Antitrust Ruling Sparks Potential Shift in Real Estate Commission Structure
In a landmark antitrust case that sent shockwaves through the real estate industry, a Kansas City jury's $1.8 billion judgement in October determined that commissions had been inflated, prompting discussions on potential changes to the standard 6% commission structure. Traditionally, sellers pay this commission, which is then split between their broker and the buyer's broker. However, the recent ruling and similar lawsuits challenge this model and could pave the way for negotiations on commission rates and who bears the cost.
The verdict has raised questions about the future of real estate commissions, with implications beyond Kansas City. The possibility of separating commissions could grant home buyers and sellers the flexibility to negotiate not only rates but also determine who is responsible for payment—a shift already underway in New York City, set to take effect on January 1.
While the internet was expected to disrupt the 6% real estate commission, it has yet to significantly impact the share borne by home sellers. The National Association of Realtors (NAR), representing 1.5 million agents, has played a pivotal role in maintaining the status quo. However, recent legal challenges, including the $1.8 billion judgement, may signal a turning point.
Real estate commissions have been a historical practice since 1913, with the NAR's Code of Ethics endorsing commission sharing. The recent antitrust case, to which the NAR is appealing, challenges the alleged inflation of commissions and collusion within the industry to maintain high rates.
Typically, home sellers pay their agent's commission and the buyer's agent's commission, with brokers splitting the total commission. However, emerging lawsuits and changing market dynamics may lead to a separation of commissions. This could result in cost savings for sellers, but buyers might face increased expenses for representation or opt for brokerless transactions.
The real estate industry has witnessed incremental changes, with some multiple listing services (MLS) allowing more flexible commission arrangements even before the recent verdict. In August, Bright MLS altered its requirements, permitting listings to offer any percentage or amount for a buyer's broker, including $0. The Real Estate Board of New York has also introduced a policy separating agents' commissions and requiring seller-funded compensation for the buyer's broker to come directly from the seller.
As the NAR appeals the October ruling, the potential transformation of real estate commission structures may have lasting effects on how residential real estate transactions are conducted nationwide. This period of legal scrutiny could usher in a new era of negotiation and competition within the industry.