How much you pay to a real estate agent to buy or sell a home is likely to go down after a victory for consumers in a federal trial in Missouri earlier this week.
A jury in a case against the National Association of Realtors and several large brokerage firms found the parties conspired to keep costs artificially high and awarded $1.8 billion in damages, which could rise to more than $5 billion under antitrust rules.
The industry has long worked under a model of a 5% to 6% commission paid by the seller and split between the seller’s agent and buyer’s agent.
Major change could be in the works in real-estate sales commissions due to Association of Realtors lawsuit
But this case and another federal lawsuit coming up for trial next year in Illinois could change all of that, eliminating the practice of the seller paying both fees, said Stephen Brobek, a senior fellow at the Consumer Federation of America.
“This jury decision represents a watershed event that’s likely to precipitate changes that increase price competition in the residential real estate markets,” Brobek told USA TODAY.
The changes could eventually save consumers $20 billion to $30 billion in real-estate commissions each year, he said. The Consumer Federation of America has predicted commission rates could decline from 5% to 6% to 3% to 4%.
The jury came back with its verdict in three hours. The National Association of Realtors has said it plans to appeal the decision.
“This is the first time that people have spoken about how they feel about the practices in the residential real estate industry and the people reject them,” Brobeck said, likening the practice of the seller paying both their and the buyer’s agent’s commission to a plaintiff having to pay for a defense attorney.
The federal judge in the case still needs to decide how to restructure the long-standing practice. It is likely the judge will eliminate the requirement for the seller to pay both commissions, those in the industry said.
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The big winner could end up being the seller or buyer
The big winner is the consumer whether they are the seller or the buyer, said Brobek. The buyer’s commission was usually added into the price of the house, so by removing the requirement, sellers and buyers can negotiate with their agents, he said.
The Missouri lawsuit, the Illinois case and a suit filed right after the Missouri verdict — as well as both the Department of Justice and the Federal Trade Commission keeping a close eye on the proceedings — are going to result in more transparency for home buyers and sellers around how commission rates are set, paid and most importantly, negotiated, said Ryan Tomasello, a real-estate industry analyst with Keefe, Bruyette & Woods.
Tomasello, in a series of reports, has predicted the Missouri lawsuit and two others could result in a 30% reduction in the $100 billion paid in real-estate commissions by Americans every year. Additionally, Tomasello thinks the decisions could result in 60% to 80% of the 1.6 million agents leaving the industry.
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According to survey data from his company, close to 75% of recent homebuyers didn’t know how their agent was compensated.
That’s because the price is “predetermined,” said Tomasello.
“In this new world, you’re going to have a structure whereby buyer agents are for the first time going to be forced to compete on quality and price,” he said. That may mean fewer buyers use buyers’ agents or negotiate lower commissions, he said.
Tomasello’s firm’s research shows in aggregate commission prices in a home sale could come down by upwards of 2% or more.
What could the changes mean for Palm Beach County’s housing market?
Since the pandemic-inspired real estate boom, it’s been harder and harder for people to buy affordable homes in Palm Beach County.
In September, price tags on existing single-family homes in the county inched higher in September compared to last year despite pressures on buyers, including from spiking interest rates, dogged inflation and ballooning insurance costs.
At $600,000, the median price for a home in September was 3.4% higher than in September 2022, according to a report released by the Broward, Palm Beaches and St. Lucie Realtors Group.
That’s down from a record high of $625,000 set in June, but still illustrates that Palm Beach County remains in a sellers’ market even with the number of new listings up 8% in September over the same month in 2022. The supply of homes for sale also grew to 3.3 months, which is nearly 14% higher than last year.
A balanced market where neither the buyer or seller has the advantage is considered a 5.5 to 6 months’ supply.
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Jeff Lichtenstein, president of Palm Beach Gardens-based Echo Fine Properties, said the market is still humming but that homebuyers may be reevaluating their budgets or asking more insurance-related questions.
“The first question people ask today is, ‘How old is the roof?’ not ‘How sexy is the kitchen?’” Lichtenstein said. “Insurance is a factor, but it will settle down a year-and-a-half from now.”
About 1,100 home sales closed in September, which is down 6% from the same month in 2022.
