For over two decades, as a personal finance journalist, I’ve made it my mission to help people understand money matters, speak to injustice and inequalities in our financial systems and – if possible – do both at the same time.
When the National Association of Realtors (NAR) rolled out new real estate commission rules on August 17, my antenna went up. These changes are promoted as creating transparency in agent compensation, ultimately lowering costs for homesellers. However, I couldn’t help but feel that an increasingly unaffordable housing market was being put further out of reach for first-time homebuyers — particularly Black ones.
Getting a Realtor could get more expensive for buyers
Let’s face it: Affordability is already a significant hurdle for any aspiring homebuyer. You can blame record-high home prices and elevated mortgage rates, not to mention low inventory in many markets. However, buying a home can be even more of a challenge if you’re Black. Because of lower average incomes and assets, Black families find housing prices three times harder to afford than white households.
Now, on top of that, come the new NAR rules.
Instituted in August, as part of a federal lawsuit settlement, the association’s guidelines affect how Realtors are compensated. Sellers traditionally paid the commission for both their own and the buyer’s agent, but they are now no longer required to cover the buyer agent’s cut. Nor can the seller’s agent advertise on any NAR-affiliated Multiple Listing Service (MLS) — which are regional databases of homes for sale — what any commission split would be (though they can discuss with the buyer’s agent privately). Buyers must also sign a contract detailing how much they agree to pay their Realtor before they even begin working together.
While real estate commissions are technically negotiable, in the U.S. they usually run to 5 to 6 percent of the home sales price, among the highest fees in the world. The buyer’s agent usually gets about half of that. So, a median-priced home at approximately $400,000 could result in a $12,000 commission tab for the buyer, unless the seller agrees to cover it. Given their lower reserves and earning power, $12,000 may be next to impossible for many Black Americans to shoulder — especially on top of other homebuying expenses like the down payment and closing costs.
“Housing costs are extremely high, so the upfront costs associated with purchasing a home are significantly more than they were just a few years ago,” says Nikitra Bailey, executive vice president of the National Fair Housing Alliance. “It makes it extremely difficult for Black consumers to be able to accumulate the down payments from their savings alone. They’re competing in markets against investors who can come in with all-cash purchases.”
Homebuyers may forgo representation
Another disturbing upshot of the NAR rules is that they could encourage first-time homebuyers, particularly people of color, to skip hiring a real estate agent to save some cash. They may instead have to rely heavily on a real estate lawyer, who — good as they are with contracts — isn’t the sort of professional to guide them through the home-shopping experience in the way a Realtor does. Attorneys may also charge by the hour, which can quickly add up, defeating the purpose of forgoing an agent in the first place.
“Black consumers often buy homes later in life than others and heavily rely on their agents’ knowledge to guide them through the process,” Bailey says. “The last thing we want to do is see these consumers not be able to benefit from the expertise of an agent in their process or feel like they can’t because of a lack of family wealth to be able to hire an agent.”
Buyer agents don’t just help people find homes. They can also play an important role in helping people stay in those homes, encouraging them not to take on more mortgage than they need or educating them on homeownership costs, among other things. This sort of support is even more important for Black Americans, who face higher foreclosure rates and mortgage delinquencies than white households do. Their lower incomes often mean that routine home repairs and upkeep take a bigger toll on their budgets too.
David Dworkin, president and CEO of the nonprofit National Housing Conference, worries that real estate agents now might prioritize working with buyers who have cash on hand and/or require less time and attention. This could seriously disadvantage first-generation Black homebuyers — especially those who need more support. Shanta Patton-Golar, real estate broker and salesperson with eXp Realty, one of the largest U.S. real estate brokerages, has already noted an impact.
“I have seen quite a few buyers saying they’re looking specifically for agents who can negotiate at least this amount of money towards their commission,” she says. “They’re looking for agents who will only charge a flat $1,500 because that’s all they have.”
Housing discrimination could rise
For decades, discriminatory practices like redlining and racially restrictive covenants have prevented Black people from owning homes or limited where they could buy. Such overt practices are, of course, illegal today. But the new NAR rules could encourage discrimination to persist in other more subtle or indirect ways, like steering — that is, prospective homebuyers being guided to or away from a particular area because of their race, color or other characteristics.
What “if neighbors decide among each other, the easiest way to keep these people out of the neighborhood is that none of us (sellers) will offer compensation to real estate agents?” asks Patton-Golar.
Conversely, Black buyers might be directed into less-desirable areas under the guise of cost savings, being told, “‘You should probably look over here in this neighborhood because they’re more likely to pay your real estate agent,’” she says. “So we’re steering them even though they’re qualified to purchase wherever they want to.”
Additionally, Bailey expresses concern that the NAR changes could increase pocket listings, properties for sale that aren’t listed on the MLS but are instead offered off-market in more private or exclusive ways.
“White real estate agents are more likely to use pocket listings and circulate information on pocket listings to predominantly white networks,” she says. “Conversations about those listings are happening outside of the MLS system, which is not a democratic way of ensuring all consumers and all potential homebuyers know which properties are available for purchase. We are really concerned about the potential for fair housing issues.”
Generational wealth may be harder to build
If the NAR rules do make homeownership less accessible, that ultimately could widen the racial wealth gap. Black households had ten times less wealth than white households in 2021 (according to the U.S. Census Bureau’s Survey of Income and Program Participation).
The roots of this wealth-gap problem run deep. Generations of systemic racism and discriminatory lending practices have resulted in the lowest homeownership rates for Black Americans of any ethnic group in the U.S.: Less than half (46 percent) of Black Americans are homeowners, compared to almost 75 percent of white Americans, according to Census Bureau data.
Homes in predominantly Black neighborhoods often appraise for less, too. Add the new NAR rules to such underlying problems as lower household incomes, higher student loan debt and higher rates of mortgage denials — and the situation only gets worse for Black Americans.
“If homeownership is the American Dream and we have a large group of people who are struggling to become homeowners relative to prior generations already because of affordability, now we’re talking about exposing them to potentially higher risk of not being successful,” says Vanessa G. Perry, non-resident fellow at the Housing Finance Policy Center at the Urban Institute and interim dean and professor at the George Washington University School of Business. “We want successful homeowners who can afford to maintain their homes, who can accumulate equity and transfer wealth to the next generation. That’s the whole point. I’m not sure that this particular set of rules is helping us get there.”
Lack of generational wealth doesn’t just affect individuals and their families; there’s a wider economic effect too. When I think about soaring home values and home equity stakes, I think of all of the wealth millions of Black Americans will never be able to tap. If a significant portion of our population is left behind, it means less disposable income, less consumer spending and a drag on overall economic growth, affecting everyone.
We have yet to realize the full impact of the NAR rules, of course. And so far they are causing some confusion and controversy for everyone. But one thing is clear: The shift in compensation could disadvantage all cash-strapped first-time homebuyers. And, in particular, Black ones.
Dworkin summarizes my thoughts perfectly with these words.
“We’re going to have to make the best of a bad situation,” he says. “What that looks like is going to take time to figure out, but that time won’t serve Black and brown homebuyers well. I don’t think we should be cavalier or dismissive of how much damage this could do.”
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