Opinion The beginning of the end of real estate commissions? Hooray. (WaPo, Megan McArcle column)

My dad was a Realtor(R).  During the late 1960s and early 1970s, several times when my parents and I drove past by County Board of Realtors in Gloucester County, N.J., I'd ask him about illegal price-fixing and antitrust violations on Commission by his local Board of Realtors. Don't recall him articulating any defense.  Price-fixing is illegal. 

From The Washington Post: 

Opinion 

 The beginning of the end of real estate commissions? Hooray.

By Megan McArdle

Columnist|

November 6, 2023 at 6:45 a.m. EST

A couple talks with a real estate agent about a house. (iStock) 

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Like many children of the 1980s, I was raised by a real estate broker — the profession of choice for many in that transitional generation who had grown up as future housewives then belatedly realized they needed a career. If you spend your childhood in such circumstances, you learn two things early: the value of a good broker to prospective buyers and the sacred necessity of the 6 percent commission, paid by the seller, then split evenly between the buyer’s and seller’s agents.

Last week, a Missouri jury tackled the financial foundation of the profession — and my childhood — head-on. In a class-action suit, Burnett v. NAR, jurors delivered a $1.8 billion judgment against the National Association of Realtors and various large brokerage firms for colluding to keep commissions much higher than they should be.

It’s not yet clear exactly what this means for the industry, because there are still rulings to be filed, appeals to be made and — you can be sure — more anti-collusion lawsuits to be litigated. But it’s possible we are witnessing the beginning of the end of real estate commissions as we know them. And this is already sending shock waves through the industry. The chief executive of the National Association of Realtors resigned on Thursday, though he insists it had nothing to do with the looming collapse of the current business model.

Or at least I hope it’s going to collapse. Because it deserves to.

Of course, these incentives are mitigated by other factors, starting with basic human decency. I often watched my mother guide people away from apartments she thought were overpriced. Having a reputation for integrity is a business asset; her clients stuck loyally by her over multiple purchases and referred their friends. But she also had a lot of stories about brokers who didn’t act this way. So, when I bought my own home, I ran my own analysis of comparable nearby sales and found my own home inspector, because I knew that my broker’s incentives were not the same as mine.

To be clear, I still think a good broker provides a lot of value to her clients (and so did my mother’s clients, many of whom became personal friends). But I also agree with the jury that brokers have colluded to keep commissions high — absurdly high, by international standards — in part by steering buyers away from listings that don’t offer them full commission.

Even apart from the question of how high the commissions are, it is obviously a bad idea for the buyer’s agent to be paid by the seller — and as a percentage of the sale price. Inevitably, this aligns their interests more closely with the seller than with their client. A buyer wants to get the lowest possible price and plenty of time to think, while a seller wants top dollar as fast as possible — and so does a buyer’s agent whose commission depends on it.

If buyer’s agents were paid by the buyers, then their interests would be better matched. Realtors will argue that some buyers, particularly first-time buyers, might not be able to afford the services of a broker. But, of course, they pay for one anyway; the commission ends up embedded in the price of their house. If brokerages are worried about preserving access for less-liquid buyers, they could always try offering payment plans or lobbying banks to make it possible to include their fee in the mortgage.

Besides, if buyers end up going without agents, how much should this really worry anyone? “In other countries, buyers rarely use brokers,” a recent Wall Street Journal editorial pointed out. And there have never been more online tools available to help people find suitable homes, from listing databases to crime maps and school ratings.

Now, because I was raised by a broker, I do think many Americans will continue to use buyer’s agents. A good one can, at minimum, speed up the search by warning clients off the stuff that looks fine on paper but wrong in person. They can keep them from making many other sorts of mistakes. And they can hold buyers’ hands through the stressful, time-consuming process of making the biggest purchase of their life.

Yet a buyer who does have an agent should be able to count on that person to help get the lowest possible price and ferret out every possible problem. The buyer should also clearly understand how much the agent will charge. And that amount should be set in an open, competitive market where customer and broker each have a say, rather than by a bunch of brokers working together to keep their fees as high as possible.

Opinion by Megan McArdle

Megan McArdle is a Washington Post columnist and the author of "The Up Side of Down: Why Failing Well Is the Key to Success." Twitter

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