Commissions Lawsuit – Separating Fact From Fiction
By now, you have probably heard about the landmark settlement of the Sitzer/Burnett commissions lawsuit. If you have not, the lawsuit’s claim was that brokerages and the National Association of Realtor (NAR) colluded to keep commissions inflated and cost home sellers more than they needed to. Along with the announcement of the settlement there has been a flurry of hot takes and misinformation and we want to make sure they have the correct information by addressing some of the points head on.
Sellers were forced to pay a 6% “standard” commission
This is a categorically false, media sensationalized statement. There has never been a “standard commission” and never will be a standard commission. In my Bay Area real estate career, I have seen commissions range anywhere from 0% to 3% for buyers agents. What the listing agent keeps for themselves, we cannot be sure of.
Real estate commissions have ALWAYS been negotiable. Now, are there agents out there who are telling people that 6% is standard? Absolutely! Those agents should be severely punished. We have interviewed with many sellers who have told us that so and so agent is willing to sell by home for 1%. There are several discount brokerages that openly advertise that they will help you sell your home for less than what people call the “standard”. Help-U-Sell is one and Flat Rate Realty openly advertises that they will list your home for a 1% sellers commission. Redfin also offers a 1% listing commission if you also buy a home through them. All of these brokerages still offer a buyer’s agent compensation and the total is far from the 6% “standard” that is publicized in the media. Despite the many options that exist, none of these companies have significant market share in any market that I am aware of. That tells me one thing, when deciding on who homeowners want to sell what is likely to be their highest value asset, they prefer to work with someone whose selling point is not discounting their fee.
Home prices will fall
There is absolutely no indication that home prices will fall because of the commissions lawsuit settlement. Home prices have always been driven by supply and demand and will continue to be that way. Unless we see prolonged periods of high (or higher) interest rates and/or a huge surge in the number of homes for sale, there will unlikely be a significant reduction of home prices.
Buyer commissions will go away
Structurally, nothing changes in the way real estate is bought and sold. There will be procedural changes that have to be implemented. The main points are that commissions will no longer be advertised and that buyers will need to sign a contract with an agent exactly how sellers sign a contract to sell their home. I believe that most home sellers will continue to compensate buyers’ agents for their work. Now, will there be home sellers who choose to not offer any compensation to buyer’s agents? Absolutely. This is where the buyer’s agreement with their agent will come into play and the agent’s compensation will be outlined beforehand.
Real estate agents will go away
Some articles I have read have estimated as many as 1 million agents will leave the business or that real estate agents will cease to exist much like travel agents. The truth is, there likely will be many agents that leave the business. Just as many have in the last year or so with real estate volume declining. The agents that leave the business will likely be the ones that lack the skills or knowledge to articulate their value. There will always be a place for experienced, knowledgeable agents. In fact, I think those will be more in demand.
Consumers win
“Lower fees” must be a win for consumers right? Wrong! While there are many positives that will come from this settlement, overall, consumers will lose. There are many buyers that will be unable to purchase a home because they cannot find proper representation. It will be difficult to sign a representation agreement for $xx when they are just scraping together the funds for their 3% down payment. Some buyers may go directly to the listing agent to submit an offer and this causes a myriad of problems. 1) In a competitive market, there will likely be more than one buyer trying to do this. 2) How can a listing agent properly represent a buyer who they know little about and while simultaneously representing the seller? The likely result will be more disgruntled buyers who felt cheated and more lawsuits will be the results. Lawyers win.