Major Changes Coming to the Homebuying Process

Published by Morning Brew | November 5, 2023

The U.S. real estate industry will never be the same.

A federal jury in Missouri last week found the National Association of Realtors and large brokerages conspired to keep commissions artificially high, finding them liable for $1.8 billion in damages.

This decision could have a major impact on anyone buying or selling a home. For one, it could lead to a 30% decrease in the $100 billion Americans pay in real estate commissions every year, according to investment banking firm Keefe, Bruyette & Woods (KBW).

What else might change?

More flexibility for buyers. Under the current system, sellers pay their own agent’s commission of roughly 5%–6%, which is shared with the buyer’s agent. If sellers are banned from paying buyers’ agents, then buyers would have to pay their own agent (if they choose to use one) a flat fee or hourly rate.

But first-time buyers could feel the crunch. That fee could be a bigger issue for first-time buyers who haven’t amassed the savings to pay for an agent on top of their down payments and closing costs.

Less commissions paid by sellers. In order to advertise a listing on a database known as the MLS (Multiple Listing Service), which populates real estate websites like Zillow and Redfin, sellers in most markets must agree to pay the buyer’s agent’s commission as well as their own agent’s. That practice could be scrapped.

Trouble for real estate agents. With $30 billion potentially leaving the industry, KBW estimates 1.6 million agents could lose their jobs.

Startups get new life. Previously, companies like Purplebricks and REX offered lower or flat fees to sellers and did not promise to pay the buyer’s agent’s commission, but were eventually forced to close their doors. REX co-founder Jack Ryan told the WSJ, “This will be a catalyst because no one could break the cartel.”

Looking ahead…legal battles are still ongoing, and the size of the fallout will become clearer when the judge in the Missouri case explains what industry rules will need to change following the jury’s guilty verdict. But whatever the judge says, the US real estate industry will never be the same.

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