This past week, a Missouri jury found the National Association of Realtors (NAR) and two national real estate brokerages guilty of violating the Sherman Antitrust Act. It’s a complicated case but I’m going to try to break it down for you as easily as I can…
The extraordinary verdict determined that the NAR, Keller Williams, and HomeServices of America had worked together to raise commissions paid by sellers to their agents. In total, the three entities were fined $1.78 billion in damages which, based on federal law, could be tripled by Judge Stephen Bough in his final ruling. Specifically, the jury determined that the long-held tradition that requires sellers to pay for a buyer’s agent’s commission was anti-competitive and resulted in financial hardship to sellers.
The repercussions of this verdict extend far beyond the hefty financial penalty imposed. More widely, there is going to be a seismic shift in the way that real estate is bought and sold. Brokerages, agents, buyers, and sellers will all be impacted and traditional operating procedures and customs will change. Sellers, in particular, are going to have to decide whether they want to incur the cost of paying for a buyer’s agent. Historically, sellers have covered this cost in order to facilitate real estate transactions. Consider that buyers face significant upfront expenses: their down payment, escrowed taxes and insurance, inspection fees, and various legal costs. When purchasing a $250,000 home, these fees can quickly add up to $25,000 or more— a substantial amount, particularly for first-time buyers. If buyers also had to pay their agents’ fees, homeownership could become unattainable for many, and buyer participation in the market would plummet. Until now, this operating standard has helped maintain a robust pool of buyers, ultimately benefiting sellers by bringing more prospective clients through a listing and increasing the possibility of selling quickly and for top dollar.
Given today’s market conditions and the need to create bidding wars to maximize profit, this same logic takes on even greater importance. For the past two and a half years, my job has transitioned into one that is equal parts adman, salesman, and auctioneer. Securing multiple offers is predicated on driving as many prospective buyers into a house as possible. The lack of a central buyer registry, coupled with mandated restrictions on communication with represented buyers, makes direct outreach to these prospects challenging if not impossible. Additionally, buyers often demand the expertise of an agent who is both legally and financially obligated to help them navigate one of the largest financial transactions of their lifetime. Thus, there is a very real need to actively collaborate with my colleagues to ensure that their clients view the homes that I represent. The good news is that, If I’m doing my job correctly, I will sell a home significantly above asking price which increases the seller’s profit and justifies the cost paid to the buyer’s agent.
Markets, however, are fluid. The lack of inventory that defines today’s landscape will, ultimately, transition into one that is defined by an equal number of buyers and sellers or, perhaps, one whose chief characteristic is one in which the number of sellers outnumbers the number of buyers (as difficult as that is to imagine). When this shift occurs, the dynamics that I described in the preceding paragraphs will adjust accordingly. Under such conditions, sellers might reconsider their willingness to cover a buyer’s agent fee as the economic rationale shifts. This will pave the way for innovative strategies and methodologies. Buyers might integrate their agent’s commission into their mortgage financing (pending updates to banking regulations). Alternatively, a new norm might emerge in which buyers and sellers share the responsibility of the agent’s commission, easing the financial pressure on buyers amassing funds for a home purchase and reducing the cost impact on the seller. There are a myriad of possible outcomes that will be tested and undergo a process of iteration and refinement until agreeable new practices become standard.
There is little that is absolutely certain about the court’s ruling. It could take a while for the NAR’s appeal to wend its way through the court system. Likewise, the new lawsuits that were filed the day after last week’s decision could complicate matters even further. The unintended consequences of the jury’s decision will be many. I promise that, along the way, my team and I will continue to educate ourselves, innovate, and pivot in a manner that will be in the best interest of our clients. It may not necessarily be a linear path to understanding and creating new business practices but I have a long history of falling on my face, picking myself up, and trying again until I get it right. Meanwhile, I welcome any questions or concerns that you might have in regard to this issue or, for that matter, anything having to do with real estate. Feel free to contact me at 330-8750.