A federal jury’s landmark ruling could change the way Americans buy and sell homes.
Industry experts said this week’s court ruling that the powerful National Association of Realtors (NAR) and several major brokerage firms conspired to increase home commissions could eventually drive down real estate agents’ fees and, crucially, the cost of Reduce home buyers and sellers. At the very least, the jury’s verdict will likely lead to greater transparency, which has long caused confusion and frustration among consumers about where their money goes in real estate transactions.
The vast majority – or nearly 90% – of U.S. homes are bought and sold through NAR-affiliated real estate agents. The organization, the country’s largest trade association, requires home sellers to offer a non-negotiable commission before listing homes in its real estate database, called the Multiple Listing Service (MLS), which feeds into real estate sites like Zillow. The commission paid by the home seller to their agent and the buyer’s agent is currently about 5 to 6% of a home’s sales price.
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According to a report, buying a home is now unaffordable in 99% of the US
Plaintiffs in the recent Kansas City case successfully argued that the NAR Rule restricts competition and leads to higher prices. Without MLS, buyers would compensate their own agents, as would sellers, they said.
Tuesday’s ruling could bring that scenario into play, particularly if the judge overseeing the Missouri case issues an injunction banning preset commission rates and split commissions between buyers and sellers.
“The most effective injunction would be one that prohibits cooperative relief in the Multiple Listing Service at the national level, which the court has the authority to do,” analysts at Keefe, Bruyette & Woods wrote in a report.
The feds are also keeping an eye on real estate agents
The Justice Department is also addressing the issue of how real estate agents are compensated and whether these practices harm competition. Federal regulators could find these practices violate antitrust laws, triggering a broader overhaul of how real estate agents are paid.
“It is possible that the DOJ will proactively intervene in the injunction decision to make the changes it deems necessary to promote a fair and competitive market,” KBW analysts explained.
Changes to the payment structure for brokers could reduce the $100 billion annual commission pool for 1.6 million brokers by 30%, KBW estimates. “A court-ordered injunction could “unbundle” commissions nationwide by early 2024, eliminating the longstanding practice of brokers and sellers setting and paying broker commissions for buyers,” the analysts said.
NAR and other defendants in the Missouri case have vowed to appeal the ruling that ordered them to pay at least $1.8 billion to hundreds of thousands of homeowners who they say were forced to pay excessive fees to agents.
Despite exorbitant real estate prices, the expert believes now is the time to buy
Home sellers have long complained about having to pay commissions to buyer’s agents.
“The scope of the injunctive relief decided by the court will have a major impact on whether a price-competitive system emerges that reduces consumer costs and increases service quality,” Stephen Brobeck, senior fellow at the Consumer Federation of America, said in a statement. “We hope that the court will sever the connection between the agent’s compensation and the buyer’s agent’s compensation and relieve sellers of the obligation and need to compensate the buyer’s agent.”
Still, an industry veteran cautions against reading too much into the ruling for now, noting that the judge presiding over the Missouri case has not yet issued a final ruling in the case.
“Depending on what he does, brokers could be required to provide more disclosure to both sellers and buyers about the options available to them – that could happen and probably will,” said Steve Murray, partner at Real Trends Consulting, told CBS MoneyWatch.
This scenario wouldn’t involve major changes, other than “more disclosures from both the listing agent and the buying agent to their clients about who gets what,” he added.
Although the case represented “a major red flag for the industry,” Murray added, “Consumers are using the system because it works for them.” There are no laws or regulations requiring buyers and sellers to use an agent to buy or sell of a home, an option used in about 10% of home sales and purchases, he said.
Other players in the industry warn that freeing home sellers from the obligation to compensate buyer-side agents could force those in the market for a home to cover the costs, raising the hurdle to ownership at a time of rising mortgage rates and a lack of affordable real estate continues to increase.