💼 Commissions = Antitrust?
briefcase | invest smarter | Thursday snippet
Sometimes, we see stories that are too hot to wait until Friday. Today, we have one of those coming in hot for briefcase readers. Enjoy!
🏡 Are Commissions Anti-Competitive?
TLDR: Per Bloomberg, the DOJ is weighing whether to bring forth an antitrust case against the real estate commission-sharing system that typically puts home sellers on the hook for a 5% to 6% sale cut.
The Real Estate Commission Debate: The US real estate industry is undergoing significant scrutiny concerning its longstanding commission-sharing system. Currently, when homeowners sell their property, they typically pay a broker fee of 5%–6% of the sale, which is divided between the seller's and buyer's agents. To put this into perspective, a house priced at $500,000 could see around $30,000 taken as broker fees. The National Association of Realtors (NAR), which represents over 1.5 million agents and is the largest trade group in the country, mandates this fee structure if a house is listed on most listing services.
Legal Actions and Potential Repercussions: The Justice Department, after years of investigation, is deliberating legal action against this commission structure. Additionally, two prominent class-action lawsuits are challenging the system. One in Missouri could lead to damages of up to $4 billion, while another in Illinois seeks a staggering $40 billion. Critics argue that this commission-sharing structure artificially inflates home prices. Meanwhile, recent settlements saw RE/MAX and Anywhere Real Estate pay a combined total of $138.5 million. If the Justice Department moves to dismantle the current structure, the implications could be monumental, with predictions suggesting that nearly half of the country's real estate agents could be left jobless.
Potential Changes and Industry Reactions: The commission system, unique to the US, is maintained by NAR’s control over most of the nation’s multiple listing services. If altered, such a change could save homeowners as much as $30 billion annually, as the Consumer Federation of America estimates. In international comparison, countries like Australia and the UK see significantly lower commission rates, around 2% of the sale price. The NAR defends its current structure, emphasizing its benefits, especially to first-time home-buyers from minority and lower-income groups. However, as the industry faces these challenges, the future of commission rates and, by extension, the NAR remains uncertain.