A federal jury’s recent decision has had a significant impact on the American home-buying industry. The jury found that the National Association of Realtors and various large brokerages conspired to keep agent commissions artificially high. This decision, awarding plaintiffs nearly $1.8 billion in damages, has been considered a game changer. More antitrust lawsuits against the association and brokerages are awaiting trial, and federal regulators are looking to intervene as well.
This ruling may bring about changes in the home brokerage industry, which generates an estimated $100 billion in commissions each year. Experts believe that the current system, where home sellers pay fees for both their own agent and the buyers’ agent, will no longer be sustainable. Commission sharing could become optional, allowing sellers’ agents who don’t 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, mortgages could be changed to directly finance buyers’ agent fees with the agreement of banks and federal regulators. Another option would be for buyers’ agents to charge flat fees, bill by the hour, or offer a menu of services for buyers to choose from. Alternatively, buyers’ agents may be done away with altogether, as is the case in many other countries.
Analysts suggest that as much as 30% of the industry’s commissions could disappear as a result of these changes. Start-ups are exploring different business models, such as promoting house listings rather than selling buyer leads to agents. Companies known as iBuyers are trying to remain independent from multiple-listing services by listing homes they own.
If fees are lowered, the brokerage industry could contract, leading to a decrease in the number of U.S. agents by as much as 80%. This could have negative consequences for the National Association of Realtors, which relies on annual dues from its members. The association has announced plans to appeal the court ruling.