The decades-long practice of property owners paying real estate commissions is being seriously challenged in courts nationwide and the legal fallout could dramatically change how much money buyers and sellers of homes pay real estate agents in the future.
The repercussions will be especially pronounced in Florida, which has more real estate agents than any other state in the nation.
Miami realtors’ board recently changed its long-standing policy of requiring listing agents to offer commission to a buyer’s agent. If an agent working with a buyer is involved in a deal with a cooperative commission of zero, that agent would not get paid the way residential real estate commissions have been for years.
Common practice is for a 5%-6% sales commission. Usually, it is evenly split between the agent working with the seller and the agent working with the buyer.
At stake, pending the outcome of courtroom battles across the country, are billions of dollars exchanged with the purchases of millions of properties.
“We believe that the commissions are too high and they’re uniform, which means that they’ve basically been set by the industry,” said Steve Brobeck, executive director of Consumer Federation of America. “Consumers are overpaying for brokerage services.”
Sellers have been suing in courts across the country over coupled commission.
“Sellers are pushing back. They’re saying, ‘Why should I be paying the buyer’s commission?’” said FIU Real Estate Professor Suzanne Hollander.
One case already has gone to a jury, which determined that linking the selling and buying agents’ commissions was anti-competitive. Several real estate brokerages and the industry’s main trade organization were sued by home sellers in federal court in Kansas City, Missouri.
Two firms, RE/MAX and Anywhere Real Estate, which owns brands such as Coldwell Banker and Century 21, settled before the jury got the case.
The jury decided the National Association of Realtors, Keller Williams, and HomeServices of America conspired by forcing home sellers to use a system that splits payment of a commission between sellers and buyers. The jury ordered the brokerages to pay $1.8 billion in damages. An appeal is expected.
“The reason we are in this situation is because it wasn’t transparent to buyers and sellers how commissions were shared,” said Brian Schmitt, owner of Coldwell Banker Schmitt Real Estate in the Keys.
The Florida Association of Realtors and more than a dozen brokers were sued last month, accused of conspiring over agent commissions, the same accusation that was in front of the jury in Missouri.
“We can’t put that toothpaste back in the tube,” said FIU’s Hollander. “And that discussion is going to be on every single table when we’re talking about signing a listing agreement.”
“It represents the greatest threat to the price setting of the industry in the last 100 years,” said Brobeck. He figures if real estate commissions drop by two percent, it would save home buyers and sellers $20 billion dollars a year.
The potential savings is enormous as it represents an enormous threat to how business is done and how agents are paid.
WLRN requested interviews with the Miami Association of Realtors’ chairman and chief legal counsel. They turned down the invitations and sent the association’s explanation for the change that was posted on its website in early November.
Editor’s Note: This story has been edited for length. The full story is on WLRN’s website and can be accessed by clicking here.
Tom Hudson
Tom Hudson is WLRN's Senior Economics Editor and Special Correspondent. His work appears under a partnership between WLRN and the Key Biscayne Independent.