Negotiate dollar-amount commissions, Consumer Watchdog Urges

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The Consumer Federation of America has rolled out new guidance and is discouraging the practice of paying agents based on a percentage of a home’s sale price.

 

Key points:

• As the August deadline for rules changes nears, the CFA is telling buyers and sellers to negotiate compensation and avoid paying a percentage-based fee.
• Consumers should research any agent they’re considering working with by reading reviews and asking about their experience.
• The CFA also advises buyers and sellers to thoroughly review any forms they’re asked to sign and watch out for pitfalls.

While brokerages, MLSs and associations prepare agents for how to discuss upcoming industry practice changes with their clients, the Consumer Federation of America is providing its own guidance for homebuyers and sellers in the lead-up to the August 17 deadline for implementing the rule changes.

Agent pay should be a dollar amount, not a percentage

Per the NAR settlement, agents and brokers must explicitly communicate that commissions are negotiable when starting to work with a client. But the CFA is encouraging consumers to not only negotiate the fee, but to push for a dollar amount instead of a percentage of the home sale.

"The basic reason that the industry has been sued by the U.S. Department of Justice and by private citizens is because for a century, Realtors have colluded to set rates which now typically are five or six percent," CFA researchers wrote. 

While NAR and others in the industry have argued that commissions have always been negotiable, the CFA and the DOJ contend that sellers have been expected to pay "customary" commissions.

"The class action settlement, for the first time, effectively allows buyers to negotiate their agent's compensation."

Buyers should research their agent 

The CFA advises consumers that "selecting a competent, honest agent is more important than ever, especially for buyers." The consumer group has previously highlighted issues with buyer agreements, and some state regulators have determined that buyer agreements shouldn't be required to participate in a home tour. 

Specific recommendations from the CFA include researching agent reviews on the leading portal sites such as Zillow, Realtor.com and Homes.com, and asking if the agent is also a broker or associate broker — which typically means they have more training and experience. 

Additionally, the group tells consumers to pay attention to whether or not their agent has all of their forms prepared and ready at the outset.

Consumers shouldn't sign anything they don't understand

State associations and brokerages are releasing a flurry of forms for agents to start using this month in their day-to-day business relationships with buyers and sellers, but the CFA encourages consumers to thoroughly review these forms before committing to compensate anyone. NAR has also released new guidance for consumers emphasizing the importance of understanding any agreement before signing. 

 In addition to paying close attention to the content of a listing or buyer agreement, the CFA discourages consumers from getting into a dual agency situation, something the group says can compromise the fiduciary relationship for both buyers and sellers. 

 Another buyer-beware: The CFA warns consumers against signing an agreement that "combines listing agent and buyer agent compensation, or any seller contract that requires buyer agent compensation," as this type of form and practice would "violate the spirit" of the new NAR settlement rules.