Monday, July 15, 2024

The American home-buying industry suffered a significant blow this week when a federal jury found the National Association of Realtors and several large brokerages guilty of conspiring to keep agent commissions artificially high. The jury awarded plaintiffs nearly $1.8 billion in damages, causing brokers, analysts, and consumer advocates to call this decision a game changer. Additional antitrust lawsuits against the association and brokerages are awaiting trial, and federal regulators are seeking to intervene as well.

This ruling could bring about major changes in the home brokerage industry, which generates around $100 billion in commissions each year. Real estate experts believe that the current system, where home sellers pay fees for both their own agent and the buyers’ agent, will not be sustainable. These fees are typically around 5 to 6 percent, split between the two brokers. The National Association of Realtors enforces this structure, and if a seller does not agree to these terms, their listing is not shown on the multiple listing services that underpin most home sales.

However, this recent decision may alter this practice. Experts predict various potential shifts, such as making commission sharing optional, allowing sellers’ agents who do not want to pay buyers’ agent fees to still list on databases. Another possibility is negotiating for the home seller to cover the buyer’s broker costs as part of the transaction price. Alternatively, with the agreement of banks and federal regulators, home-lending rules could be changed to permit mortgages to directly finance buyers’ agent fees. Buyers’ agents may also start charging flat fees, billing by the hour, or offering a menu of services for home shoppers to choose from. Some countries entirely forego buyers’ agents, and this possibility could be explored as well.

Industry analysts estimate that as much as 30 percent of the industry’s commissions could vanish. Start-up companies are experimenting with different business models, with some focusing on promoting house listings rather than selling buyer leads to agents. Companies known as iBuyers, which include Opendoor and Offerpad, aim to remain independent from multiple-listing services by listing the homes they own. Shares in these companies have seen a significant rise since the ruling against Realtors.

Lower fees could lead to a contraction in the brokerage industry, potentially causing a decline in the number of U.S. agents by up to 80 percent, according to analysts. Part-time brokers and underperformers would be at risk in this scenario. Such a drop could have dire consequences for the National Association of Realtors, which collects annual dues of about $150 per member. The association has announced plans to appeal the court’s ruling.

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