Real Estate Commissions May Soon Change

As some of you may know, there was a massive verdict that came down in favor of home sellers in the state of Missouri that essentially stated real estate commissions have been fixed (non-negotiable) and are essentially too high in an anti-trust lawsuit against the National Association of Realtor as well as a few select larger real estate brokerages. The amount of the verdict was 1.8 billion dollars and it appears this number could grow to a much larger figure as the case will inevitably move to other states. The case is a bit more complicated than just saying, “real estate commissions are too high” or “shame on greedy real estate agents.” The prevailing thinking is that if sellers didn’t have to bear the burden of both sides of the commissions, house prices would be more affordable for buyers in the long run.

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As you probably know, historically real estate commissions come out of the seller’s proceeds upon a successful closing. This has been the protocol in the real estate industry for decades and I have often questioned if perhaps there is a better system the industry could adopt, but again, it can be a little complicated when you break it down further.

From a seller’s perspective, it doesn’t necessarily make sense to pay the entire commission where often times, 50% of the commission goes to the buyer’s agent who was on the other side negotiating against the seller. On the surface, it seems a bit odd the seller would pay someone to negotiate against them, doesn’t it? However, the other side of that argument is something like, “Well, the buyer really pays the commission when it is all said and done because the buyer is the one paying for the property which accounts for the commissions.” I get it…it’s a bit of a complicated issue. Without a buyer, a seller wouldn’t pay a commission to anyone, listing agent or buyer’s agent for that matter.

Where it gets challenging is who should be responsible for paying the buyer’s agent commission. Initially, it seems logical for a buyer to pay their agent’s commission and the seller to pay their agent’s commission. However the argument against this system is buyers are already having to fork over a substantial down payment, loan closing costs and earnest money. Having to pay their agent on top of all of these costs might be unrealistic if we are being honest about it.

So what is the answer? No one really knows. It may come down to what a federal judge decides, with most likely a lot of input from various experts and sources. I would not be surprised to see various options offered to buyers and sellers (a la carte options, limited services options full service options). I would also not be surprised to see buyers going directly to the listing agents rather than employing the services of a buyer’s agent. Buyers agent’s roles could be severely affected and minimized (if it is determined buyers must pay their agents commission).

This case is far from over as the National Association of Realtors is disputing the verdict and it could take years to be finally adjudicated. It will be very interested to follow the pending cases and ultimately how real estate commissions are paid in the future. One thing is for certain…the way real estate commissions are currently paid is most likely in for a change. Stay tuned!