A report titled “Required Buyer Agency Contracts: Impacts On Home Buyers” was recently released by Stephen Brobeck, Senior Fellow with the Consumer Federation of America. In the introduction, Brobeck states, ‘This report will discuss several aspects of buyer agency contracts – important content, unfair provisions, format and timing, and recommended use by consumers.’ He suggests that state governments or the courts should prohibit certain unfair practices, such as allowing ‘buyer agents to arrange, with listing agents, additional compensation from sellers beyond what is negotiated with buyers,’ stating that such practices could ‘thwart any efforts to sufficiently separate buyer agent and listing agent commissions so that both buyers and sellers can independently negotiate the commissions of their agents.’
The Consumer Federation of America (CFA), and specifically Stephen Brobeck, have been notably critical of the National Association of Realtors (NAR) for some time, so it’s not surprising they have issued this report to sound the alarm on buyer agency agreements. While the CFA is not always critical of NAR or the real estate industry’s practices, my observations over the last few years suggest they often focus on criticizing unfair or unjust practices rather than commending good ones. After all, as a consumer watchdog, it’s likely they spend more time looking for problems to address. Despite my lifelong career in the real estate industry, I also take a hard look at it, always seeking areas for improvement.
I went through the report and here is my summary of the major issues it points out, along with my thoughts on each. My section headings match those in the report for those who want to explore further.
- Supplemental Buyer Agent Compensation: The report criticizes situations where a listing agent offers a buyer’s agent commission higher than what the buyer’s agent negotiated with the buyer, keeping the difference. It argues this is unfair and that any excess should benefit the buyer, not the agent. In St. Louis, the standard REALTOR® buyer agency contract specifies a “minimum commission” for the buyer’s agent, usually covered by the seller through the listing agent. With upcoming changes potentially prohibiting sellers from offering compensation to buyer’s agents, this dynamic might shift, but currently, it seems less of a concern here.
- Unreasonable Fees: The report labels “administrative” or “transaction” fees, typically ranging from $200 to $900, as “junk fees” and unjustifiable given today’s high commission rates. My view is mixed. On one hand, I prefer a single, comprehensive charge for services; on the other, a fixed transaction fee could help normalize returns from variable commissions. These fees shouldn’t be blanketly labeled as unfair; total cost for representation should provide fair value, regardless of its structure.
- Requiring Buyer Acceptance of Dual Agency, Designated Agency, or Transaction Brokerage: The report criticizes agreements that pre-emptively commit buyers to accept a change in their agent’s role to a dual agent, designated agent, or transaction broker. I concur on dual agency and transaction brokerage concerns but not on designated agency, as it doesn’t alter the buyer’s agent role but designates them for a specific client within a firm. In our firm, MORE, REALTORS®, we advise against dual agency and switching to transaction brokerage, emphasizing consistent representation and fiduciary duty.
- Not Explaining How Conflicts of Interest Involving Other Buyer Clients Are Resolved: The report points out the lack of clarity in most buyer’s agency contracts on how conflicts of interest with multiple buyers interested in the same property are managed. I agree and believe that with industry changes, including buyers directly paying agents, there will be demand for clearer conflict resolution strategies and perhaps exclusivity agreements, provided they are narrowly defined to prevent conflicts without overly restricting the agent’s business.
An upside to the recent litigation spotlighting the real estate industry is the emergence of reports and analyses that, though not always accurate or impartial, spotlight key issues and foster a more transparent environment for consumers. I personally view this shift toward greater transparency and consumer understanding of the real estate process as one of the major benefits of the industry’s forthcoming changes. Better-informed consumers will be equipped to more thoroughly evaluate the qualifications of the agents they choose to work with. This, in turn, will benefit dedicated and professional agents, while naturally filtering out those who lack the necessary knowledge, ethics, or comprehension to thrive in the business.
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