The study argues that decoupling commissions would harm first-time, low-income, and minority buyers, but critics like the Consumer Federation of America say it’s based on a faulty premise.

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Changing the real estate commission structure would most harm homebuyers who are first-timers, lower income, and racially underrepresented, threatening equitable access to housing, according to a study commissioned by HomeServices of America.

The study has come under fire from the watchdog group Consumer Federation of America, however, for allegedly ignoring compensation alternatives that would arise if sellers were no longer required to pay buyer brokers and for basing its conclusions on the allegedly faulty premise that buyers would be forced to pay out of pocket for their agent.

HomeServices is a Berkshire Hathaway subsidiary and the largest real estate brokerage in the nation by transaction sides. HomeServices is also a defendant in multiple federal antitrust lawsuits seeking to end a National Association of Realtors rule that requires listing brokers to offer buyer brokers a blanket commission in order to submit a listing into a Realtor-affiliated multiple listing service.

The suits argue that requiring sellers to pay buyer-broker commissions is anticompetitive and inflates seller costs. If buyers paid their brokers directly, they argue, buyers would be better able to negotiate lower commissions, resulting in a more competitive market.

The study, “Be Careful What You Ask For: The Economic Impact of Changing the Structure of Real Estate Agent Fees,” is written by former Freddie Mac economists Ann B. Schnare, Amy Crews Cutts, and Vanessa Gail Perry, and takes on the idea of decoupling agent commissions.

Due to the antitrust suits and an investigation by the U.S Department of Justice (DOJ) into NAR rules, this study is only the latest seeking to unpack this idea among others commissioned or conducted by discount brokerage REX Real Estate, the Consumer Federation of America, and the defendants and plaintiffs in the two biggest commission cases, known as Moehrl and Sitzer/Burnett.

NAR, a co-defendant with HomeServices in the commission lawsuits, shared the study with Inman but said that NAR did not provide funding for the study.

“We shared this study because it supports our view that if the class action attorneys are successful in forcing homebuyers to pay real estate agents directly out of pocket, there would be significant, detrimental outcomes for all consumers and the broader U.S. economy,” said NAR spokesperson Wes Shaw in an emailed statement.


The study’s authors assert that proponents of decoupling fail to consider that the current compensation structure has an important benefit: it reduces the amount of upfront cash buyers need to have to purchase a home.

“Almost nine out of every 10 homebuyers use a mortgage to finance the purchase of their primary residence, and many of these buyers face significant hurdles in acquiring the upfront cash to cover downpayment and closing costs,” the study said.

“These cash constraints, which are more prevalent among first-time home buyers (FTHBs) and members of historically-underrepresented minority groups, need to be considered when evaluating the impact of changing how buyers’ agents are typically compensated.”

The study found that, if buyers were required to pay their agents directly, the assets required to buy a $250,000 home would increase from about $16,250 to $23,015.

That would cause overall U.S. homeownership rates to decline and would reduce market demand for homes, particularly among first-time buyers who need and value the services of an agent the most and would be the least able to pay their agent directly, the authors said.

Screenshot from HomeServices-commissioned study

Even if decoupling would significantly reduce the buyer agent’s fee, the drop in demand means listing times would lengthen and home prices would decline, harming the housing market and the entire economy, according to the study.

“Such changes could prove disastrous in a housing market that is already creating significant barriers for potential homebuyers,” HomeServices said in a press release.

Drop in qualifying Black and Hispanic households

The study estimated that if, after decoupling, the buyer agent fee remained at 3 percent, the number of Black and Hispanic renter households who would be able to qualify for a mortgage would drop by 26 percent and 23 percent, respectively, compared to a 16 percent decline for non-Hispanic white households.

“Even if the buy-side fee fell to just 1.5 percent, the number of qualifying Black and Hispanic renters would fall by 14 percent and 11 percent, respectively, compared to an 8 percent decline for non-Hispanic white renters,” the study said.

“Likewise — and not surprisingly — the number of potentially qualified renters would also decline significantly for younger renters and for households with incomes between $35,000 and $75,000 a year.”

The authors added, “Given the Biden Administration’s emphasis on greater equity in the housing market — as well as the fact that minorities are more likely to face wealth constraints —mandating changes to the current compensation structure would clearly conflict with this stated public policy goal.”

‘Extremely risky’

The study’s estimated increases in the amount of cash required at closing assume that the buyer would not be able to cover their agent’s fee or other closing costs by getting a larger mortgage, according to the authors. This assumption is due to the regulatory hurdles that would be involved in order to allow that to happen.

“A mortgage’s loan-to-value ratio — which is based on the lower of the appraised value of the home or the property’s sales price — is arguably the most powerful predictor of the likelihood and severity of mortgage default,” the study said.

“To the extent that extraneous factors are included in the LTV measure that are unrelated to the property’s value, such as buyers’ agent fees, the predictive accuracy of this factor would decrease. As such, it is highly unlikely that lenders — and the appraisal industry that supports them — would simply accept a new definition of ‘value’ without recalibrating their underwriting models and defining what would constitute an ‘acceptable’ buy-side fee.”

Moreover, the authors pointed out, lenders do not generally determine mortgage underwriting standards, but rather they are set by four federally-backed entities — Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA) — who have to abide by limits on LTV and seller-paid closing costs dictated by Congress.

“The transition costs of moving to a revised compensation structure — while admittedly uncertain — would also be relatively high since the legal, accounting, and reporting infrastructure that governs the sale of homes today would likely be both time-consuming and expensive to change,” the study said.

“As a result, any deliberate attempt by policymakers to force home buyers to pay their agents directly would be unwarranted at best, and at worst, extremely risky — all with little, if any, guarantee that it would produce the desired reductions in commission rates.”

