Jim Duncan solicits some debate on Cooperative Compensation, where the seller’s agent pays the buyers agent in a purchase transaction. Greg Swan (Bloodhoundrealty) wants the lenders to take the lead instead of a more legislative approach.
Here is part of what Jim says:
As a profession, we need to rid ourselves of Cooperative Compensation and the practice of the listing broker paying the Buyer’s Agent.
Here is part of what Greg says:
If mortage underwriters disallow any commission over 3% or 3.5% from the seller, with all of that going to the Listing Broker, while simultaneously allowing a commission of up to 3% or 3.5% from the buyer, with all of that going to the Buyer’s Broker — what will happen?
I left comments on both these blogs with my thoughts, but I wanted to elaborate. While it may seem a bit odd that the buyer’s agent is paid through the seller’s agent, it seems to at least help the buyer. This system removes a significant barrier to purchasing a home for the buyer. In the new arrangement not only does the buyer have to come up with closing costs, and down payment, now they have to come up with 3% for the Realtor. For a $200K home the increased cost is $6K. That is significant.
For those buyers moving up into a newer home they now have to absolutely sell their home! We’ve already dabbled into dangerous territory, with the use of low doc loans, trying to figure ways of limiting daisy chain purchases. A buyer paying their own Realtor would add another layer of complexity. I’m currently working on a purchase transaction where there are three transactions ahead that must close for it to go through! That’s a bit hairy.
From the lenders side, less buyers (even first time) means less profit. I don’t think I need to elaborate on this much more. I’ll let the almighty dollar speak for itself.
How about the socio-political ramifications? The entire establishment is committed to increased homeownership! The most likely people left out in this new arrangement would be the low income borrowers and the poor credit folks. The racial connotations of this are very evident – just look back at the subprime mess! I’m not saying this is a racist arrangement but what I am saying is any perception of increased barriers to homeownership need to be carefully evaluated. And perception matters on this.
Reform is needed but there is no easy solution either.