Introduction
First, let me share that the real estate agents are necessary to protect the interests of the buyers and sellers. The method of compensation has always been a percentage of the sale, which has predominantly been paid by the sellers for both the listing and buying agents.
Why should sellers pay both sides?
Homeowners claimed it was unfair for sellers to have to pay 5-6% of the purchase price, with half going to the buyers’ agents for their fees.
Required for MLS Listings
In order for homeowners to have their homes listed on any Multiple Listing Service (MLS), they would have to offer compensation to the buyers’ agent and post the information on the MLS. Some Multiple Listing Services required that only the 5-6% was allowed, thereby creating price fixing or a violation of antitrust laws. It was the fact that Sellers and Agents could not post discounted prices, and were required to adhere to the same percentage virtually everywhere in America, that was the problem. The only alternative was to forgo the brokerage route and do a “For Sale By Owner.”
The Legal Challenge
A group of homeowners sued the industry claiming that this practice was a violation of federal antitrust laws, which caused prices to rise, including steering by agents to those homes offering the highest commissions. They took their case to court in Kansas City, MO, suing the National Association of Realtors, the major real estate firms including Re/Max, and Keller Williams, and the MLS Boards. The suit is known as Sitzer/Burnett. In October of 2023 a jury found the real estate industry liable for $1.7B in damages and up to $5B in punitive damages. Some of the big real estate companies settled with the plaintiffs rather than facing the trial court.
Commentary
This case was about the sellers feeling it was unfair to pay the buyers agent a commission and not be able to negotiate a lower fee from the buying agent. However, it is a bit disingenuous that every single plaintiff in this case benefited from the practice when they purchased their home and now are not willing to refund that or are they only interested in how much money they can get for themselves. This case was not about fair capitalism, and since then the copy cat cases have sprung up like weeds. In states like California you can and could always could negotiate your commissions, or even offer no compensation to buyers agents.
BTW the only winners here were the attorneys who got a huge payday, like $100M, and filed it in a state with the best chances of winning due to the area and courts. Had this case originated in California the result would not have been so dramatic, so this case is about greed pure and simple. We should be angry about that.
This won’t change the fact that without sellers compensating buyers agents in the short term, there will be chaos and uncertainty in the market. The real losers here are the first time homebuyers and there are no winners except the lawyers.