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HomeBusinessHow Real Estate Brokerage Ruling Could Affect Home Buyers and Sellers

How Real Estate Brokerage Ruling Could Affect Home Buyers and Sellers

How Real Estate Brokerage Ruling Could Affect Home Buyers and Sellers

A federal jury’s landmark ruling could alter the way Americans buy and sell homes.

Industry experts said this week’s legal verdict that the powerful National Association of Realtors (NAR) and several large brokerages conspired to inflate housing commissions It could eventually reduce real estate agent fees and, crucially, reduce costs for home buyers and sellers. At the very least, the jury’s ruling will likely lead to greater transparency, which has long been a source of confusion and frustration for consumers about where their money goes in real estate transactions.

The vast majority (or nearly 90%) of American homes are bought and sold through NAR-affiliated real estate agents. The organization, the nation’s largest trade association, requires home sellers to offer a non-negotiable commission before listing homes in its property database, known as the Multiple Listing Service, or MLS, which powers real estate sites like Zillow. . Paid by the home seller to his or her agent as well as the buyer’s agent, the commission currently hovers around 5% to 6% of a home’s sales price.

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The plaintiffs in the recent Kansas City case successfully argued that the NAR rule restricts competition and leads to higher prices. If it weren’t for the MLS, buyers would compensate their own agents, as would sellers, they said.

Tuesday’s verdict could put that scenario into play, particularly if the judge overseeing the Missouri case issues an injunction banning preset commission rates and commission sharing between buyers and sellers.

“The most impactful court order would be one prohibiting cooperative clearing in the Multiple Listing Service nationwide, something the court has the authority to do,” analysts at Keefe, Bruyette & Woods wrote in a report.

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The Justice Department is also looking into the issue of how real estate agents are compensated and whether those practices harm competition. Federal regulators could determine that those practices violate antitrust law, triggering a broader review of how real estate agents are paid.

“The DOJ may proactively intervene during the determination of the injunction to make changes it believes are necessary to promote a fair and competitive market,” KBW analysts said.

Changes to the pay structure for agents could reduce the $100 billion annual commission pool for 1.6 million real estate agents by 30%, KBW estimated. “A court order could ‘unbundle’ commissions nationwide in early 2024, eliminating the longstanding practice of listing agents and sellers setting and paying commissions to buyer agents,” the analysts said.

The NAR and other defendants in the Missouri case have vowed to appeal the ruling, which ordered them to pay at least $1.8 billion to hundreds of thousands of homeowners who were required to pay what they say were fees. excessive to agents.

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Home sellers have long complained about having to pay commissions to buyer’s brokers.

“The scope of the injunction decided by the court will strongly influence whether a competitive pricing system is developed that reduces costs for the consumer and increases the quality of service,” Stephen Brobeck, senior member of the Federation of United States consumers. “We hope that the court will sever the ties between selling agent and buyer agent compensation, freeing sellers from the obligation and need to compensate buyer agents.”

Still, one 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 you do, it could require more disclosure by agents to both sellers and buyers about the options they have; that could happen and probably will happen,” Steve Murray, partner at Real Trends Consulting, told CBS MoneyWatch. .

That scenario wouldn’t involve many changes, other than “more disclosures by both the listing agent and the buyer’s agent to their clients about who is getting what,” he added.

Although the case put a “big red target on the industry,” Murray added, “consumers use the system because it works for them.” Buyers and sellers are not required by any law or regulation to use an agent to buy or sell a home, an option used in about 10% of home purchases and sales, she said.

Other industry players warn that exempting home sellers from the requirement to compensate buy-side brokers could force those in the market for a home to absorb the costs, further raising the barrier to homeownership at a time. of rising mortgage rates and a shortage of affordable properties.



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