Serving
Mohave County
May 2024
Volume 24 Issue 3
COMPLIMENTARY

Apr 2024 | April 2024 | 0 comments

Antitrust settlement sparks real estate commission overhaul

April 2024 | 0 comments

April 2024


NATION – In an historic transformation, the long-standing practice of a standard 6% commission split between the listing agent and the buyer’s agent is facing a fundamental change. A major shift in the real estate industry was initiated by a $628 million settlement in a federal antitrust case against the National Association of Realtors (NAR). The lawsuit, resolved in November 2023, alleged that the NAR, along with significant real estate brokerages, conspired to inflate commissions and limit competition in the market. This case has the potential to reshape traditional commission structures, ultimately redefining how homes are bought and sold.

In accordance with the settlement terms, the National Association of Realtors (NAR) is set to modify its regulations, which have traditionally required home sellers to cover the buyer’s agent commission—an established industry practice. Subsequently, the NAR will disburse $418 million to eligible homeowners throughout the United States, with an additional $210 million designated specifically for sellers in California. These financial distributions constitute a portion of the overall settlement reached in a landmark case involving multiple real estate entities, underscoring the extensive economic implications of this precedent-setting legal action.

The practice of real estate agents receiving commission-based compensation traces its origins back to the early 20th century. While the exact point of origin for the prevalent 6% commission structure cannot be definitively ascertained, it gradually solidified over time as an industry standard. Previous attempts to challenge these established norms met with limited success; however, a recent class-action lawsuit, known as Moehrl v. National Association of Realtors, gained significant traction and momentum.

The Moehrl lawsuit, filed on behalf of home sellers nationwide, challenged the NAR’s regulations, alleging that they artificially inflated broker fees and stifled competition. The plaintiffs contended that these practices resulted in artificially elevated costs for sellers, constituting a violation of federal antitrust laws and unjust enrichment of brokers. The case progressed through multiple years, encountering various legal milestones and procedural hurdles before ultimately culminating in a settlement agreement.

For sellers, this settlement holds the potential for substantial cost savings. In the context of a hypothetical $500,000 sale, a seller would typically anticipate incurring $30,000 in commissions. Although the exact amount of compensation per eligible seller has yet to be determined, even a fraction of the traditional cost represents a potentially significant financial windfall.

Sellers in Mohave County will now enjoy greater flexibility in structuring agent compensation. This development presents opportunities for negotiating reduced commissions, implementing tiered rates, or opting not to directly compensate the buyer’s agent—changes that were largely unprecedented under the previous model. While this new landscape empowers sellers, it also introduces the potential for increased complexity in the negotiation process.

Buyers, too, will encounter changes as a result of the settlement. They may now be required to remunerate their agents directly through negotiated fees, rather than having those costs incorporated into closing fees. This shift places a greater upfront financial responsibility on buyers and necessitates open communication regarding these fees during the agent selection process.

The settlement challenges agents to transparently demonstrate the value they provide to clients. In this new era, expertise, negotiation skills, and the provision of exceptional service become paramount. While some agents may thrive, it is possible that the overall number of active agents could diminish as those unable to adapt may choose to exit the market.

Buyers, sellers, and agents are now navigating an unprecedented landscape. As we move forward, prioritizing transparency will be of utmost importance. Potential agents should be subjected to pointed inquiries, and fees should be negotiated to align with both budgetary constraints and anticipated levels of service. Similarly, agents must reciprocate these efforts by clearly communicating the value they offer to their clients.

Local real estate specialist and owner of Next Wave Realty, Candice Donofrio, weighed in on the issue: “I believe the vast majority of real estate professionals seek to do the right thing for clients and customers, and treat cooperating brokers fairly at all times. The proposed, not-yet-approved changes the settlement plants to implement are existing, long-adhered-to practices for most of us. Finally, be careful what you believe from the mainstream media. There’s never been a ‘standard’ commission, and commissions have always been negotiable,” Donofrio explained.

Sellers will need to carefully weigh the potential cost savings associated with negotiating commissions against the inherent value that an experienced agent brings to the transaction. Discount brokerages, ‘For Sale By Owner’ platforms, and agents who already offer alternative fee structures could witness increased interest as a result of these developments.

There is concern that buyers with limited budgets might become a lesser priority for agents if they are unable to offer competitive commissions. On the other hand, this change could incentivize buyers to conduct thorough research on agents and prioritize those with proven track records, rather than relying solely on referrals or convenience as the primary factors in their decision-making process.

The real estate industry may undergo a profound transformation as a result of this settlement, potentially inspiring the emergence of novel business models. Innovative fee structures, such as fee-for-service arrangements, hourly consultations, and the unbundling of traditional agent services, could gain traction. Clients may have the opportunity to select specific tasks for which they require assistance, enabling cost-effective choices in a competitive market. Smaller firms with adaptable commission models could gain a competitive advantage in this environment.

The full impact of this settlement will likely unfold over the course of several years. Industry experts offer diverse perspectives on the future: Some contend that it opens the door for greater competition and innovation in real estate services. Others express apprehension that it could lead to a decline in the overall number of agents, particularly if buyers become hesitant to pay upfront fees, resulting in reduced access to professional guidance.

While sellers might potentially save money, these savings may not always directly translate into lower home prices. Additionally, if buyers struggle to bear the burden of additional upfront costs, it could have a dampening effect on the market, especially for entry-level homes.

— Stephan Lightman

“I believe the vast majority of real estate professionals seek to do the right thing for clients and customers, and treat cooperating brokers fairly at all times. The proposed, not-yet-approved changes the settlement plants to implement are existing, long-adhered-to practices for most of us. Finally, be careful what you believe from the mainstream media. There’s never been a ‘standard’ commission, and commissions have always been negotiable.”

– Candice Donofrio

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