cost of the total sales commission into their asking prices” and that it “shouldn’t be especially difficult” to get “the seller to reduce their price by the amount of [the buyer’s] share of the commission.”

While commissions are frequently paid by the seller from the sales proceeds, the market determines the price a seller can receive based on the level of competition and the income of the prospective homebuyers, independent of proceed considerations. The commission is deducted from the seller’s proceeds; it isn’t used to determine the list price and thus is not baked in.

The Consumer Federation of America’s Stephen Brobeck, who Sichelman quotes in his column, also makes unfounded assertions about what rates consumers should pay without economic justification. The fixed costs, marginal costs, and profit requirements of brokers, along with negotiation, will determine the rate a broker and client will agree to, not an arbitrary assertion by a trade group. analyst or lawyer with no expertise in this domain.

Experience Says They Won’t Work

Furthermore, while some have made the argument that reducing the home price can help the buyer come up with the funds to pay the buyer broker’s compensation, this is not realistic. A reduced price doesn’t provide a buyer the cash to compensate their broker. Furthermore, few sellers in a market where they hold the power would reduce their price for a buyer who can’t pay the buyer broker’s commission when many will pay it.

Brobeck and others who discourage sellers from paying compensation to buyers’ agents have made this argument. They are not looking to do buyers any favors; their entire purpose appears to be helping sellers pocket any money they don’t pay in commissions. Proponents of this argument seem to be overlooking the interest of buyers in the transaction, as well as failing to see the related benefits to sellers.

Finally, Sichelman says the GSEs must opt to finance the buyer’s agent commissions. This is another unicorn that Brobeck promises us exists but experts in the field do not see. Most lenders laugh at the suggestion that rolling commission fees into a mortgage will become a common practice. This would require changes to rules, laws and practices over many years.

If all this were achieved, it would dramatically increase a mortgage’s interest rate and the cost to borrowers, raise debt-to-income ratios, resulting in additional private mortgage insurance or outright rejection of a loan application, and, in turn, depress home sales. What we’re really talking about are personal loans, backed by no collateral, which will ultimately make the buyers’ home purchase more costly than had the seller paid the commission (or if the buyer has the funds to pay their agent cash).

The housing industry should be committed to supporting first-time and first-generation homeowners in the new landscape. But we should do so within the confines of what is possible and what industry experience actually tells us. The purported solutions advanced by CFA and a handful of others will not result in an outcome that is good for buyers or sellers.

Bryan Greene is vice president for policy advocacy at the National Association of Realtors. His column will appear in Banker & Tradesman’s weekly print edition in the Sept. 9, 2024 issue.