The recent ruling in the Burnett vs. NAR trial has sent shockwaves through the real estate industry, however its repercussions reach far beyond the courtroom. While in the public eye the verdict may be celebrated as a victory for home sellers and a step towards addressing the contentious issue of agent commissions, there is an unfortunate inconvenient truth that often gets overlooked: The real losers in this case are minority homebuyers, including members of the LGBTQ+ community.
A Missouri jury’s verdict found NAR and several national brokerages guilty of colluding to inflate or maintain high commission rates, pointing to an NAR rule at the center of the controversy. The crux of the issue lies in buyer broker fees and the financial burden it places on sellers. While agent commissions have been a source of debate in the real estate industry for years, it’s important to consider the consequences of eliminating compensation for buyer’s brokers.
Why are buyer’s agents necessary? Buyer’s brokers play a crucial role in real estate transactions, guiding homebuyers through the complexities of the process, negotiating on their behalf, and ensuring their best interests are protected. How do buyers protect themselves from redlining, overpaying for a property, or an unacceptable condition of a property without this representation?
Here are some important points to consider:
The ruling potentially puts an added financial burden on buyers and further prevents those with less finances from purchasing a home. Obviously, diverse sectors—which already have much lower homeownership rates than non-Hispanic whites—will face an oversized challenge. This is especially problematic as future generations of homebuyers will be more and more diverse.
All of the defendants took the stand and stated publicly that the ruling as it was issued will disproportionately hurt minority buyers. Adding on literally thousands of dollars in closing costs which don’t exist right now will knock people’s debt-to-income ratios out of tolerance, in many cases potentially making them no longer able to qualify for financing. Even if they get financing, it will increase the cash needed to close on a home at signing.
In many cases minority buyers, first time home buyers, and other communities who are marginalized don’t have the cash reserves needed to put down several thousand dollars extra in closing costs to fund their representation. And, without that representation they’ll be taken advantage of, ill-informed of their rights, and further marginalized.
HomeServices of America released a study which states that “the number of Black and Hispanic renter households who would be able to qualify for a mortgage would fall by 26% and 23%, respectively, compared to a 16% drop for non-Hispanic White households.” The study also noted that younger renters and households with incomes between $35,000 and $75,000 a year would see their buying power erode. This isn’t speculation, this is real-life. Further, the mortgage industry is not set up to allow buyers to roll their closing costs into traditional loans, and that means they certainly won’t be able to roll their agent fees into their loans at this time.
Within the Hispanic, Black and AANHPI communities, LGBTQ+ are minorities within the minority and will likely therefore suffer even further.
The ruling may complicate the home buying process even more. Diverse sectors do not need greater burdens especially because there already exist disparities in access to information and education.
Diverse communities need STRONG buyer’s agents who understand their needs, wishes, challenges, and culture. We need folks who are committed to preventing discrimination. If the ruling creates a commission race to the bottom, how will diverse groups be helped?
Minority buyers, especially LGBTQ+ consumers, often seek agents who understand their cultural distinctions and practices. For many, this is more than a preference; it’s a necessity. These buyers rely on agents who not only have a heightened understanding of their cultural practices and ethnicity but also provide an unbiased, safe, and supportive environment throughout the buying process. The ruling, which undermines the compensation for buyer’s brokers, directly impacts these buyers’, and creates another financial barrier, particularly for first-time homebuyers. As we all know, the first-time homebuyer market for the foreseeable future will be dominated by members of minority communities.
For LGBTQ+ consumers, the issue goes beyond the financial burden. Discrimination is a real and pressing concern, especially in a time when anti-LGBTQ sentiment has gained traction in various parts of the nation. LGBTQ+ consumers already face the same barriers to homeownership as other minority groups. What compounds the issue is the intersectionality of cultural background, sexual orientation, and gender identity. These factors become multipliers for discrimination in the homebuying equation. Let’s not forget the fact that LGBTQ+ people of color suffer the lowest homeownership rates in America.
If buyer’s agents see a reduction in commissions, will they want to invest in their careers including expanding their competencies to work with communities they may not already serve? Will local Realtor® associations and brokerages, if they have stressors on members and commissions, respectively, continue to invest in training?
The members of the LGBTQ+ Real Estate Alliance are deeply concerned about this potential inequity. The ruling exacerbates the difficulties faced by minority homebuyers, particularly LGBTQ+ individuals. The impact of this verdict is not limited to financial matters; it affects the ability of these communities to access housing and achieve the American dream of homeownership. The LGBTQ+ community finds itself at an intersection of cultural background, sexual orientation, and gender identity, making the fight for equitable homeownership even more challenging.
It is imperative that we, not just as an industry but as a society, recognize the unintended consequences of such legal decisions. While the verdict in the Burnett vs. NAR trial may have addressed some issues within the real estate industry, it has created new problems, especially for minority homebuyers and now we’re seeing copycat lawsuits popping up across the country which will further erode equal access and homeownership equity.
As housing industry professionals, we must ensure that the rights and interests of all homebuyers, regardless of their background or identity, are protected. The Alliance will continue to be vocal on this matter and raise its concerns as the situation progresses, advocating for a more equitable and inclusive real estate market. It is time to rethink the ramifications of this ruling and work towards a solution that benefits everyone involved in the homebuying process.
For more information, visit https://realestatealliance.org/.