Ten years ago, I reported on the growing demand of transparency in real estate. As you can imagine, mistrust of real estate agents was at an all-time high after the housing market crash. At that time, homebuyers and sellers felt betrayed by an industry that was perceived as keeping their cards close to their chest.
However, times were changing and consumers demanded transparency from their real estate agents. Homebuyers and sellers not only wanted their agents to act in good faith, but also wanted more information and communication during the transaction.
Since then, the National Association of Realtors (NAR) has been trying to mend their reputation. The 2015 DANGER Report was intended to identify issues affecting the industry as well as provide a roadmap to the future. One of the major issues identified was agent competency and ethics. However, it was obvious that ethical realtor behavior did not guarantee competency. And vice-versa. The upshot of the report was that many of the identified concerns were already known. Ironically, the identified issues and answers only prompted more questions. Unfortunately, it seemed as if no one wanted to address the 1,000-pound gorilla in the room, which was how much was the industry willing to change?
Fast forward to 2019, when the real estate industry is at a crossroads. Earlier this year, a class-action lawsuit was filed that challenges how agent commissions are paid. Also, earlier this year, the Consumer Federation of America (consumerfed.org) published the first in a series of reports focused on “the lack of real estate agent transparency on representation, compensation, and service.” The Consumer Federation of America (CFA) is described as an association of non-profit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy and education.
The class-action suit filed in March, if successful, has the potential to force a major change to the industry. Besides having the potential to change how agents are paid, it may force increased transparency of agent compensation. Nevertheless, similar past challenges to the NAR and the real estate industry resulted in minimal (if any) change to how business is conducted.
Serendipitously, Stephen Brobeck’s most recent CFA series report, “Hidden Real Estate Commissions: Consumer Costs and Improved Transparency” was published this month (consumerfed.org). The report confirms consumers’ “lack of understanding” of commissions. It also points out how “concealment of commissions” does harm to consumers. The report indicated that 70% of the agents surveyed charge 6% commission. Commissions are mostly uniform, more so for buyer agent commissions. The report also indicates that there was a general rationale that buyer agents would not show property if the buyer agent compensation was below the average for the area. Of the agents surveyed, 73% indicated they won’t negotiate their commission. It also calls attention to administrative fees of several hundred dollars, which is typically charged in addition to commission.
The report concludes that the real estate industry must change its attitude about agent compensation, or risk eroding consumer trust. Homebuyers and sellers are savvy, and are increasingly sensitive to the role that commissions play in housing costs. Home seller costs could be reduced if consumers compare commission rates and ask if they are negotiable. Homebuyers can also be helped if they are aware how their agent is paid, as well as knowing the offered buyer agent compensation on homes listed in the MLS.
Dan Krell is a Realtor® with RE/MAX Platinum Realty in Bethesda, MD. You can access more information at www.DanKrell.com.