Don’t misinterpret my title this week. It doesn’t mean you will be selling your home for half its value. It does mean you may soon be able to sell your home at half the normal cost.
Back in 2019 I wrote an article predicting that this may happen because of two antitrust-based, class action lawsuits filed that year. The goal of the lawsuits was to reduce the cost of selling a home in the U.S. from the typical 5%-6% to 2%-3%, like the commission cost structure in Australia and other countries.
The lawsuits sought to change the way our industry functions, resulting in home sellers no longer paying the buyer agent commission. In other words, home sellers would only pay their listing agent and buyers would pay their own agent, which is not currently the norm.
Most everybody knows the way it works now. Home sellers typically pay a 5% to 6% commission, which is usually divided 1/2 to their listing agent and 1/2 to the agent who represents the buyer. In other words, the structure of the existing system is designed for sellers to compensate both their listing agent and the buyer’s agent.
The plaintiffs in the 2019 lawsuits allege that this existing structure is unfair, and a violation of the federal antitrust laws. The unfairness claim relates to sellers having to foot the bill for agents who represent the buyer, whose job it is to negotiate against the seller (the person who has to pay them).
The antitrust claim alleges that long–existing MLS rules requiring a monetary offer of compensation by listing agents to buyer agents effectively forces sellers to compensate buyer agents and pay double the commission they should. While no MLS requires listing agents to offer buyer agents any specific amount of compensation, they do require that you make some offer, even if it’s $0.
The plaintiffs allege that this required offer of buyer agent compensation, even the very existence of the buyer agent compensation field in the MLS, has created an expectation among buyer agents of receiving a certain amount of compensation, usually the same commission that listing agents earn (2.5%-3%). This doubles sellers’ commission. Listing agents argue that if they don’t offer the expected commission to buyer agents those agents may not show the property, which would harm the seller.
I am not aware of any empirical evidence proving that buyer agents don’t show homes with a lower-than-expected offer of compensation, but it is a genuine concern, and in my opinion listing agents should point out this possibility to sellers. The plaintiffs argue that listing agents making this type of statement to sellers is anti-competitive because it effectively scares them into offering a buyer agent commission.
Both lawsuits claim that the existing compensation structure is anti-competitive, violates national antitrust laws, and should be ended. Based on commentary from the Justice Department, it appears to agree.
Over the past few years, the real estate industry, including several major national real estate firms and the National Association of Realtors, claimed that the plaintiffs’ case had no merit and that sellers compensating buyer agents creates a bigger and better marketplace for homes, to the advantage of sellers.
The plaintiffs say this is not true and represents an anti-competitive ploy to keep commissions higher and more money flowing into the industry. They say this has cost home sellers billions of dollars in excess and unfair commissions.
Until now, while the cases proceeded toward trial, there has been much hyperbole, conjecture, and opposing sides claiming they were right. That changed last week.
In a stunning development, “Anywhere”, one of the largest real estate franchisors in the nation, owner of Century 21, Coldwell Banker, Sotheby’s and Better Homes and Gardens, representing almost 200,000 Realtors, startled the industry and settled the case. They agreed to pay over $80 million in damages and change the way they do business, likely agreeing to take steps to separate commissions so buyers and sellers each pay their own agents.
That is the way it is in some other countries, including Australia, where sellers typically pay 2 1/2% to 3% to their listing agent, and if buyers want representation they pay for it. If buyers don’t have the cash to pay for representation, they make it a negotiated contract term and agree to pay more for the home. This enables buyers to finance their buyer agent commission into the home loan. In conversations with my real estate friends in Australia I am told that it is more common for buyers to go directly to listing agents to facilitate the purchase and save the buyer agent commission.
The other industry defendants have not yet settled, but the deal struck by Anywhere is, in my opinion, a big chink in the industry armor that will precipitate a cascade of settlements by all the defendants. They will likely pay hundreds of millions in damages, change their practices to separate buyer and listing agent commissions, and sometime in the not too distant future you will be able to sell your home at half the price.