- Currently, New Jersey home sellers are paying real estate brokerage fees for both buyers and sellers.
- Recent lawsuits threaten this practice, potentially forcing homebuyers to pay even more by covering their own agent’s fees.
- But by eliminating that practice, buyers may be able to gain more bargaining power to obtain lower commissions from agents.
Jersey Shore home sellers have long been responsible for paying commissions on real estate transactions to both their agents and buyers. But the arrangement has come under fire after lawsuits say it is anti-competitive and forces sellers to pay too much.
As the case winds its way through the courts, the industry is being urged to reconsider what would happen if each party paid a fee to its own attorney. The seller may pay less. Buyers may pay more. But consumer groups say this would be a step toward increasing competition and ultimately lowering costs.
“Basically, it’s important to completely separate listing agent and seller compensation from buyer agent and buyer compensation,” said Stephen Brobeck, a senior fellow at the advocacy group Consumer Federation of America. . “However, that condition alone is not sufficient to ensure price competition.”
The issue of real estate agent commissions recently came to a head when a Missouri jury found that the National Association of Realtors, HomeServices of America, and Keller Williams conspired to keep commissions artificially high, resulting in a $1.8 billion The case is attracting attention because it ordered compensation for damages. 5 billion dollars based on antitrust laws. The ruling was not final and the real estate agent group said it would appeal.
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Another class action lawsuit with similar allegations has been filed in Illinois.
Real estate agents in coastal areas are watching the results closely. If the changes take effect, sellers may receive some relief, but buyers, already facing record prices and the highest mortgage rates in 40 years, will face new costs. , they said.
That means a buyer paying a 2% fee on a $500,000 home would need to come up with an additional $10,000.
“We don’t have a lot of inventory and buyers are definitely cornered right now,” said David “DJ” Ten Hove, an agent with Keller Williams Realty in Colts Neck. “So the idea that on top of all the closing costs and fees and all that, he has to collect a 1-3% commission just seems impossible.”
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How the system works
Home sellers are not required to hire an agent, but most do. Typically, sellers’ agents list homes on the Multiple Listing Service, a platform run locally by the Monmouth Ocean Regional Realtors trade group, where buyer’s agents can see what’s for sale.
The seller’s agent negotiates a commission with the owner (usually 5% to 6% of the sales price) and determines how much (if any) to share with the buyer’s agent. Buyer’s agents do not receive commissions directly from their clients.
Brian Hutchison, chief executive officer of Monmouth Ocean Regional Realtors, said the listing service is a not-for-profit organization operated by the association’s members, and is an efficient way to bring buyers and sellers together in one marketplace. He said it was a method.
“The MLS is all about being able to collaborate and utilize properties,” Hutchison said. “The MLS is a data repository. It is a facility intended to create a consumer-friendly model for brokers to compete with and collaborate with each other.”
But two class-action lawsuits filed in 2019 claim the existing system is anticompetitive and keeps fees artificially high. The Illinois lawsuit focuses on the Buyer-Broker Board Rules established in 1996 by the National Association of Realtors.
This rule requires the seller’s agent to indemnify the buyer’s agent. In a competitive market, buyers pay commissions to agents, according to the complaint.
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Critics have said of this rule:
- Eliminate price competition that occurs when buyers bring their products to the negotiating table.
- Encourage buyer agents to show their clients the homes that sell for the highest buyer agent commissions, rather than the best homes.
- The National Association of Realtors, which leaves consumers with few alternatives, requires its members, including Monmouth Ocean Regional Realtors, to abide by the commission’s rules as part of its code of ethics. If brokers and agents don’t comply, they could lose access to the MLS, a listing service the complaint claims is “commercially necessary.”
According to a 2019 report from the Brookings Institution in Washington, this structure has made the home-buying process more efficient thanks to technology, increasing the number of real estate agents and increasing competition. is said to be maintained at close to 5%. DC, think tank.
By comparison, sellers’ fees are less than 2% in countries such as the UK, where buyers pay directly to agents, the report’s authors said.
If sellers and buyers each pay their own fees, the authors write, “buyers would be able to shop around and negotiate prices for the level of service that suits their needs.” .
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What do real estate agents think?
Following the jury verdict in Missouri, the National Association of Realtors said it would appeal the decision and ask the judge to reduce the award, adding that the case could take years to resolve.
“The reality is that NAR’s rules prioritize consumers, support market-driven pricing, and promote business competition,” the group said.
But the case has left local agents wondering what life would be like if they had to operate in a new financial world where buyers and sellers pay their agents a fee. Ta.
One consequence is that if a buyer signs an agreement to work exclusively with an agent, they must also agree to pay a commission.
“Currently, some brokers are using it. It’s a buyer’s contract where if the seller doesn’t offer a commission, they pay 2.5% of the home as a commission,” Re/Max New Beginnings said. said Pamela Volek, brokerage owner. in Toms River. “This is pretty rare. But we always use buyer-agency agreements to say, ‘I’m working with you, and here’s the contract, you can’t work with anyone else. We can’t do that.’ Because people like to fly around.”
Still, some agents point out that buying a home isn’t like going grocery shopping, and wonder how much buyers will buy from a real estate agent for the lowest commissions. There are some people.
“People don’t necessarily choose you on price,” said Diane Turton, president and founder of Point Pleasant Beach-based Diane Turton Realtors. “They choose you for the value you bring to them.”
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What’s next?
Two major companies have agreed to settle lawsuits and are proposing changes to their operations.
Re/Max agreed to pay $55 million, and Anywhere Real Estate, the Madison-based company that owns Coldwell Banker and Sotheby’s International Realty, agreed to pay $83.5 million. And both said they plan to change their habits.
For example, Anywhere said it will prohibit its brokerage firms and affiliated agencies from claiming that their buyer agent services are free. Prohibits Affiliates from using technology to categorize listings by compensation offer unless requested by Customer. And the broker will clearly disclose that the fees are fully negotiable.
Meanwhile, agents and consumer advocacy groups argue that separating compensation packages between sellers and buyers could substantially increase home prices for buyers.
“The real solution is complete separation, where buyers can cover buyer agent fees as part of their mortgage,” said Stephen Brobeck of the Consumer Federation of America. “I think we’ll get there eventually. There are currently regulatory walls that are strongly supported by the industry. But if buyers can’t fund buyer agent compensation as part of the mortgage, buyers I think the industry will realize what the future holds for agents.” It’s not very bright. ”
Michael L. Diamond is a business reporter who has written about New Jersey’s economy and health care industry for more than 20 years. Contact him at mdiamond@gannettnj.com.