As a small business owner and president of the National Association of REALTORS® (NAR), I want to set the record straight on misconceptions by some about the real estate industry.
Commissions for real estate agents and brokers are negotiable. Always have been. Always will be. Let’s put that on the table right now.
Like most transactions in the American economy, market forces set individual commission rates to provide for competition among brokers, increase efficiency for consumers and ensure we are providing the most market-driven and best possible service to our clients.
It’s the free market at work, and the reality is that the commission structure gives everyday Americans critical advantages they otherwise wouldn’t get. That structure is what ultimately makes it possible for many people to realize the dream and benefits of homeownership.
That same free market makes it possible for small business owners to earn a living as real estate professionals. In fact, most of NAR’s 1.4 million members, including myself, are small businesses. We make a median gross income of $43,330 and are grateful for every dollar we earn.
As COVID-19 persisted, real estate agents worked tirelessly to navigate one of the most complex markets any of us had ever seen. Pandemic or not, day to day we’re managing untold challenges that buyers and sellers have to face. We handle the regulatory complexities unique to our own localities (each state sets its own licensing requirements for agents), we work to withstand the industry’s inevitable ebbs and flows, and we navigate the market to stay current on what our clients need to know and to stay competitive as a byproduct.
Real estate agents and brokers work, too, to help put keys in the hands of America’s small business owners. Entrepreneurs who define the spirit of this country endured some of the most significant COVID-induced financial hardships this year. We know their trials because we experienced the same ones. We continued to put roofs over their heads and food on our families’ tables.
And here is where the perils and unintended consequences of the actions by the Department of Justice against the current Multiple Listing Service (MLS) system are most alarming. Despite the White House’s strong, genuine desire to increase opportunities for homeownership among families of color, a fight against the MLS system would have the opposite effect.
In fact, the traditional commission structure, where the listing broker offers to share his or her commission with the buyer broker, ensures the greatest possible equity for first-time to middle-income homebuyers from all walks of life who may otherwise not be able to afford a home and professional representation.
If buyers had no choice but to pay a commission directly to an agent on top of their closing costs, it would increase out-of-pocket expenses in a way that could freeze out many from an already competitive market. With the nation in the midst of a historic, ongoing inventory shortage, that’s a problem that’s all too real today.
In fact, 24% of buyers in 2020 had to delay purchasing a home by more than five years because of the potential debt and 31% of those were first-time homebuyers. Given even more competitive pricing and bidding competition in 2021, those challenges are even more exacerbated. Seems to me the last thing we want to do is make buying a home harder for everyday Americans, especially given large racial disparities in homeownership still exist for Asian, Hispanic and Black Americans who make up a critical portion of first-time homebuyers.
In short, the American real estate system helps connect buyer’s agents with seller’s agents, creating the greatest number of housing options for buyers and offering sellers access to the largest possible pool of potential buyers. It’s a model that is both efficient and transparent and has worked remarkably well for decades. Employing the free market principles of private property rights, competition and open negotiation, our MLS system remains the envy of the free world.
NAR and real estate agents remain the nation’s strongest, most vocal proponents of that kind of generational wealth-building opportunity associated with homeownership. We advocate for policies that ensure the market is healthy and functional, that the American Dream is accessible for as many families as possible, and that our laws and regulations reflect real estate’s importance on the broader U.S. economy.
We work to ensure real estate agents have every fair and tangible resource at their disposal to keep the market moving forward. We create and offer education programs and professional development tools for REALTORS®. We recently launched a mentorship program designed to increase diversity in the industry, and we remain a tireless defender of fair housing laws in the fight against discrimination in real estate.
The desire for property ownership and the belief in the free market are in our DNA as Americans. NAR continues to fight for that tirelessly to the benefit of our clients, U.S. consumers and the nation as a whole.
Charlie Oppler
President, National Association of REALTORS®
Kudos for a well stated argument against the DOJ’s new Administration decision against REALTORS.
Well said!!!
Awesome, great memo Charlie!
Thank you for a great editorial Charlie- and so true. Not only would buyers have to factor in the cost on top of bank or lender closing costs and not to mention inspection costs that typically a buyer pays when purchasing a home. All of this plus possible additional buyer costs would further prevent or prohibit buyers ability to purchase.
The bad news is that I don’t even know what DOJ action Mr. Oppler is talking about. The good news is that I’ve been so busy I rarely watch the news and am not even consistent about reading industry news.
