The dynamics of home buying and selling, alongside the role of real estate agents, are undergoing a substantial shift.
Having been deeply engaged in this discussion for years, the recent colossal class action lawsuit wasn’t entirely unforeseen for those of us entrenched in the profession. The gradual rise of numerous disruptive forces in the real estate sector over the last decade, employing aggressive growth strategies at the expense of both consumers and industry professionals, had set the stage for a reckoning. The swelling ranks of individuals obtaining real estate licenses, facilitated by relaxed regulations, were poised to reach a tipping point. It was a period characterized by hyper-competitiveness within the brokerage world, an overemphasis on personal branding, an inflated sense of self-worth, and an intense scramble for real estate commissions. Externally, this frenzy has eroded the traditional essence of real estate transactions.
The process of property exchange, while multifaceted and involving multiple stakeholders, is fundamentally straightforward. In reality, most consumers merely require expert guidance. Each property owner or buyer may have unique needs, such as remote buyers with constraints, like job relocation and specific locational prerequisites.
In my view, the real issue lies in the overvaluation of listing agents, while buyer agents often contribute more value to many transactions. However, with the National Association of Realtors (NAR) focused on maximizing license distribution, even a downsizing of the agent pool would be insufficient to rectify the situation. Surprisingly, an 80-90% correction is necessary to restore balance. Even if the U.S. has between 1.6 million and 2 million licensees, I believe that 400,000 individuals would be the upper limit required to handle the available transactions.
Consequently, this spells trouble for major real estate entities heavily reliant on collecting 6% commissions, particularly those that prioritize bolstering their agent numbers. Maintaining these operations, with market valuations ranging from $1 billion to $10 billion USD, in the face of reduced agents, transactions, and lower rates, is an increasingly daunting challenge.
In light of the recent case, a federal jury has ruled against the National Association of Realtors and prominent real estate franchisors, in an antitrust lawsuit alleging collusion to inflate real estate commissions. The lawsuit, representing around 500,000 Missouri home sellers seeking reimbursement for $1.78 billion in commissions paid to buyer brokers, culminated in a substantial $5.356 billion in damages, triple the original amount.
Typically, home buyers do not directly pay their agents. Instead, sellers remunerate their own agents, who then share commissions with the buyer’s representative. In a standard transaction, total agent commissions range from 5% to 6% of the sale price. For instance, in a $400,000 home purchase, this amounts to approximately $20,000, split between the agents involved.
In the days ahead, a sense of bewilderment is expected to permeate both the real estate profession and the methods of communicating with clients regarding the evolving procedures and strategies for promoting properties in the market. It marks a juncture where simply engaging someone to input an offer or a listing into the MLS is no longer sufficient. Every client will necessitate a genuine broker, someone agile and comprehensively attuned to the intricacies of the process.