Real Estate Commissions Under Scrutiny
Real estate is a popular and potentially lucrative profession in Santa Cruz County, with median home prices hovering around $1.5 million. With more than 1,100 people engaged in the real estate trade in the county, it’s no surprise that the industry has faced a significant shakeup recently due to a federal court antitrust decision on commissions that could change how agents are paid for their work.
The Current Commission System
As it stands, home sellers pay a commission typically between 5% and 6% of a home’s selling price, which is usually split between the seller’s and buyer’s agent. This commission is baked into the home selling price. This system has been in place since the 1990s, and commissions have remained around 5% to 6% of the sale price even as home values have skyrocketed and many buyers do more of the work finding a home themselves online.
Recent Court Ruling on Commissions
In a recent federal court case, a Kansas City jury delivered a $1.8 billion verdict to home sellers in Missouri against the National Association of Realtors (NAR) and two major brokerages, finding they had conspired to keep commission rates high. A judge could triple that judgment to $5 billion. The NAR plans to appeal, and other lawsuits making similar objections to commission rates are also in the pipeline.
Lawyers representing home sellers in the court case argued that the current model suppresses competition by making it difficult for buyers and sellers to negotiate lower rates. They claim that if buyer-broker commission rates were negotiated directly by the home buyer, they might eventually fall as agents would likely be pushed to further compete for buyers’ business. The NAR, however, maintains that commission offers are negotiable and are determined by the market and the value that real estate agents bring to consumers.
Potential Changes to the Commission System
Many industry watchers predict that it could become less standard for sellers to offer compensation to buyers’ agents. Some even forecast more radical changes, such as sellers being banned from compensating buyers’ agents altogether. If buyers become largely responsible for paying their own agents, some might opt not to use agents at all, which would mean less business for real estate agents who primarily work with buyers. A decline in buyers’ agents could also harm real estate listing companies like Zillow and Realtor.com, which sell leads to buyers’ agents.
The timing of the ruling came as many real estate brokerages faced a tough business environment, with the volume of home sales slumping this year due to higher mortgage rates and a limited supply of homes for sale. However, spokespeople for the NAR and large residential brokerages say that while the ruling is likely to change the amount of commissions paid by home buyers and sellers, as well as how they are paid out, both sides will still seek out and need representation.
Adapting to the Changing Real Estate Landscape
It’s important to consider that sellers do not, in most cases, raise the price of a home to cover commission and other closing costs. The market sets the price of a home, and the industry has already adapted to the changing times. Despite the wealth of technology and information available to housing consumers, over 90% chose to use an agent last year. To avoid chaos and conflict in buying and selling, it’s expected that this trend will continue, even under a new commission system.
Orginal article: Link To Article – provided by Kansas City Realtors
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