Agents' commissions on a $500k house amounts to $15k
The aftershocks are still being felt from last week’s $1.8 billion verdict finding the National Association of Realtors (NAR) and two brokerage firms liable for collusion in keeping commissions artificially high. Yet despite the complexity of the case, for one industry veteran, the case boiled down to a simple fundamental.
“Let’s look at some math,” Matt VanFossen (pictured) told Mortgage Professional America during a recent interview. “Let’s say I want to buy a half-million-dollar house. The average buyer agent commission that was typically paid by the seller is 2% to 3%. That would mean that, at closing, I gotta bring $15,000 cash to the table to pay for my buyer agent who negotiated on my behalf. Where I have concern with this is some consumers – even if they want that level of service – really can’t afford it.”
The practice of commission-sharing has been long-held in a home transaction, during which agents for both the buyer and seller would divide a cut of 6% between themselves.
This is the advocacy angle VanFossen spoke about to MPA in wearing one of his many hats, this one as vice president of Community Home Lenders of America (CHLA), a national non-profit association of small and midsize community-based mortgage lenders with a mission of prompting mortgage programs, rules and regulations designed to treat the industry fairly.
But that’s not the only angle from which VanFossen was watching the case closely. He’s a stakeholder on other fronts, including in his role as CEO of Absolute Home Mortgage Corp., a New Jersey-based lender, and as CEO of financial technology provider Mortgage Automation Technologies.
First-time homebuyers took center stage in case
Ensconced in the full industry breadth, he suggested he had a warm spot for first-time homebuyers – a segment most affected by the commission-sharing plaintiffs successfully litigated against NAR, HomeServices of America and Keller Williams. Two other groups initially named in litigation – ReMax and Anywhere Real Estate (formerly Realogy), which is the parent company of Coldwell Banker, Century 21, Corcoran and Sotheby’s international Realty – settled out of court for a collective $140 million.
“I’ve been doing this for 20 years,” VanFossen said. “I build my career on first-time homebuyers. When I was a 20-year-old loan officer, the only person who would talk to me was a first-time buyer. And back then in 2005, I had an ample supply of 100% financing, first-time buyer subprime loans I could put them into.”
Times have certainly changed since then, he added: “Now, if we go work with that first-time buyer – think about a Gen Z first-time buyer – they already think housing is unobtainable because it’s overpriced. They already feel it’s hard to save money. So you take a first-time buyer that needs the leverage or even a low- to moderate-income or underserved buyer that now needs to leverage an FHA low-down-payment option, a VA 100% financing option, a seller concession financing closing costs. It’s not that they don’t want the buyer’s agent or see the value – they just can’t afford to. They can’t afford on a $250,000 house to have an extra $7,000 in closing costs – whether it’s financed or not – to be added to the transaction.”
Therein lies the rub – in affordability, or lack thereof. “So you do have some issues there with this buyer agent structure,” he said. “That some consumers just won’t be able to afford to pay the buyer agent fee even if they see value in it.”
NAR argues it’s the market that determined commission level
In a statement previously provided to MPA, NAR spokesman Wes Shaw argued that the market determined the percentage of commission charged: “Regarding commissions, the market decides compensation rates, and compensation is always negotiable,” he wrote as part of a response to MPA’s questions prior to the verdict. “The free market determines broker commission costs through factors like service quality, customer preference and market conditions. Historically, real estate commissions have always fluctuated due to the market conditions at a given time. In fact, according to Real Trends, who started tracking real estate commissions in 1991, commission rates are currently well below where they were in the ‘90s all while real estate agent value has increased.”
Whether it’s the commission that has long changed hands between agents without being challenged or the invisible hand of commerce that determined the level, it may have been the lack of affordability that ultimately defined the case.
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