US Real Estate Commissions Facing 30% Cut, Expert Warns
In recent developments, significant changes in the real estate industry have gained momentum, potentially altering the dynamics of how real estate agents are compensated. A federal jury in Missouri recently reached a $1.8 billion verdict against the National Association of Realtors and prominent residential brokerages, citing their involvement in artificially inflating commissions and orchestrating a scheme that mandated home sellers to pay the broker representing the buyer, a violation of federal antitrust laws.
This landmark lawsuit, alongside two similar ongoing cases, may herald a substantial shift in the annual $100 billion Americans pay in real estate commissions, as suggested by Ryan Tomasello, a real estate industry analyst at Keefe, Bruyette & Woods. Tomasello noted that alterations to the commission structure within the residential brokerage industry could potentially lead to a long-term decline of up to 30% in the annual commission pool.
While the National Association of Realtors intends to appeal the verdict, this process could span several years. In response, Mantill Williams, the NAR’s Vice President of Communications, stated that their regulations prioritize consumer interests, endorse market-driven pricing, and foster business competition. Simultaneously, the organization is seeking a reduction in the verdict during this interim period.
The ruling carries implications for the housing market. Industry experts, such as Anthony Lamacchia, whose Lamacchia Realty boasts a network of over 500 agents across various states, anticipate that this verdict is likely to trigger substantial changes. Although the extent and nature of these modifications remain uncertain, the presiding judge may impose adjustments to how brokerages operate. Consequently, real estate brokerages, fearing potential legal liabilities, could adopt new practices and strategies.
Prior to the trial, two of the four major real estate broker franchisors implicated in the case, namely RE/MAX and Anywhere Real Estate, reached settlements pending judicial approval. The remaining two, Keller Williams Realty and HomeServices of America (an affiliate of Berkshire Hathaway), intend to appeal the verdict. A spokesperson from HomeServices expressed concerns that the decision would introduce additional hurdles for buyers in an already challenging real estate market, potentially complicating the process of sellers realizing the full value of their properties.
Furthermore, this landmark verdict could provide an opening for new business models within the real estate industry. Over the years, various real estate startups have attempted to reshape the traditional agent payment structures, albeit with limited success. Entrepreneurs such as Jack Ryan, a former Goldman Sachs partner and co-founder of REX, believe that this ruling may serve as a catalyst, facilitating innovation in an industry traditionally resistant to change, as it challenges established norms and practices.