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Recently, The National Association of Realtors agreed to a $418 million settlement in an anti-trust lawsuit. If you’re buying or selling a home, plan to in the near future, or have recently, this could change the way things work. And if you’re working as a real estate agent, you’re definitely paying attention. The main focus of the lawsuit was real estate broker fees.
What are real estate broker fees?
When you’re working with a real estate agent, either buying or selling a home, those folks are aiming to get paid for the work they put in. Showing homes, arranging photographs and listings, dealing with paperwork—they are your partner during the process. Traditionally, for their efforts, when a broker sells a home, the seller pays a 6% commission. This 6% commission is generally split between the buyer’s agent and the seller’s agent, 3% each. So if you sell a $1M home, $60,000 of that sale is going the the agents who brokered the sale. In most other developed nations, commission rates fall between 1% and 3%.
What was the original lawsuit against the National Association of Realtors?
The class-action lawsuit claimed that agents had represented the 6% commission as a non-negotiable industry standard, because to most home sellers that is how it is presented. You want a broker to sell your house? It’s 6%. In reality, there is no national standard or rule that says this is true. The lawsuit alleged that home buyers are generally not presented with the fact that they can negotiate the commission rate and essentially, through the National Association of Realtors, they were exerting monopoly power on the market. The plaintiffs were originally awarded $1.8 billion in the judgement.
What is the potential impact on housing market?
The impact of this settlement could be far-reaching and greatly impact the home selling (and buying) process. Ultimately, this should benefit consumers, but there are still details to be worked out and no one knows what exactly will happen moving forward. Here are some likely outcomes:
- Commissions could go down. This is one likely result. Now that home owners will be more aware that these rates are NOT standard, there is likely to be more competition, more rate shopping and commission rates should be driven down.
- Buyers may have to pay their own agents. Currently, most home sales have the fee for the buyer’s agent rolled into the cost of the home, which means it can be rolled into your mortgage. After the settlement is finalized, buyers may end up paying their agents differently (i.e. a flat fee).
- House prices could go down. Because the brokerage fees are generally baked into the sales price of the house, any reduction in sales fees would mean the overall cost of buying the house would be lower. Americans currently pay around $100 billion in commissions each year.
- Brokers might quit. No surprise here. If someone told you that your company made an agreement that cut your salary by 30%, or suddenly required you to negotiate for every paycheck, you might also look for a new line of work.
The bottom line is that the 6% commission that home sellers have taken as a firm rule over the last decade or so is on its way out. This won’t happen overnight—but if you’re thinking of selling your home, it’s helpful to know that those rates are negotiable, and you have this ruling in your back pocket if any agent tells you otherwise.
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