U.S. Home Sales on the Rise: What Advisors Need to Know

As the spring buying season approaches, experts predict an increase in U.S. home sales, offering more options for potential buyers. However, a recent verdict against the National Association of Realtors (NAR) and several brokerages has raised concerns about the future of real estate agent commissions.

The Verdict Against NAR and Brokerages

Last October, a federal jury in Missouri found the NAR and multiple brokerages guilty of conspiring to maintain commissions at a steady 5% to 6%. The jury imposed a staggering $1.8 billion penalty on the industry’s top lobbying group.

Potential Impact on Commissions

Lawsuits continue to pile up, and the consequences of this case remain uncertain. The mounting legal challenges put NAR’s financial stability at risk and could potentially lead to insolvency.

What Consumers Can Expect

While the verdict’s repercussions are far from certain, one likely outcome is a change in commission structure that would benefit consumers. In 2021 alone, agents collected an astounding $100 billion in commissions. However, experts like Stephen Brobeck, a senior fellow at the Consumer Federation of America, suggest that modifying the commission structure could save consumers anywhere between $20 and $30 billion annually.

A Shift in Commission Structure

Should the litigation succeed, consumers may soon have the option to buy and sell homes with smaller commissions or even flat fees. KBW analyst Ryan Tomasello’s analysis suggests that broker commissions could be nearly halved as a result of this legal battle.

As advisors, it is vital to stay abreast of these developments and be ready to address clients’ pressing questions regarding housing. The changing landscape of real estate commissions has significant implications for the industry as a whole. Stay tuned for further updates on this evolving situation.

The Power of NAR: Access and Membership

The National Association of Realtors (NAR) holds considerable power in the real estate industry, largely due to the access it provides brokers to regional databases known as Multiple Listing Services (MLS). These databases are a crucial resource for brokers, and non-members are usually unable to use them. As a result, brokers have a strong incentive to join NAR.

However, despite this access and incentive, many NAR members have become disenchanted with their membership. In fact, last year saw the first decline in membership in over a decade, and some brokerages no longer require their agents to belong to NAR.

The Buyer’s Fee Debate

One area of common agreement among brokers is the concept of a buyer’s fee. Traditionally, in the United States, the home seller pays the entire commission, which is then split evenly between the buying and selling agent. However, brokers concur that the financial relationship between buyers and sellers should be reevaluated.

If this scenario were to unfold, advisors might find themselves hearing from clients who are looking to buy more frequently and sooner. The upfront expenditure that buyers would now be responsible for may prompt them to seek guidance from their advisors.