Industry still vulnerable post-settlement, researcher warns
A fatigued DOJ and regulator inaction may embolden legally risky industry practices. It’s up to consumers to push for change, CPC’s Stephen Brobeck believes.
Key points:
- Stephen Brobeck, the Consumer Policy Center senior fellow who co-authored a recent report on buyer agent compensation, told Real Estate News that the industry remains at risk of further litigation.
- Anti-consumer practices — including the suppression of compensation negotiations — persist despite last year’s settlement.
- If regulators won’t step up and the industry can’t properly direct itself, consumers will have to be the ones to seek real change, Brobeck argues.
While the real estate industry has had over a year to adjust to the new rules and practices that resulted from the NAR settlement, agent commissions don't appear to have changed all that much.
The reality of decoupling seller and buyer agent commissions appears to be more challenging in practice than in theory. According to a recent Consumer Policy Center (CPC) study on buyer agent compensation, every agent that researchers engaged with asked for 2.5-3% of a home's final sale price.
Though buyer agents are more willing to accept a lower rate, there remains resistance from agents to negotiate compensation, CPC Senior Fellow Stephen Brobeck told Real Estate News. Agents who engaged with CPC's "mystery shopper" researchers often deferred to older, inaccurate — and ethically questionable — talking points, such as suggesting the buyer agent's compensation would be paid by the sellers, the study found.
Legal vulnerability remains
It's this hesitation or unwillingness to truly engage in real negotiation over compensation that could put brokerages — and the industry at large — at further risk of legal scrutiny, Brobeck believes. But after the legal battles that led to last year's settlement, there may be a degree of fatigue at play.
"The fact is, there is a bit of exhaustion here, I think, on the part of litigators," Brobeck explained. "There was a huge settlement, and it didn't cost the industry as much as they had feared — though it was still a fair amount of money — and so they're thinking, 'Well, I'm done with that.'"
The lack of commission competition despite the settlement is a core problem that could keep the industry legally vulnerable. Since the behavior around commission negotiations hasn't meaningfully changed, legal and consumer pressures may eventually return.
The DOJ retreats
The Department of Justice (DOJ) is currently bogged down with other legal issues and may be paying less attention to the real estate industry, which could allow bad faith negotiations and practices to go unchecked. As the CPC's study found, more agents are asking for 3% of a home's final sale price as compensation now than they were a few years ago.
"I wouldn't be surprised if they've been emboldened after it became apparent the DOJ was not going to aggressively pursue antitrust enforcement," Brobeck said of industry professionals and leaders, adding that it appears DOJ initiatives centered on the brokerage industry "have stopped."
While stalled regulatory enforcement may temporarily shield the industry — and leave agents and brokerages free to maintain the older fixed-percentage commission structure — this doesn't mean that bad behavior won't be held to account in the future.
It's time for consumers to step up
However, the industry may once again be proving that it is unable to properly and truly regulate itself when it comes to compensation. If the DOJ and litigators are taking a back seat, who could — or should — drive the effort to decouple agent compensation and ensure a more competitive landscape?
"That's going to have to be consumers," Brobeck said. "It's an opaque industry. It's a complicated industry — and as a result, you don't have that many third parties giving consumers advice about how to select and deal with an agent."
For consumers to get the most value from their home sale and broker, "they should start off by interviewing at least two or three prospective agents," Brobeck said, adding that consumers need to "make it clear" that they know they can negotiate compensation beyond a percentage and instead ask for a specific dollar amount.
So how can consumer-focused and ethics-minded real estate professionals help? The current moment presents an opportunity for brokers to educate consumers and their agents so that the stubborn tie between seller and buyer agent compensation can be truly severed.