Realtors urge commissions clarity for spring homebuyers

As the fate of real estate agent commissions hangs in federal courts, home buyers seem largely unaware of the controversy. 

A little under half, or 48% of homebuyers and sellers in a recent LendingTree survey said they don't know what commission percentage their agent received in their last transaction. Thirty-one percent of respondents meanwhile said they attempted to negotiate commissions. Realtors say homebuyers aren't raising many concerns around the compensation.

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Rather than showing concerns about broker commissions, "I'm seeing more buyers shocked that [they] actually got approved or can buy, because they're freaked out by high payments," said Torrence Ford, a broker/owner at RE/MAX Premier in Atlanta. 

Realtors laud lenders for introducing flexible financing options to promote originations, and generally expect a stronger spring than the year prior. But agents aren't mulling on commission lawsuits and are instead emphasizing transparency to clients amid the uncertainty. 

"The most important thing to remember is that as Realtors, and maybe the lenders will understand this, we have not done a great job explaining how a buyer [broker] is paid," said Rebecca Durfey, a Realtor with Keller Williams in Glendale, Arizona. "So it makes sense that there was all of this ambiguity."

Pending court cases focus on the longstanding commissions structure in which seller brokers are required to offer compensation to a prospective buyer's agent in order to get a property listed on Multiple Listing Services. A federal jury last October dealt a blow to major real estate players, ruling they conspired to inflate commissions under this traditional arrangement. The Department of Justice is seeking to reopen a prior probe into the National Association of Realtors on this issue. 

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While some minor rule changes have been enacted, significant upheaval of the current structure hasn't occurred. Feds indicated their desire for change in a pending Massachusetts settlement, while a Missouri court in May will hear final approvals for settlements between consumers and three major brokerages proposing some rule changes. 

"DOJ's involvement at this stage should serve as a definitive signal that the arc of resolution is bending toward outright decoupling of commissions as private litigants will be further emboldened and brokerages will be forced to contemplate a different future," wrote analysts at BTIG in a research note this week.

Realtors meanwhile are doubling down on explaining the rules to buyers and sellers. Dominic Fuscia, a team leader and agent with Coldwell Banker in Philadelphia, suggested buyer agents will start regularly using specific disclosures in transactions with no buyer-agent commission. 

"If you want me to be your agent, I would need to facilitate a commission from you," said Fuscia describing the typical language on the forms. "It's all negotiable, but 1%, 2%, 3%, whatever it may be, it's a form that educates the buyer from the very beginning before you even go out."

Among over 2,000 consumers surveyed by LendingTree in January, 31% of buyers or sellers said they attempted to negotiate commissions. Among that share, nearly two-thirds of consumers successfully reduced their fees. Another 36% of consumers said they weren't aware negotiating was an option, but would have attempted discussions in their transactions. 

NAR allows negotiations over commissions as well as compensation offers at $0. The Department of Justice, weighing in on a settlement between consumers and an MLS in Massachusetts, called those rule changes insignificant and "largely cosmetic." Such guidelines don't discourage the issue of buyer-brokers "steering" customers to listings with higher commissions, they say. 

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Ford, whose Atlanta-area business includes 37 agents and did $68 million in volume last year, said he's letting sellers know that if they don't offer a commission, agents could avoid their property.

"Buyers are already struggling to get pre-approved," he said. "The average household debt is increasing, credit card debts are increasing around the country. And [buyers] just may not have the ability to pay a real estate commission."

Fuscia also raised concern over buyers in the lower end of the market that may not be able to afford their share of commissions that could reach $8,000 on a property between $200,000 to $300,000. 

"There needs to be some creativity," he said. 

Keefe, Bruyette & Woods suggested federal housing agencies, which have been mum on the topic, are discussing a financing workaround that won't disrupt the underwriting process. Changes could open the market to nontraditional models, and even send Realtors with less business toward dual compensation opportunities with lenders. 

Feds meanwhile propose scrapping buyer-broker compensation entirely, and simply dividing the fees between each party. Buyer broker commissions have a weak correlation to the final sales price of a home, DOJ attorneys say, and agents could instead offer a flat fee or hourly rate. 

Ford said he's hearing more holistic discussions about an agent's role, including on social media, rather than anxiety over pending court cases. 

"I'm hearing that tone as far as, 'Do you want your agent working hard for you or do you only want your agent with commission-breath worried about their money?' I hate to say it that way," he said, referring to a term for agents focused on money over customers' interests.

Realtors and lenders meanwhile said they're seeing green shoots as the spring market ramps up, including buyers moving forward after attempting to wait out high rates last year. Prospective borrowers are showing more interest in adjustable rate mortgages, for example, understanding they can refinance. 

"[We] offer a buydown and we've seen the buydown percentage pick up." said Scott Bridges, chief CDL production officer at Pennymac. "There is a cost to it, but the benefit outweighs the cost."

Agents also mentioned depositories offering more deals to keep mortgage business, particularly government-sponsored products, consistent amid wavering volume.

"The lenders are doing a really good job saying, 'Hey, there's options.'" said Durfey, based in Arizona. "But it helps when you've got two people saying that, not just the lenders. It's the agents and the lenders coming together that can really help the buyers understand that there are options and it is a great time to buy."