Introduction
The unfolding class-action lawsuits striving to revolutionize real estate commission structures have given rise to the suggestion of decoupling commissions. In this concept, homebuyers pay their agents’ fees outright and directly. Despite appearing forward-thinking at a glance, this system teems with harmful consequences, chiefly presenting a profound threat to homeownership avenues for Federal Housing Administration (FHA) and Veterans Affairs (VA) loan program participants. It is worth noting that Stephen Brobeck of The Consumer Federation Of America remains the most pronounced advocate for escalating upfront costs to homebuyers.
FHA | VA Loan Programs
The FHA and VA loan programs have been pivotal in promoting homeownership in the US, particularly among first-time buyers, veterans, and low- to moderate-income households. These programs have provided affordable mortgage options for individuals who might otherwise have been unable to secure financing for a home purchase.
However, the proposition of buyers directly paying agents’ fees can cause considerable financial strain, potentially placing homeownership out of reach for many who rely on these loan programs, typically operating within a limited budget for upfront costs and down payments. Stephen Brobeck’s carefree assumption that financial institutions will adjust and devise ways to finance these added costs represents a significant departure from the current practices and benchmarks of loan-to-value ratio assessments. Moreover, VALoans.com states: “Borrowers are not permitted to pay for real estate agent commissions or fees.”
Appraisals | Loan-To-Value Ratio Assessments
Banks traditionally offer loans contingent on the property’s appraised value, sticking to loan-to-value ratios as a risk management measure. Folding agent fees into loan amounts strays from this model and may artificially inflate property values. Additionally, an increase in loan amounts inevitably affects a borrower’s debt-to-income ratio— a pivotal factor in loan eligibility, potentially disqualifying numerous deserving buyers from acquiring vital financing.
Stephen Brobeck’s cavalier dismissal of these grave implications exhibits a glaring disconnect from the ground realities of the housing market and the palpable repercussions such drastic alterations can have.
Stephen Brobeck: The Illusion of Damages and Anticipated Consumer Savings
Stephen Brobeck’s contention that the US market is flawed draws on analogies with Australia, the UK, and Singapore while overlooking crucial elements such as average home prices and substantial buyer fees. The class action plaintiffs now noticeably favor the Australian market to underpin their arguments, suggesting the plaintiff’s claims are unraveling.
US v Australia
Analyzing real estate commissions, data from March 2022 shows the average Australian residential property cost was $657,296 (converted to USD.) Contrastingly, Missouri’s average home value was much lower at $216,598.
An Australian property transaction with a 3% commission rate yields a $19,718 fee. Even with a higher 6% commission, a Missouri property transaction results in a smaller fee of $12,995.
EVEN AT A HIGHER 9% COMMISSION RATE, THE MISSOURI FEE IS SLIGHTLY BELOW THE AUSTRALIAN FEE DUE TO THE LOWER PROPERTY VALUE.
Claims for damages fail.
Stephen Brobeck | Department of Justice | Opposing Positions
Stephen Brobeck routinely mentions The Department Of Justice’s interest in real estate commissions; however, he conveniently omits that the DOJ disagrees with Brobeck’s position that sellers pay the entire commission as articles citing DOJ state, Buyers, who, in effect, pay those commissions because they are the ones making the purchase.
The reality likely lies somewhere in the middle. The buyer and seller play roles in the commission payment process, contributing in different ways through their negotiations, decisions on listing and purchase prices, and agreements on commission rates. This nuanced understanding reflects the complexity of real estate transactions, which is often oversimplified in public discussions.
Conclusion
In reality, Stephen Brobeck’s quest for market reform could obstruct homeownership pathways for many deserving Americans. Implementing a system that could potentially cripple FHA and VA loan programs, designed to help make homeownership possible for those who might otherwise struggle to achieve it, should be seen as concerning at best and destructive at worst.
Therefore, it is a call to action for everyone involved in the residential real estate sector. FHA and VA loan participants who stand to lose the most should demand that Stephen Brobeck and other like-minded reform advocates rethink their strategies. They must recognize the broader implications and potential fallout their proposed changes could have on the homeownership dreams of thousands of Americans.
Contact Stephen Brobeck and condemn his efforts: [email protected]
For case information, visit https://www.cohenmilstein.com/case-study/moehrl-v-national-association-realtors-et-al
Author Anthony Phillips
Anthony Phillips, co-founder of Luxury Real Estate Advisors, is renowned in the luxury real estate market of Las Vegas, providing top-tier services to global clients, including private equity firms. In addition to leading 12 Las Vegas HOA Boards, his performance at premier locations earned him a spot in MGM Resorts International’s Elite Developer Circle. As an authoritative voice in real estate, his views have appeared in publications like Forbes and American Genius. Before his current venture, he was an executive at Del Webb, aiding in the construction of over 11,000 homes. Phillips continually enhances his expertise through Executive Education programs at Cornell University and MIT. He hails from the influential Phillips family of New England, known for their varied contributions to law, academia, business, politics, and consumer rights.