Thanks to a Missouri jury, the way we buy and sell homes may change
Thanks to a Missouri jury, the way we buy and sell homes may change
It’s not often that we talk about a decision made in a federal courthouse in Kansas City, Missouri, but a pretty important one came out of there this week. A jury found that the National Association of Realtors and a couple of large real estate brokerage firms conspired to artificially pump up commissions paid to real estate agents. The jury also found them liable for fines upward of $1.75 billion.
It’s far from the last word in the case, which was filed by a group of home sellers in 2019. The Realtors association has said it will appeal the decision. But if it holds, it could completely remodel the American homebuying and -selling process as we know it.
Right now, if you sell your home through a real estate agent, that person collects a fee — usually about 5% or 6% of the sale price — and then typically splits it with the agent for the buyer. A lot of the rules around this process are set by the National Association of Realtors, said Ryan Tomasello, managing director at the investment firm KBW.
“This whole circuitous process results in a significant lack of transparency for consumers around how commissions are set, how they’re paid and the ability that consumers have to negotiate them,” Tomasello said.
The Missouri jury found that the Realtors association conspired with major brokerages to keep those fees high.
“The odd thing about the way real estate brokers fee works is that they’re not really tied to the effectiveness of an individual agent,” said Jenny Schuetz, a senior fellow at the Brookings Institution.
Right now, she said, buyers’ agents typically get a flat fee, whether they do a good job or not. If that changes? “This is bad news for the agents that have been essentially getting subsidized, that aren’t providing consumers with 3% worth of consumer value but have been getting paid more than they’re really worth.”
Now, buyers could have more power to negotiate lower fees, said Susan Wachter, a professor at the Wharton School of Business.
“But it doesn’t mean that buyers would necessarily pay less for the property,” Wachter said.
She thinks the tight supply of housing will keep prices high. The ruling could also endanger the National Association of Realtors’ multiple listing service for real estate, Wachter said.
“The buyer would need to go to several different services to get a sense of what’s in the market as a whole,” she said.
And this isn’t the only lawsuit out there challenging the NAR’s dominance. More are coming, and federal regulators are watching too, said KBW’s Ryan Tomasello.
“Regardless of the means by which this plays out, the endgame is pretty clear that this current structure will be completely upended,” Tomasello said.
So, all you real estate agents out there, brace yourselves.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
