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By Alexander Fabino
Reporter, Economy & Finance
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A shift might be on the horizon for the U.S. real estate market.
A Tuesday court ruling may upend the longstanding commission model, where sellers typically pay the commission, later divided between their agent and the buyer's agent. Without the need to factor in buyer agent commissions, there are potential implications for buyers, sellers, brokers, and even listing prices.
Possible Changes to Homebuying Process
Here's what you need to know about the case, and how it might affect each facet of the real estate industry.
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The National Association of Realtors (NAR) and other franchisors are grappling with the fallout of the multibillion-dollar verdict handed down Tuesday over agent commissions in Missouri. A jury concluded that the traditional practice where home sellers pay both buyer and seller broker commissions is anti-competitive and artificially inflates home costs.
Damages from the case, under the provisions of the Missouri antitrust law, which allows the court to award treble damages, could be tripled to $5.356 billion for the 500,000 home sellers who are part of the class action lawsuit.
Immediately after the verdict, a new national class-action lawsuit was filed against some of the largest names in real estate including Compass, eXp, Redfin Corp, Howard Hanna Real Estate, United Real Estate, Douglas Elliman, and Weichert Realtors. The new lawsuit covers sellers anywhere in the U.S.
The plaintiffs' attorney, Michael Ketchmark, said that sellers pay roughly $50 billion via inflated commission payments per year to sell their home, and the goal is to "make that stop."
What are the implications?
Sellers might gain more flexibility in determining agent compensations. While there's potential for savings if they no longer fund the buyer's agent's commission, it might deter agents from showcasing their properties. The six percent commission could become a subject of more frequent negotiations or even face direct challenges.
If the commission structure is modified, buyers may find themselves directly compensating their agents, which could mean a rise in immediate costs. On the other hand, if sellers no longer factor in commissions for buyer's agents, home listing prices might reduce slightly.
From the perspective of the seller's broker, as the model evolves, they may need to re-strategize pricing and services to stay ahead in the market. Meanwhile, buyer's brokers might struggle to demonstrate their value and securing their compensation, particularly if buyers start paying them directly.
What does the industry think?
The NAR signaled to Newsweek that it isn't ready to accept the decision without a fight. Mantill Williams, NAR's VP of Communications, said the NAR would appeal the jury's verdict, and reiterated the association's stance on prioritizing consumers and fostering business competition.
On the other hand, eXp Realty, one of the defendants in the new lawsuit, highlighted its ongoing commitment to lawful practices, saying its business model allows for swift changes to the industry. "Our agile business model allows us to make adjustments seamlessly and effectively, no matter the jurisdiction."
Newsweek did not immediately receive a response from several companies in the new lawsuit.
Redfin's CEO Glenn Kelman, in a blog post issued Tuesday, reflected on the company's history of advocacy for reduced fees and more transparent commission structures.
Acknowledging the magnitude of the verdict, the CEO seemed to welcome the impending changes, saying, "Change, in whatever form it takes, can be painful for many industry incumbents, but it could be good for consumers, good for innovators, and good overall."
Kelman pointed out that the company has technology in place to directly market properties to consumers and is prepared for a future where buyers' agents might become less common.
The implications of the ongoing legal battles could reshape the landscape of real estate in the U.S. for generations to come. "There is a long haul ahead of us," NAR chief legal officer Katie Johnson said in a recent podcast.
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