Insurance reforms and the fed trial could be good news for consumers
Insurance reforms approved by Florida lawmakers are expected to reduce the amount of fraud that has contributed to higher rates, but it will take time for the market to stabilize, according to the Insurance Information Institute.
Meanwhile, Florida homeowners pay an average insurance premium of $6,000, which is more than three times the nationwide average insurance premium of $1,700. Also, the institute says Florida’s average premium has increased by a cumulative 102% over the past three years. It projects an average statewide increase of 40% or more in 2023.
“Insurance is something that will always be higher in Florida because we like to live where hurricanes can get us,” said Florida Atlantic University housing economist Ken H. Johnson. “But do I think this is causing more people to leave Florida than come into the state? No way.”
In addition to insurance concerns are the constraints of higher interest rates, which not only deter people from selling their home, but also reduce what some buyers can spend. The average rate for a 30-year fixed-rate mortgage as of Nov. 3 was 7.76%, according to Freddie Mac. That’s the highest it’s been since December 2000.
Still, buyers have been willing to pay the asking price or near the asking price. Sellers last month got a median of 96% of their original listing price.
Could the federal court decision this week eventually heat up the market in South Florida again?
Home buyers will be hurt by changes, buyers agent says
Maybe. But some believe that prohibiting seller agents from paying commissions to buyer agents is anti-consumer, leading to fewer home buyers using such representatives and more of those professionals becoming dual agents, representing both the seller and the buyer, said Rich Rosa, president of the National Association of Exclusive Buyer Agents.
“Any system that makes it harder for first-time and lower-income home buyers to retain a trusted advocate will cost home-buying consumers more money,” Rosa told USA TODAY. “The lack of loyal representation will lead to costly mistakes, ultimately hurting the most vulnerable home buyers.”
Home buyers need their own buyer agent advocating for their best interests, said Rosa.
“Commissions have always been negotiable,” he said. “I don’t know whether home-buying consumers will ultimately pay less for commissions, but I hope we don’t end up with an industry where only the wealthiest home buyers can afford to hire a buyer agent.”
Changes could hurt minority buyers more, organization says
Minority buyers, especially those who are Hispanic, may encounter an uneven playing field in light of the recent lawsuit and verdict, said Gary Acosta, co-founder and CEO of the National Association of Hispanic Real Estate Professionals.
Changes may potentially give listing representatives “an undue advantage in transactions,” Acosta said.
“Buyer-side agents, often sharing their clients’ cultural backgrounds, offer culturally competent representation, language access, and invaluable homebuyer education built on personal relationships,” Acosta said. “With Hispanics projected to contribute to 70% of homeownership growth over the next two decades, any disparities in the market could hinder progress. The vitality of the residential real estate market hinges on robust buyer-side guidance and representation.”
Changes already coming
Change will be coming regardless of what the judge decides in the Missouri case, said Redfin CEO Glenn Kelman in a statement on its website. Redfin left the National Association of Realtors last month.
Kelman said even in the weeks leading up to the verdict, the National Association of Realtors updated its guidelines to let agents list homes for sale that don’t offer a commission to the buyer’s agent.
“Traditional brokers will undoubtedly now train their agents to welcome conversations about fees, just as Redfin has been doing for years, especially when advising a seller on what fee to offer to buyers’ agents,” Kelman said. “Rather than saying that a fee for the buyers’ agent of 2% or 3% is customary or recommended, agents will say that a buyers’ agent fee, if one is offered at all, is entirely up to the seller. This is as it should be.”
The near term after any significant change could be messy, said Tomasello. Buyers who don’t have representation are often shooed away from seeing homes, he said. That has been enabled by the current commission rules, which, if changed, will require a major re-education process to inform consumers of their rights and agents of their obligations, Tomasello said.
Betty Lin-Fisher is a consumer reporter for USA TODAY. Reach her at blinfisher@USATODAY.com or follow her on X, Facebook or Instagram @blinfisher.
Kimberly Miller is a veteran journalist for The Palm Beach Post, part of the USA Today Network of Florida. She covers real estate and how growth affects South Florida’s environment. Subscribe to The Dirt for a weekly real estate roundup. If you have news tips, please send them to kmiller@pbpost.com. Help support our local journalism, subscribe today.
