America’s real estate industry is undergoing a radical transformation that could change how we buy and sell homes forever.
A jury in Missouri last month found the National Association of Realtors (NAR) had artificially raised commissions by enabling brokers to collude. That verdict could set a national precedent – and experts estimate it may slash Realtors’ commission by up to 30 percent.
Lower fees would be good news for home sellers and buyers, but what does the ruling mean for the NAR’s 1.6 million members? Among them are single moms, veterans and aspiring young professionals. One report estimates as many as 80 percent now stand to lose their jobs.
‘I feel like realtors are getting an unfair reputation from this,’ agent Desirae Wykoff, 36, told DailyMail.com. ‘I could see a lot of these people hanging up their license.’
In recent years, acquiring a real estate license has become a popular side hustle for Americans. In 2020 and 2021 – when the pandemic forced many out of work – a record 156,000 people became Realtors, according to the NAR.
Wykoff got her license in 2015 when her husband quit his job to start a new business, but it was slow to get off the ground.
When they divorced five years later she became a single mother-of-three. She worked full-time at a local car dealership in Tulsa, Oklahoma, and brokered real estate deals on the side to supplement her income – usually an extra $15,000 to $25,000 a year.
‘When you’re on the outside looking in at this profession, it looks like easy money. It looks like you do a little bit of work for a lot of money but that is not at all what it is,’ she told DailyMail.com.
When somebody sells a house the commission they pay is split between the buyer’s and seller’s agents. The Missouri jury ruled that agents were conspiring to keep commission artificially high and awarded home sellers in the state $1.78 billion in damages.
The presiding judge can now triple that damages verdict under antitrust law. The plaintiffs have also asked the judge to order changes to how the industry operates.
Similar class-action lawsuits are set to be heard in Illinois and South Carolina.
US real estate agents drive around 90 percent of home sales, according to a report from investment bank Keefe, Bruyette & Woods (KBW). Figures from the Labor Department suggest they earn on average $65,850 a year.
Agents in the US charge home sellers an average commission of between 5 and 6 percent of the sale price of their property – more than twice the average fees charged in the UK, for example.
That commission is paid entirely by the seller but in accordance with standards specified by the NAR it is split down the middle between the two brokers.
The NAR is the largest trade association in the US and only its fee-paying members are allowed to call themselves ‘Realtors’. They are also the only people with access to its proprietary database of properties available for sale.
Those databases are referred to as ‘multiple listing services’ or MLSs and require the seller’s agent to list the amount of commission their client is paying. That, in theory, enables the buyer’s agent to ‘steer’ buyers to houses on which the commission is higher and through which they can profit more in the event of a sale.
According to a survey by consulting firm 1000watt, more than 76 percent of 640 real estate agents in the US said buyer’s agents would be more likely to show a property if they knew the seller was paying higher commission.
This system, in turn, allows the seller’s agent to tell sellers that if they don’t offer up enough commission, buyers won’t ever see their house.
But many Realtors are bullishly defensive of the current system.
Drake Johnson, a veteran and Realtor based in North Carolina, said: ‘You always have the option not to hire a real estate agent.’
‘There’s nothing stopping sellers from putting a “for sale” sign in their yard and posting their house for “sale by owner” on Zillow,’ he added. ‘There are a ton of cheap options out there.’
He also noted that seller’s agents sometimes offer to list houses on the MLSs for a flat fee of just a few hundred dollars. But even in those cases, the buyer’s agent will still be paid as a percentage of the sale price.
Industry insiders have suggested buyer’s and seller’s agents should be ‘unbundled’, meaning they are paid for by the buyer and seller respectively. That also presents problems because first-time homebuyers may not be able to afford the fees.
Both Johnson and his wife make a living brokering residential real-estate trades. He pointed out that while Realtors earn fees, they also have expenses.
‘They have to pay their brokerage, they have to pay all this other stuff. And then, all of a sudden, that agent is working for less than minimum wage,’ he said.
‘Ninety percent of agents sell 10 percent of the houses and 10 percent sell a whole bunch.’
A spokesperson for the NAR said the association would appeal the verdict.
‘This matter is not close to being final as we will appeal the jury’s verdict. In the interim, we will ask the court to reduce the damages awarded by the jury,’ said spokesperson Wes Shaw.
‘We stand by the fact that NAR’s guidance for local MLS broker marketplaces ensures consumers get comprehensive, equitable, transparent and reliable home information.’
