By CHUCK GREEN and KIMBERLEY HAAS
The full impacts of legal actions being taken against the National Association of Realtors are still not clear, but industry leaders are advocating for agents, saying they offer valuable expertise.
In October, a Missouri jury ordered the association and two of the nation’s biggest real estate brokerages to pay almost $1.8 billion in damages after they found that commissions were artificially inflated to pay agents. Fresh off winning the verdict, attorneys for the plaintiffs filed a new lawsuit seeking class-action status covering anyone in the country who sold a home in the last five years.
NAR’s President Tracy Kasper said in a statement at the time that they will appeal the liability finding, and in the interim, ask the court to reduce the damages awarded by the jury.
Recently, Kasper appeared on CNBC’s “The Exchange” with Kelly Evans where she defended the current commission system, saying buyers and sellers would be missing out by bypassing real estate agents during housing transactions.
Kasper said sellers, who are required to offer to pay the commission for the agent representing the homebuyer when they advertise their property on a local Multiple Listings Service, have always had other options and their system brings more buyers into the market.
“The seller wants that. They want as many buyers as possible. That helps them get the best price for their home,” Kasper said.
Kasper said a change in practices could disenfranchise buyers who cannot come up with the money to pay for professional representation on top of a down payment and closing costs.
That representation and the expertise that comes along with it is what makes the home buying and selling process run smoothly for both parties, Kasper explained.
“It’s interesting because I hear that buyers don’t need a realtor. They can find their home on the internet and they can go to the seller and they can get it bought. At the end of the day, even just that process of finding that home, I can walk in with them and I can say, ‘You qualify for your loan but the house isn’t going to qualify for the loan.’ The loans are particular,” Kasper said.
Some industry leaders say that if realtors have to change their practices, there could be benefits for consumers, leading to more mortgage demand.
The impacts will depend on the extent to which commissions are uncoupled, Stephen Brobeck, senior fellow at Consumer Federation of America, told The Mortgage Note.
“True separation of listing agent and buyer agent commissions will result in more buyer and seller negotiation of rates, which eventually will lower commissions and, accordingly, the costs of home sales and purchases,” Brobeck said.
Brobeck said they predict that rates could eventually drop to an average of 3% to 4%, saving consumers between $20 to $30 billion a year in commissions.
“As these costs decline, home sales and purchases will become more affordable, increasing demand for home mortgages,” Brobeck said.
But what happens could depend on future markets. David Stevens, CEO of Mountain Lake Consulting, said when the market favors sellers they may decide not to offer any compensation for the listing agent to provide to the buyer’s agent.
“When there are multiple offers on many listings, why should the seller offer anything?” Stevens asked.
Stevens said he has 40 years of experience, ran one of the largest real estate firms in the nation, and has held some of the most senior positions in mortgage finance and policy. He’s also purchased 15 homes and “depends on the service of the buyer broker as I know they can guide me through the noise on the online portals.”
“They can cut through the sales promotions online about homes for sale and better match the available inventory in my community and then help me put in the best offer to be successful without overpaying,” Stevens said.
Stevens worries about the first-time homebuyer if commission changes are made and they go unrepresented. According to statistics from NAR, 86% of buyers purchased their home through a real estate agent or broker.
“How do they know what the comps are in an area where they want to put in an offer so that they offer the right price? How do they deal with home inspections and more? And they’ll now have to spend time researching each potential home for sale,” Stevens said. “It’s like being a minnow in a shark tank for that homebuyer. It could be very unfair and frustrating.”
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