The study’s authors also question the assumption that buyer agent fees would decline if buyers paid buyer agents directly. Citing NAR data, they say most buyers and sellers rely on referrals from friends and family to pick their agent and the vast majority interview only one before they choose.

“As a result, the assumption that buyers would somehow negotiate significantly lower fees if they paid their agents directly seems optimistic at best, particularly for first-time buyers who have never gone through the home buying process before,” the study said.


The study’s economic model assumes that a buyer will use a real estate agent. This is up for debate. According to plaintiffs’ experts in the Moehrl and Sitzer/Burnett cases, if sellers are no longer required to pay buyer agents, most buyers will no longer use agents.

The study also assumes that buyers will be required to pay their own agents out of pocket. No one has actually suggested that there be any rule or law or court order that would mandate this. Rather, proponents of decoupling have suggested various alternatives to the current regime of sellers being required to pay buyer brokers under NAR policy.

For instance, Northwest MLS got rid of that requirement in 2019 and it has not resulted in buyers being forced to pay their own agents out of pocket. NWMLS will also eliminate commission sharing between listing brokers and buyer brokers as its default commission structure in October.

CFA has called for an outright ban on sellers offering buyer broker commissions, but the nonprofit insists that in that case buyers would have the option of financing the commission — a possibility the study excludes from its model.

CFA’s critique

HomeServices of America paid for the study. In their report, the study’s authors stress that “The opinions expressed are our own, and do not necessarily reflect the positions of our funder.” HomeServices did not respond when asked whether the study had been peer-reviewed or published in a journal.

In a critique provided to Inman, CFA senior fellow Stephen Brobeck questioned HomeServices’ motivations for commissioning the study.

“It is reasonable to ask whether Home Services ‘requisitioned’ the report in an effort to defend against litigation and to prevent a future with lower commission income,” Brobeck wrote.

“Scholars, consumer advocates, think tanks, and regulators have argued that commission rates in the U.S. are too high and too uniform because brokerage compensation is set, not by a price-competitive market, but by a dominant industry utilizing coupled rates.”

Stephen Brobeck

Brobeck readily admits that if the only thing that changes with decoupling is that the payment of buyer broker commissions shifts from sellers to buyers, that buyer costs would rise.

But, he said, the study’s “major flaw” is the amount buyers need to finance after decoupling would remain about the same — “so lender risk would not be affected” —  because buyer agent commissions are currently built into sale prices and sale prices would decline to remain competitive.

“To illustrate this point: Today, a home is sold for $500,000 at a 6 percent commission rate,” he said.

“Since the 3 percent buyer broker commission is incorporated in this sale price, the home effectively sells for $485,000 but the buyer pays the full $500,000. After uncoupling, the home is sold for $485,000, then the buyer pays their broker $15,000, so the $500,000 total cost remains the same. A buyer who can afford only a $400,000 mortgage, for example, will still just need a $400,000 mortgage if their broker’s commission is included in the amount financed.”

In addition, decoupling would likely decrease the $15,000 amount paid to each agent, according to Brobeck.

“For the first time, buyers will have to approve, and have the ability to negotiate, commissions paid to their agents,” he said.

“They will be encouraged by discounters who will be unshackled from the necessity of paying buyer brokers industry-set commission rates.  These discounters will now be able to offer both sellers and buyers much lower commission rates and, because of increased opportunities, are likely to market these lower prices more aggressively.”

Brobeck acknowledged that decoupling commissions would come with transition costs and other problems, but said “one-time transition costs would be well worth it” if the change would result in “a much more price-competitive broker marketplace” and permanently lower costs for consumers.

“Moreover, after uncoupling, the strong mutual interest of Realtors, mortgage lenders, and consumers in advancing home ownership would help ensure that any transitional issues, including regulatory ones, are resolved,” he said.

REX consultant: ‘Lazy’ and ‘Based on a fallacy’

Will Fried, a former REX data scientist and current consultant for REX, criticized aspects of both the HomeServices-commissioned study and CFA’s critique.

Will Fried

Regarding the study’s argument that commissions shouldn’t be decoupled because doing so would shut homebuyers out of the market, he said, “That’s not a great argument, right? Because you’re not defending the practice [of sellers setting the buyer’s agent commission]. You’re just saying that this is how the system is built, and therefore, it’s too difficult to change. That’s not a great justification. You’re not directly explaining why this makes sense.”

But he found CFA’s argument regarding fixing the problem with regulatory rule changes to be “lazy.” Fried said the study’s authors “do a good job” explaining why such changes wouldn’t be easy.

In addition, as the study’s authors pointed out, changing the rules to allow buyers to finance the buyer broker commission would require the government to decide a maximum buyer broker commission limit, which CFA does not address, according to Fried.

However, Fried rejected the study’s premise. “I think the entire foundation of the paper is based on a fallacy that the buyer can’t compensate their agent without having to come out of pocket,” he said. “There’s an alternative solution out there that exists.”

That solution is to have the buyer negotiate the buyer broker commission but to have the seller pay it as they do now, according to Fried.

“Buyers would simply have to add the commission on top of the offer price instead of including it as a separate line item in the loan application,” he said.

“This is how REX handled commissions that were negotiated between buyers of REX properties and their agents, and there’s no reason why the entire industry couldn’t do the same.”

That would not require any lenders or government regulators to make rule changes, according to Fried.

REX CEO Jack Ryan has previously said that REX had “not encountered any issues during the appraisal or financing process” when doing this and that REX had found the result of buyers negotiating directly with their agents was that the buy-side commission was often well below 3 percent.

HomeServices did not respond to multiple requests for comment.

Email Andrea V. Brambila.

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