How real estate brokerage ruling could impact home buyers and sellers

A federal jury's landmark ruling could upend how Americans buy and sell homes.

Industry experts said this week's legal verdict that the powerful National Association of Realtors (NAR) and several large brokerages conspired to inflate home commissions could eventually reduce real estate agents' fees and, crucially, lower costs for home buyers and sellers. At a minimum, the jury ruling will likely lead to greater transparency, long a source of confusion and frustration for consumers about where their money goes in real estate transactions. 

The vast majority — or nearly 90% — of U.S. homes are bought and sold through real estate agents affiliated with NAR. The organization, the country's largest trade association, requires home sellers to offer a non-negotiable commission before listing homes on its property database, known as the Multiple Listing Service, or MLS, which feeds into real estate sites such as Zillow. Paid by the home seller to their agent as well as the buyer's agent, the commission currently stands at around 5% to 6% of a home's sale price.

Plaintiffs in the recent case in Kansas City successfully argued that the NAR's rule curtails competition and leads to higher prices. If not for MLS, buyers would compensate their own agents, as would sellers, they said.

Tuesday's verdict could bring that scenario into play, particularly if the judge in charge of the Missouri case issues an injunction prohibiting preset commission rates and shared commissions between buyers and sellers.

"The most impactful injunction would be one that bans cooperative compensation in the Multiple Listing Service on a national level, which the court has the authority to do," analysts with Keefe, Bruyette & Woods wrote in a report.

Feds also eyeing real estate agents

The Department of Justice is also looking at the issue of how real estate agents are compensated and whether those practices harm competition. Federal regulators could determine that those practices violate antitrust law, triggering a broader overhaul of how real estate agents are paid.

"It is possible that the DOJ would proactively weigh in during the injunction determination in order to make the changes that it believes are necessary to promote a fair and competitive market," the KBW analysts stated.

Changes to the payment structure for agents could cut the $100 billion annual commission pool for 1.6 million realtors by 30%, KBW estimated. "A court-ordered injunction could 'unbundle' commissions nationally by early 2024, eliminating the longstanding practice of listing agents and sellers setting and paying buyer agent commissions," the analysts said.

NAR and other defendants in the Missouri case have vowed to appeal the ruling, which ordered them to pay at least $1.8 billion to hundreds of thousands of homeowners who were required to pay what they argued were excessive fees to agents.

Home sellers have long grumbled about having to pay commissions to a buyer's brokers. 

"The extent of injunctive relief decided by the court will strongly influence whether a price competitive system develops that lowers consumer costs and increases quality of service," Stephen Brobeck, a senior fellow at the Consumer Federation of America, said in a statement. "We hope the court will sever the ties between the listing agent and buyer agent compensation, freeing sellers from the obligation and need to compensate buyer agents." 

Still, one industry veteran cautions against reading too much into the ruling for now, noting that the judge presiding over the Missouri case has yet to issue a final judgment in the case. 

"Depending on what he does, it could require more disclosures by agents to both sellers and buyers about options they have — that could happen and probably will happen," Steve Murray, a partner in Real Trends Consulting told CBS MoneyWatch. 

That scenario would not involve a lot of change, other than "more disclosures by both the listing agent and the buyer agent to their clients about who is getting what," he added.

Although the case placed a "big red bullseye on the industry," Murray added, "Consumers use the system because it works for them." Buyers and sellers are not compelled by any law or regulation to use an agent to buy or sell a home, an option utilized in roughly 10% of home sales and purchases, he said.

Other industry players warn that relieving home sellers of the requirement to compensate buyer-side brokers could force those in the market for a home to absorb the costs, further raising the barrier to ownership at a time of rising mortgage rates and a dearth of affordable properties.