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CNN
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Using a travel agent to buy a plane ticket or a brokerage firm to trade stocks seems like a thing of the past. Yet, every day, people across America hire real estate agents to help them sell their homes. It is one of the few industries that has been able to largely avoid disruption that has helped reduce costs for consumers in the Internet era.
And that’s largely due to the power of the National Association of Realtors, America’s largest professional organization and the real estate industry’s key lobbying group.
But a judgment handed down Tuesday in a Missouri court accused NAR and two brokerages, HomeServices of America and Keller Williams Realty, of conspiring to keep fees artificially high for $1.8 billion. The verdict could mark the beginning of the end of the world, as the company will be held liable for damages in the amount of US dollars. How are houses bought and sold?
The other two companies first named in the home sellers’ lawsuit are Re/Max, the parent company of Coldwell Banker, Century 21, Sotheby’s International Realty and Corcoran, formerly Realogy. Anywhere Real Estate, formerly known as Anywhere Real Estate, has settled out of court. A total of $140 million. As part of the terms of the settlement, both companies announced commitments to change their business practices, including no longer requiring agents to be members of NAR.
While state governments license real estate agents, NAR has an extensive code of ethics that it expects its members to abide by.
NAR and the broker have vowed to appeal the ruling, which means real estate commissions will not immediately go to zero.
NAR has fought off anticompetitive lawsuits with U.S. antitrust authorities for years, but the ruling is the association’s biggest setback to date.
The ruling is one of several lawsuits currently being filed against NAR, which also faces scrutiny from the U.S. Department of Justice.
Aside from the ruling and a difficult housing market, NAR is already facing a difficult year.
In August, NAR chairman and member agent Kenny Purcell resigned amid allegations of sexual harassment. Last month, Internet real estate company Redfin withdrew from the association.
Regarding the commission, NAR said it plans to appeal the ruling and the matter will not be resolved for years.
NAR Vice President of Public Affairs Mantil Williams said, “This matter is not close to being final as we plan to appeal the jury’s verdict.” “In the meantime, we will ask the court to reduce the damages awarded by the jury.”
“This is not the end,” said Keller Williams spokesman Darryl Frost.
Plaintiffs’ main argument is that NAR forces home sellers to pay high commissions, which are split 50-50 between brokers and buyers’ agents. Home sellers argued that sharing fees as a condition of accessing the multiple listing service was unfair and kept fees artificially high.
Typically, when a home is put up for sale, the seller offers the agent a set commission. For decades, commissions have consistently been around 6% of the sale price, typically split between the buyer and seller’s agent, who is 3% split.
Home sellers argue that in a competitive market, buyer commissions are paid by the serviced buyer, not the seller. Sellers said buyers should be able to negotiate commissions with agents, and sellers shouldn’t be burdened with paying commissions.
NAR and the other defendants argued in court that fees are always negotiable. He also said the system, in which the seller’s agent splits commissions with the buyer’s agent, allows buyers who are already burdened with down payments, closing costs, inspections and appraisals to avoid paying additional fees to agents. In the same way.
Consumer advocates welcomed the ruling and hoped it would also receive the plaintiffs’ request for the judge to order changes to the industry’s fee structure.
The award is already high, but depending on the judge’s decision, it could reach a total of $5 billion.
Stephen Brobeck, a senior fellow at the Consumer Federation of America, said the jury clearly found that the industry had limited price competition to the extent that it was able to secure a near-uniform 5% to 6% commission. He said jurors reached their decision quickly, deliberating for just a few hours.
“The scope of injunctive relief that the courts decide will have a significant impact on whether a system of price competition develops that reduces costs for consumers and improves the quality of service,” Brobeck said. “We hope the courts will sever the link between listing agents and buyer agent compensation, relieving sellers of the obligation and need to compensate buyer agents.”
Impact of fees on buyers and sellers
Agents say they don’t expect much to change in the short term in terms of how fees are set.
The long-term impact of this ruling could be the eventual unbundling of buyer and seller agent fees.
Analysts at investment banking firm Keefe, Bruyette & Woods said in a report released ahead of the ruling that the NAR case and related government actions will eliminate buyer-broker commission rules. He said the commission structure of the housing agency industry is likely to be restructured. Ultimately, it becomes a practice where listing agents and sellers set and pay buyer agent fees.
And because commissions paid to agents are typically built into the price of a home, lowering fees or making them more negotiable could also lower home prices, they said.
“Nothing changes in the short term,” said Jen Davis, an agent with Keller Williams of Holt Homes Group in Springfield, Missouri. “Commissions have always been negotiable. That will continue to be the case.”
But if changes occur, she said, there could be unintended consequences.
“Some buyers don’t know the process of buying a home,” Davis says. “They have to pay for things like down payments, closing costs, appraisals, inspections, etc. They also have to come up with money to pay a buyer’s agent, and some don’t. Without representation, market inclusion decreases. Sexuality decreases.”