The recent settlement involving the National Association of Realtors and major real estate firms revolves around the practice of “broker cooperation,” where agents representing sellers share commissions with agents representing buyers. Proponents of the lawsuits argue that this customary practice inflates commissions, and believe that buyers and sellers should pay their agent representation separately. However, this seemingly innocuous change would have significant consequences, particularly for first-time buyers with modest incomes.

Broker cooperation has historically favored buyers because they don’t have to come out of pocket to compensate their agents, however the buyers of today will ultimately pay their fair share of the cost when they choose to sell. This practice, in place for over a century, supports homeownership accessibility, which has been a national priority since the Great Depression.

Sacrificing first-time buyers

Last month, the Department of Justice (DOJ) weighed in on the lawsuits by issuing a statement calling for the end of broker cooperation. The DOJ believes that by eliminating it, affordability will improve for all. That is highly unlikely. Last year, mortgage rates increased from 3% to 8% and home prices still increased in most markets. Even if the DOJ and the critics of broker cooperation are correct and commissions do go down, few argue that the benefit will go almost exclusively to home sellers. 

However, if buyers are required to pay out of pocket for their agent, it will increase their costs by as much as $12,000 to purchase a median-priced home in America. The unintended consequence of excessively disrupting the real estate model will be to undermine housing affordability for the very families that need the most help. The data shows that that more than 80% of homeownership gains over the next 20 years will come from the Hispanic and other minority populations.

Small businesses will also be hurt

Homeownership stands as a quintessential pillar of the American dream, serving as a pathway to the middle class for countless families. The accumulation of home equity has propelled many Americans towards financial security, with homeowners currently sitting on nearly $30 trillion of wealth, according to the St Louis Fed. Unlike the stock market, where the bulk of equities are owned by the wealthiest, approximately 87 million American families benefit from homeownership, contributing to a more equitable distribution of wealth.

It is not only homeowners who have benefitted from America’s robust housing market, so have a slew of small businesses. The real estate industry is not dominated by a handful of behemoth corporations like most other sectors in our economy, rather it remains primarily the domain of a mass of small businesses.

Real estate brokerages, agents, and the vendors that service the industry account for a substantial portion of all the small businesses in America. Ending broker cooperation would substantially impact the 500,000 real estate agents and their teams that primarily represent buyers, and could leave inexperienced homebuyers without competent representation, especially in minority, and low and moderate income communities

The battle is far from over

On Wednesday, March 27, CMLS, a trade association made up of more than 225 MLSs in North America took a hard shot at the DOJ, asking the U.S. District Court for the District of Massachusetts to accept an amicus brief telling the court to disregard a statement of interest the DOJ filed on Feb. 15 in a major antitrust commission case known as Nosalek. This battle seems like it has a long way to go.

Ending broker cooperation would be like pulling up a ladder that has been there for homebuyers for more than one hundred years. To avoid that, policymakers need to work with the real estate industry to land on a model that prioritizes first-time home buyers, ensures they have adequate agent representation, and allows sellers to continue to pay for buyers’ agent fees without disruption. Otherwise, the government will be burdened with a difficult choice, invest substantially more in tax credits, housing counseling and affordable housing, to support a reasonable flow of first-time homebuyer activity or allow homeownership rates to plummet nationwide.  

Gary Acosta is Co-Founder and CEO of the National Association of Hispanic Real Estate Professionals (NAHREP.)

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Gary Acosta at [email protected]

To contact the editor of this story:
Tracey Velt at [email protected]

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