Facing accusations of violating the Sherman Antitrust Act, the National Association of Realtors and various brokerages have found themselves the focus of a class action lawsuit. What exactly is the issue? Well, it surrounds the idea of who exactly should compensate the real estate agent assisting a buyer in the transaction.
Let’s go back a century to understand how the real estate business model works. When someone wants to sell their home, they employ a real estate agent to find a willing and able buyer. The agent then networks with other agents to see if they have a potential buyer. In return for their participation in completing the transaction, the agent who had the employment contract with the seller shares a portion of their commission with the agent who brings the buyer to the deal.
For anyone who has used a buyer’s agent to buy a home, this is why it appears the agent who helped you worked for free.
To give sellers maximum exposure to the broadest number of buyers, all real estate agents join networks called Multiple Listing Services, commonly called the MLS. The MLS allows listing agents to share their listings and offer compensation to buyers’ agents.
When a home is listed on the MLS, there is a unilateral commission offer to the buyer’s agent. This has become the point of contention for the lawsuit.
First, let me state that there is no standard commission in the real estate industry. If there were, that clearly would be an anti-trust violation due to the lack of competition. Typically, though, the commission is a percentage of the home’s sale price. Also, the commission offered to a buyer’s agent could be either 50/50 of the total commission or variable, wherein one agent receives more than the other.
The issue brought forward in the lawsuit is the offer to pay the buyer’s agent. The sellers represented in the lawsuit claim this system puts pressure on them to offer higher commissions to the buyer’s agent. These higher commissions are not to attract the buyer but the buyer’s agent, increasing the cost of selling their home.
If this lawsuit were to win, the entire business model would need to change. On the face of the suit, it would appear buyers would become responsible for paying for their agent. However, when you factor in the amount of money needed for a down payment, loan fees, closing costs, appraisals, taxes, insurance, etc., buying a home takes a lot of cash. But what would happen to the affordability of homes should the buyer now need several thousand more dollars to pay for an agent?
Under current rules of a VA Home Loan, the veteran home buyer may not pay any commissions to a real estate agent. Ironic that the federal regulations for this loan contradict the federal lawsuit, but that is beside the point.
If a veteran buyer can’t pay their agent and a seller can’t pay the agent, what real estate agent will work for free? This lawsuit will negate the amazing benefit our service members have earned in their ability to buy homes.
With Fort Knox bringing numerous buyers every year, our housing market would be severely hindered if they were to lose their buying power.
This lawsuit is only in the beginning stages. No one knows how it will turn out. But if the courts rule against the long-standing tradition used to compensate the buyer’s agent, there will be ripples across the housing industry that will affect everyone. Would sellers be charged a lower commission in the transaction? Maybe. But they also likely will sell the home for less money while it sits on the market longer.
As the saying goes, “Be careful what you wish for.”
