Disclosure and contract separation could result from litigation, industry rep says
![NAR lawsuit outcome could cut out buyer’s agent entirely - CEO](https://cdn-res.keymedia.com/cdn-cgi/image/w=1000,h=600,f=auto/https://cdn-res.keymedia.com/cms/images/us/073/0270_638342679875966949.png)
The current buzz in the mortgage industry centers around new scrutiny being placed on commission sharing between listing and buying agents in the sale of a home. Ongoing litigation has challenged the long-standing practice, with the core argument opposing the need for sellers to pay a fee to a buyer’s agent.
Under the commission-sharing system, home sellers are required to pay a cut of up to 6% to be divided up between their agent and the buyer’s agent. By and large, mortgage brokers have balked at the scrutiny given the long-established nature of the practice. The lobbying trade association for real estate agents – the National Association of Realtors – has defended the practice, citing a strict code of ethics to which real estate agents must adhere.
It’s unclear how the case will be resolved, but one thing is clear: The lawsuit will likely result in drastic changes across the real estate landscape.
It’s a complex issue affecting various points across the spectrum – those in the regulatory field, retail loan officers, buyer and seller agents, advocates, lobbyists, mortgage brokers and others.
A man of many hats
Enter Matt VanFossen (pictured), who you might call something of a mortgage multitasker. He’s 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 promoting mortgage programs, rules and regulations treating the industry fairly. He’s also the CEO of Absolute Home Mortgage Corp., a New Jersey-based lender. For good measure, he’s also CEO of financial technology provider Mortgage Automation Technologies.
To say VanFossen has a vested interest in the outcome of the litigation would be a study in understatement. Mortgage Professional America reached out to him for insights on what the likely outcome is of Burnett et al v National Association of Realtors et al being heard in Kansas City, Mo. NAR CEO Bob Goldberg, HomeServices of America and Keller Williams Realty have already been to court for questioning in the case.
“When we look at the case as a whole, it kind of makes sense from a consumer standpoint,” VanFossen told MPA during a recent interview. “Let’s look at the core, the basis of the case. The construct of a real estate transaction is if I’m selling my house right now I go to a listing agent, they charge me 5% or 6% and they show me what they’re going to pay a buyer agent. But I don’t necessarily have a choice in what they pay a buyer agent. And when you go look at the construct of a real estate transaction – me as the seller – I’m paying for a buyer agent to do what? Negotiate against my best interest.”
It does seem counterintuitive, he suggested. “The seller’s listing agent is to get the seller the highest price of sale for a house; a buyer’s agent is to get the client, the buyer, the best deal on the house possible. So I think the core of the case, what’s being looked at here, is a seller should not be obligated to pay the buyer agent commission. There should be no obligation.”
Envisioning the outcome
VanFossen already envisions what the landscape might look like in the aftermath of the case. “What I think the most likely outcome of the case is, is that it’s going to be a disclosure and contract separation,” he said. “Meaning that what you’ll see is on the listing agreement when you go sell your house, you’ll now have the option and an agent won’t be able to entice or steer.”
Here’s how that might look: “So they’ll say ‘hey, we have two columns on the contract. This is what I charge for listing your property – 1% to 3% – and you have an optional buyer agent column where you can choose from 0% to 3%.”
That’s when sparks fly in VanFossen’s scenario: “And the seller will say ‘why would I want to do that? Why would I spend that money?’ And that’s where disclosure on anti-steering is going to have to come in,” he said.
“An agent is going to have to work with that seller to present them reasonable options. You may want to choose to select a buyer agent commission. Why? More buyers will see your property, and you may have a chance of more competition which would drive the price up. You may want to spend 1% to 2% for the buyer agent because it might result in you getting a higher offer price for the house because there are more buyers interested or who elect not to do so.”
Emergence of the “savvy seller”
From this mulling of options, what VanFossen has dubbed the “savvy seller” might emerge. “This is where the waterfall comes in of the potential outcomes,” he said. “I call it the savvy seller.. What you may wind up with is a savvv seller that says ‘OK, well, there’s an inventory shortage right now, and the house is being seen because there’s limited housing. So typically, I would pay a listing agent top dollar to go market my property – take high-end pictures, drone shoots, MLS listings, magazine ads, postcards, open houses. It all justify paying that 6% in selling a house.
“But now, some savvy sellers may say ‘you can take some pictures on your iPhone and can put up an MLS description, I don’t want any marketing and I don’t want to pay any buyer agent fee. I think that consumers will go to Zillow, buyers will find houses and the minute they find that house, it doesn’t matter. They’re going to do anything they can to put in an offer because of those inventory shortages.”
Under the savvy seller scenario, the buyer bears the brunt: “And what that could do is potentially cut out the buyer agent because a savvy seller may say to their listing agent ‘I only want to choose 3% for the listing agent, 0% for the buyer and your new job as my listing agent isn’t to market but to field offers’. And if a buyer comes in and they want to use you as the buyer’s agent, you’re going to do dual agency - you’re going to be the seller listing agent and the buyer listing agent, which is allowed. That could cut out the buyer agent if you have savvy sellers.”
A verdict in the case isn’t expected until Nov. 10.
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