OPINION:
A federal jury last week ordered the National Association of Realtors and several large brokerages to pay $1.8 billion in damages for conspiring to artificially inflate commissions for home sales. At the heart of the issue is the Realtors’ cooperative compensation rule that requires sellers to offer to pay the commission on both sides of the real estate transaction — to the listing agent and to the buyer broker — in order to market their homes on the multiple listing service.
The plaintiffs in the case argue that commission rates are too high and that if buyers want representation in a real estate transaction, they should foot the bill themselves.
Consumers, brokers, agents, and title attorneys are equally confused and concerned about what this might do to the real estate industry. If buyers are required to pay for their own representation, it will significantly increase their out-of-pocket costs, which would likely cause a reduction in home prices. This, in turn, would negatively affect current homeowners, especially those with plans to move in two to five years.
Today’s market already has a chokehold on buyers. Record-high housing prices, ever-increasing mortgage rates due to inflation, and historically low inventory are leading to multiple offers and buyers making risky decisions, such as removing contingencies from contracts.
The last time mortgage rates were at 8% was in 2000. According to the Census Bureau, the median home price at that time was $119,600, and the median household income was $42,148 — meaning homeowners were spending roughly 20% of their income on housing. Now, in 2023, the median home price, according to Redfin, is $412,000 — nearly a 250% increase from 2000 — and the median household income is approximately $75,000. This means homeowners are now paying almost 40% of their income on housing — double the amount from 2000.
Owning a home is part of the American dream. It’s often the largest and most significant purchase you’ll make in your lifetime. But that dream is quickly becoming nothing short of a nightmare for consumers.
All real estate agents, whether representing a buyer or a seller, have a fiduciary duty to look out for the best interests of their clients. In the 1980s, the Federal Trade Commission found that the majority of buyers errantly believed that sub-agents working for the listing agent represented them instead of the seller. This created buyer-agency disclosures and thus began the current age of buyer representation.
For buyers who can’t afford to pay for their own representation and are subsequently forced to use a listing agent or sub-agent, they could be easily manipulated if they haven’t done their research on market value, home condition, etc. First-time homebuyers and low- to middle-income buyers could, therefore, be most affected due to lack of cash on hand and lack of knowledge about the process.
Further, the majority of sellers tend to list their homes in order to buy a new one. If the Realtors’ cooperative compensation rule were to be scrapped, sellers would still need to pay a commission to the listing broker for the sale of their current home. And then, if they wanted the same buyer representation that’s been standard practice for decades, they would likely need to pay a buyer’s agent commission on the purchase of their new home.
So, to the plaintiffs who complained about paying commissions on both sides, my question for you is this: Were you planning to buy a new home after selling your current one? If so, did you use a buyer agent to represent you in the purchase of your new home? If that’s the case, the Realtors’ policy ultimately kept you from paying a buyer agent commission in your new home purchase. This rule may have even saved you money if you sold your current home to buy a larger, more updated — and ultimately more expensive — newer home.
This lawsuit calls for a new system where everyone pays their own way, but it will likely do more harm than good. The model of sellers paying for both sides may not be perfect, and what exactly this all means for the real estate industry remains to be seen. But one thing is for certain: A change is coming, and consumers — as well as their agency representation — will need to adapt.
• Robert Moir is a licensed Realtor serving Virginia, Maryland and Washington, D.C.
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