The Consumer Federation of America has released a report detailing how commission uncoupling (i.e. having the seller pay all commissions) will ultimately help buyers, pointing to changes that many in the industry have quietly advocated for over the course of many year. Noting the changing sector in the face of unprecedented lawsuits involving agent commissions, the CFA argues that it’s time to afford buyers the opportunity to work commissions into their financing.
“Such a solution would reduce the up-front closing cost that buyers need to have available in cash, which is what most critics of decoupling have focused on,” the report reads. “Today most buyers do not have the option to explicitly include buyer agent commissions in their mortgages…To date, NAR has publicly resisted considering the removal of these barriers in ways that would not increase lender risk. However, some industry leaders have urged NAR to pursue this option, and there is evidence that NAR is doing so privately.”
The data suggest that any additional aggregate costs would be modest and relatively short-term. Many experts believe that home sellers will agree to help buyers pay for buyer agent commissions if buyers request this assistance. “The challenge then becomes how to make this expense explicit and negotiable, which would greatly increase the chances of lowering the costs to buyers overall,” the report continues. “If buyer agent commissions were removed from the sale price, that would not increase lender risk. In fact, if buyers negotiated lower commissions, the amount they needed to get financed could be reduced, thus promoting affordability.”
The paper also suggests that transitional costs would be dwarfed by the long-term benefits of uncoupled and negotiable commissions accruing to all home buyers and sellers. The CFA estimates the potential consumer savings at 20-30 percent. On the sale of a $400,000 home, the reduction of a commission rate from six percent to four percent would lower the commission by $8,000.
To the question of whether buyers would forgo their own agent and instead work directly with the listing agent, the CFA argues that listing agents would find it difficult to charge seller and buyer a 5- 6 percent commission in a double-ended sale.
“However, these sales would be less likely to occur, and buyer brokerage would be more likely preserved, if buyers could easily finance agent compensation through mortgages that were no larger than current loans.”
You can read more from the CFA by clicking here.
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