It certainly sounds like something’s happening that we all need to pay attention to. I just hope the DOJ’s action isn’t a reaction to a handful of incompetent or unethical agents. There are bad doctors and lawyers also, but we still need their professions to operate as efficiently as possible, much as we need the Real Estate industry to function efficiently.
I mainly wanted to say this is a very well written opinion. Thanks, President Oppler!
Well said!
Well said. It is important to also point out that Sellers benefitted from the same commission set up when they purchased their home previously. Many of them would not have been able to purchase. In this market as a seller there are more choices than ever before when it comes to selling your home.
It is important to also point out that Sellers benefitted from the same commission set up when they purchased their home previously. Many of them would not have been able to purchase. In this market as a seller there are more choices than ever before when it comes to selling your home.
Very well said!
Well said Mr President.
Well said. Thank you!
Well said indeed, but a bit too late perhaps. What were our NAR lobbyists doing to get so caught off guard? Is this Biden administration so pro Wall Street Backed IBuyer Firms that they don’t care about the 1.4 Million Realtors. Does this Biden Administration care more about the Zillow, Redfin etc lobbying dollars they receive than us small business owners and entrepreneurs?
My logical reasoning tells me that the Biden Administration wants to break up NAR and allow the big money wall street firms to become the dominant firms to help buyer and sellers of real estate. Why???? Because they contribute millions of dollars to their campaign coffers.
But back to my original question. How did NAR get so caught off guard? We now need to double down on our efforts to protect our association and the only way to beat millions of dollars of campaign donations is to put a million Realtors up on Capital Hill to lobby in person.
Or we can get mortgage lenders to include the buyer brokerage fees to the sale price for an acquisition cost on which to base LTV. We did this back in the early days of REBAC (pre-NAR ownership). Check with Jim Warkentin from McLean, Virginia
A balanced response and very well said. Thanks
Thank you for that great memo. We must protect our profession and our clients’ needs.
I know this will be unpopular, but I believe each side in a transaction should pay for the services they receive. There’s a seismic shift happening in every industry now, whether brought on by the pandemic or technology disruptors.
As a licensed realtor, I accept that is the way we’ve always done it. But we can do better. It makes no sense that one side of a transaction should pay for the professional services given to two.
Having worked slightly more than 30 years in one of America’s more expensive real estate markets, adding the cost of real estate representation to buyer’s costs would put homeownership out of the reach of even more (most especially) first time buyers. Commissions have always been negotiable and the market does come to bear. Our energy needs to be focused more in finding ways to create more housing to house these buyers at a cost families can afford. Mr President, your article needs to be published widely because you expressed the issue so well. Thank you!
This sounds very alarming and corrupt.
Whether it’s in good times or bad times, it’s insane to even think about adding more costs to a buyer’s homebuying expenses. There is no Justice in that.
This sounds like something that I would only expect from an organization that has been set on undermining the foundation of the Real Estate industry for quite some time.
I wonder where Redfin and Zillow stand on this issue.
Are they for it or against it?
I am with Kevin Burkland, too busy to follow all of the details. Please send something out to all REALTORS so that we may get up to speed and possibly get involved with our local legislatures. I also agree with Rick Stockel, it seems that every industry is feeding the giants and that looks very possible from what this statement is all about.
Simple fix to this – include the buyer’s brokerage fee in the mortgage, just like the closing costs and seller’s brokerage fees are in there now. No difference to the buyer except they control the fee they pay or maybe don’t pay. This solution allows for potentially lower costs for acquiring a home, negating your rather thin argument.
The issue is how the buyer’s representative is paid. The incentive based commission makes perfect sense for the seller. Their representative is not paid unless they get to the closing table. And the representative is paid more if the seller gets more. You cannot simply reverse that and apply it to the buyer’s representative. The incentive is to get the buyer to the closing table and then get paid more if the buyer pays more? It is illegal to charge an appraisal client a percentage of the appraisal value and charge only if a transaction finalizes. It should be illegal to charge a buyer an incentive based fee.
DAVE RODKEY
July 19, 2021
Thank you for speaking in support of home ownership and a most successful process!
Thank you.
Thank you for an important update that I haven’t been up to date on and thank you for all the other agents responding. There’s something to be learned every day. It’s very frustrating to learn of the DOJ’s intrusion and causes one to wonder what their up to now.
Well stated. I challenge anyone to find a market that has more competition than in real estate. There are literally hundreds of thousands of self employed entrepreneurs working every day for their clients. The bottom line – we are only paid when we get the job done!