Recent developments regarding real estate brokerage fees harm one party in the real estate transaction far more than the other... The buyer.
While those applauding the proposed settlement terms talk about how much of a win this is for consumers, if nothing else changes, the proposed agreement is about as anti-consumer as it can get.
Under the imperfect compensation model of the past, buyers were able to have their representation costs included in their purchase transaction. Arguments aside, this is the main reason this model has stood for so long. If no other changes are made in the industry, the proposed settlement terms all but eliminate the low income and first time buyers' ability to operate on a level playing field.
Mortgage guidelines, laws and regulations essentially make it near impossible for a buyer to finance representation costs in spite of vast evidence that shows that buyers with an agent on their side of the transaction have a higher degree of loyalty, a higher level of legal protection, and pay less than buyers who work with a seller's agent or a dual agent.
The most unfair consequence of the proposed solution is that buyers will no longer have representation costs built into the real estate transaction, but sellers will. And buyers will need to approach sellers and ask permission to include the cost of agency representation within the transaction. Not only does this unnecessarily complicate negotiations and accentuate the buyer's lower status, but the seller is under no obligation to agree.
Sellers don't have to ask buyers for this permission (to have their representation costs included in the transaction), even though a buyer purchasing from a seller that has an agent will pay more for the home to cover the cost of the seller's representation... And in many cases, that extra cost will be financed by the buyer for decades.
One of the first arguments for decoupling real estate commissions was based on the premise that a seller should not have to pay the party negotiating against them. Well, under the new rules, one party will still be doing that. The buyer.
This next point can be argued ad infinitum. But pay close attention to the wording of this argument: It's the buyer's funds, above and beyond the value of the real property, that allow the seller to pay the listing brokerage's fee. Seller's representation costs are not being removed from the transaction. If they were, the homebuyer would pay ONLY the price of the home and not the cost of the seller's representation. The seller could pay their agent outside of the transaction, or forego representation. None of the "consumer advocates" suggested such a pro-consumer, equal status solution. The buyer is the party most harmed under the celebrated terms.
Realestatenews.com quoted former Zillow Exec Greg Schwartz as saying, "Today's NAR settlement spells disaster for first-time homebuyers... leaving the average home buyer at a severe disadvantage... Here's the new reality: buyer agents are now a luxury for investors and the rich."
Ouch. But he's correct.
Schwartz is "urging HUD to step in and allow reasonable brokerage commissions to be financed in mortgages." This seems like a very reasonable position to take. The current proposal, without additional pro-buyer considerations is about as one-sided and anti-consumer as it gets.
Benjamin Clark is a former President of the National Association of Exclusive Buyer Agents and Principal Broker of Homebuyer Representation, Inc. a Licensed Utah Real Estate Brokerage in Salt Lake City, Utah.
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