At the end of 2020, the National Association of Realtors made a notable move by issuing an apology.

“NAR originally opposed the Fair Housing Act in 1968 and once even permitted the exclusion of members based on race or gender,” stated this organization from Washington, which represents over 1.5 million real estate agents. “This discrimination was part of a larger system of residential racial segregation, endorsed by the federal government and supported by the real estate and banking industries, fueled by practices such as redlining.”

During a public event, then-president Charlie Oppler remarked, “Because of our past errors, the real estate sector has a crucial role in advocating for fair housing.”

However, only a few years later, efforts aimed at ensuring fair homeownership seem to be regressing. The groundbreaking class-action lawsuits targeting NAR and other major national brokerages, which aim to separate the commission paid to buyer brokers from seller earnings, might have unintended effects, advocates warn.

Concern arises from the fact that Black buyers, who often face significant hurdles while searching for homes, may be further hindered by the need to pay additional out-of-pocket expenses for agent representation – or possibly decide to go without help in a complex and costly arrangement.

“The barrier to homeownership frequently relates to the down payment and closing expenses,” stated Amber Lewis, who heads New Era Real Estate Group in Cleveland. “Now, under the new guidelines, asking buyers to contribute more money to pay for that commission adds yet another obstacle.”

What obstacles prevent homeownership?

A significant issue for Black and other minority buyers is that many are often first-time buyers in their families’ generational history of property ownership. Census data indicates that only 45.3% of Black Americans own homes, whereas the figure is 74.4% for white Americans. As a result of these disparities in homeownership rates, white Americans enjoy an average household wealth of $1.4 million, which is nearly six times higher than that of Black families, at $227,554, according to the Federal Reserve’s Survey of Consumer Finances.

“Communities that have been systematically excluded from homeownership opportunities lack familial wealth built through home equity,” explained Lisa Rice, president of the National Fair Housing Alliance. “They cannot draw from a ‘Bank of Mom and Dad’ for funds to cover an agent’s fee. Their financial situations often reflect low wealth, not necessarily low income, coupled with disproportionate student loan debt.”

Many Black buyers also miss out on the informal knowledge that typically comes from shared experiences, said Dr. Courtney Johnson Rose, president of the National Association of Real Estate Brokers, which comprises Black real estate professionals. In what often is the largest financial transaction of a person’s life, having guidance on matters ranging from mortgage rates to home maintenance is invaluable.

“This is a typical case of those who had their own paths cleared now removing the ladder behind them,” Rice remarked.

Adjusting to New Real Estate Regulations

The recent changes, implemented on August 17, are causing a stir nationwide, raising concerns from various housing market analysts about their potential effects on homebuyers.

“Is our work now slightly more challenging? Definitely,” said Sabrina Brown, founder of Pink Key Real Estate, a brokerage based in Fresno, California. “Is this making it tougher for Black and brown communities? Yes, there’s now an extra layer of compensation that could deter them from exploring homeownership.”

Though NAR was resistant to these changes, they were implemented as a result of legal settlements, as explained by Nate Johnson, the organization’s head of advocacy, in an interview. “We had to find a balance that would satisfy the plaintiffs while also addressing consumer needs.”

Michael Ketchmark, the attorney who successfully brought legal action against NAR and several brokerages, mentioned in an email to YSL News, “We thoroughly researched this issue and collaborated with advocates for low-income and minority homebuyers. Every state has programs designed to assist first-time homebuyers with down payments. Under previous rules, minority buyers rarely utilized these programs because the funding was coming from their own sales. The market will shift this under the new structure.”

The legal teams from Cohen Milstein and Hagens Berman Sobol Shapiro, the other prominent attorneys involved, did not respond to inquiries.

Concerns Over ‘Pocket Listings’

While the adjustments to the commission structure have garnered most attention, there are significant worries regarding the decline of centralized databases that previously held comprehensive real estate listing information.

Traditionally, listings included confirmation that the seller would compensate the buyer’s broker. Now this information may be omitted, causing buyers and their agents to individually contact each seller or their representative.

“Consider a house on the market,” Rose explained. “If two offers are received, it’s now up to the seller to choose which offer to accept.” Often, the most appealing offer may be one with a quicker-processing mortgage or an all-cash bid. In some instances, though not always, it could be an offer from an agent affiliated with the same brokerage.

Denise Franklin, a seasoned real estate agent in Greenville, South Carolina, expressed her worries, stating, “I am concerned. We may see an increase in fair housing complaints and lawsuits.”

Franklin assists many first-time homeowners who use government-backed mortgages, such as those from the Federal Housing Administration (FHA). These loans are tailored to support less conventional borrowers and typically experience longer processing times and more complications compared to those offered by Fannie Mae and Freddie Mac. In 2023, one-fifth of FHA loans were awarded to Black borrowers.

Many advocates believe that some sellers’ agents may altogether avoid situations involving FHA loans by keeping listings confined to their circle, rather than sharing them more broadly.

“In certain neighborhoods, there are homes that will never reach the open market. We will miss out on seeing them. They are solely being promoted within a select network, which unfortunately does not include Black professionals,” remarked Rose from NAREB.

The practice of “pocket listings” challenges the reasoning that wider exposure could yield better sale prices, as pointed out by Johnson from NAR, and it can also contradict fair housing laws.

Nevertheless, “fair housing advocates have been pushing against pocket listings for many years,” Rice told YSL News, adding, “Discrimination doesn’t make sense. It is essential we have a transparent system where all listings are accessible, allowing all real estate agents to view what is available.”

One potential solution could involve an agency like the Department of Housing and Urban Development (HUD) taking charge of maintaining listings. The FHA and other loan programs managed by the Veterans Affairs department fall under HUD’s purview.

Julia Gordon, HUD’s Assistant Secretary for Housing, released a statement to YSL News, stating, “HUD is carefully observing the effects of the National Association of Realtors settlement and the possibility that new practices may disadvantage buyers of color and low-income purchasers. We are committed to tackling the challenges that hinder homeownership among individuals of color and those with low incomes, particularly how limited generational wealth can make meeting home-buying funding requirements difficult.”

What Comes Next?

Brown, a real estate agent from Fresno, suggests that seller agents should not only broaden their market outreach but also encourage their clients to offer substantial compensation to the buyer’s broker to attract a larger audience.

“We aren’t competitors; we’re working collaboratively to achieve the best outcomes for everyone,” she explained. “Buyers are looking to purchase, and sellers are aiming to sell, while we are positioned to help facilitate negotiations.”

The NAR and other parties believe that encouraging buyers to engage in transparent discussions with their brokers will help clarify the value of real estate transactions.

“By fostering a better understanding of the buying process, buyers will be more informed,” Johnson noted. “For agents, this also presents an opportunity to better showcase what makes us valuable. If we fail in this aspect, buyers might turn to other options.”

Rice mentioned that among fair housing advocacy groups, conversations are ongoing to determine the best course of action.

While the MLS may not have been deemed perfect, “it did offer a significant level of transparency regarding market listings. It is critical we do not separate the seller’s commission from the buyer’s commission; we need a model where sellers fund the buyers’ commission.”

At present, some agents, including Denise Franklin, are witnessing a number of potential clients retreating from the market.

“We’ve heard from others who have decided to hold off at this time,” Franklin shared. “A member of our team even took their property off the market due to the current state of confusion.”

She further commented, “Instead of making progress, we seem to be going backward.”