The Department of Justice has advised the National Association of Realtors to move towards decoupling commissions.

This is purely manufactured outrage. ‘Let’s look like we’re doing something’ governance. This type of overreach by bureaucrats in an industry they don’t understand is the status quo for the administration’s Department of Justice.

The main story in non-political real estate in the last few months has been a few civil lawsuits targeting major brokerages and their approach to agent compensation. Who is the victim? Sellers, they say. Standardized listing contracts typically include the full commission (buyer and seller agent) in the sellers contract to list the house. The DOJ is crying unfairness without seeing the whole picture. Or is it willful ignorance?

Who pays for the house that’s being sold? Buyers do. Decoupling commissions would create an imbalance in the Buyer playing field. Currently, the Seller pays the entire commission for selling their home, and it’s split (and disclosed to all parties) between the agents that make the transaction happen. If our industry moves to uncouple this (as directed to by the DOJ) and change the way our industry has worked for decades, it puts a majority of buyers at a huge disadvantage, if not eliminating their ability to buy a home altogether.

Decoupling commissions means the Buyers would have to pay their agent commission “out-of-pocket” instead of already having it rolled into their purchase and a part of their mortgage.

Their options would be the following:

1. Save even more cash in a crumbling economy with recent record inflation and pay their agent themselves.
2. Ask the seller to help them with their closing costs (which would now include agent commission) and disadvantage themselves even more against wealthy or cash buyers. This is a huge problem because a super-majority of loan programs have caps on how much a buyer can ask a seller to help pay closing costs.

If commission is decoupled (sellers stop paying for the entirety of selling their home) and buyers are expected to pay their own, only wealthy buyers will be able to afford homes, or at the very least they will be even more preferred by sellers due to the changes in terms. The middle class, or lower income Buyers will inevitably ask Sellers to include the cost of their agent in seller paid closing costs (which is already happening via the seller paying the entire commission). This creates a separation between the lower income buyer and the wealthy buyer. The wealthy buyer won’t have to ask for this, and will have an unfair advantage in purchasing a home. As it sits now, the seller pays entire commission and raises the price of their home to compensate. Market value has compensated for this naturally.

The outcome of an action like this to our industry would be catastrophic. Less buyers would be able to afford homes, less full-time agents would be able to make a living, and sellers would have less buyers in the market. This even hurts sellers, as fewer buyers (due to the new cash requirements) means a lower sale price.

Faux outrage over a system that has worked for decades is the best the DOJ can do? It seems so. When all you see is numbers and don’t understand the outcomes, you inevitably come up with bad ideas.