#513
The Demise of the Middleman
Published:
Nov 06, 2023
Author:
Sarah Parsons Wolter
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In the opaque world of the American housing market, buyers and sellers usually conduct their property transactions with the assistance of two types of real estate agents: one representing the buyer and the other representing the seller. Even with the advent of online platforms such as Zillow, StreetEasy, and Trulia, which enable buyers and sellers to find each other and negotiate deals directly, these agents continue to “make bank.” Collectively earning $100b in commissions each year by charging fees ranging from 5% to 6% of the headline sales price.
However, a recent ruling from a Missouri federal court may put a spanner in the works of this well-oiled practice. After a brief period of deliberation this week, a jury found that the National Association of Realtors (NAR) and major brokerage firms colluded to maintain inflated commission fees. As a result, the court awarded $1.8b in damages. This amount might triple to $5b due to antitrust legislation.
The plaintiffs argued that NAR and its co-defendants conspired to keep commission rates high and that the system prevents sellers or buyers from negotiating the fees down. In a world of heightened consumer protection, significant changes could come soon. One broker report predicted that the ruling could lead to a 30% reduction in the $100b annual fee pool and push well over half of the 1.6m agents out of the industry. Others are predicting that the long-term upshot could be home prices falling, as right now, the fee paid to a homebuyer's agent is baked into the home's sale price. If that fee goes away or is reduced, the sale price will be lower.
This all comes at a time when America finds itself in the middle of a housing shortage and with home affordability at its lowest levels in a generation, thanks to the combination of record-high home prices and the highest mortgage rates in years. Youngsters trying to get onto the property ladder for the first time might not have to deal with this response (below) for too much longer.
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The Demise of the Middleman
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