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 the buyer’s agent.
Major change could be in the works in real estate sales commissions
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. The judge will likely eliminate the requirement for the seller to pay both commissions, those in the industry said.
The big winner is the consumer whether they are the seller or the buyer, said Brobek. The buyer’s commission was usually added to 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 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 homebuyers 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.
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 that aggregate commission prices in a home sale could come down by upward of 2% or more.
Homebuyers will be hurt by changes, buyer’s agent says
But some believe that prohibiting seller agents from paying commissions to buyer agents is anti-consumer, leading to fewer homebuyers 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 homebuyers to retain a trusted advocate will cost homebuying consumers more money,” Rosa told USA TODAY. “The lack of loyal representation will lead to costly mistakes, ultimately hurting the most vulnerable homebuyers.”
Homebuyers need their own buyer agent advocating for their best interests, said Rosa.
“Commissions have always been negotiable,” he said. “I don’t know whether homebuying consumers will ultimately pay less for commissions, but I hope we don’t end up with an industry where only the wealthiest homebuyers 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.
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“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 commission rules, which, if changed, will require a major reeducation process to inform consumers of their rights and agents of their obligations, Tomasello said.
What is going on with the National Association of Realtors?
The National Association of Realtors is the largest trade association of real estate agents and realtors, representing 1.5 million professionals. Under an organization rule, home sellers using the Multiple Listing Service had to pay a commission to the agent representing the buyer, which plaintiffs in the case said forced them to pay excessive fees.
Changes coming:As online banking grew, mortgage lending regulations didn’t follow suit. Until now.
The organization has had its share of troubles. Earlier this year, its president Kenny Parcell resigned amid sexual harassment allegations revealed in a New York Times investigation.
On Thursday – two days after the Missouri verdict – the association confirmed to USA TODAY that its CEO Bob Goldberg, who had said in June he would retire by the end of the year, was retiring early. His replacement is Nykia Wright, who will start on Nov. 20.
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.
