Editor’s Note: Max Besbris is an associate professor of sociology at the University of Wisconsin-Madison and is the author of “Upsold: Real Estate Agents, Prices, and Neighborhood Inequality.” The views expressed in this commentary are his own. View more opinion at CNN.
CNN
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It might seem like the National Association of Realtors, which in the past few years has been the target of antitrust lawsuits and whose former president resigned in the wake of a sexual harassment scandal, is in crisis. Last year, a federal jury in Missouri found that the NAR, along with private brokerages, had colluded to keep broker fees artificially high and awarded nearly $1.8 billion to hundreds of thousands of home sellers. And on Friday, the NAR announced that instead of appealing it would settle the lawsuit.
The question at stake was whether or not an NAR rule that requires home sellers to pay the fees of the agent representing the buyer – the standard 5% or 6% total commission on the final sales price familiar to most American home sellers – amounted to a conspiracy. Since the verdict was “yes,” it might seem that a transformation in how real estate is bought and sold is at hand. If sellers’ and buyers’ agents are no longer allowed to cooperate in setting commission fees, buyers and sellers can directly negotiate with their agents about how much to pay for their services. Flat-fee real estate brokerages, which charge a set dollar amount instead of a percentage of the final price as their commission, are on the rise, further indicating that consumers are fed up with the status quo.
But there are good reasons to believe any changes to the housing market will be slow.
The NAR remains one of the most powerful industry groups in the United States. It has over $1 billion in assets and consistently spends astronomical amounts on lobbying. According to Open Secrets, in 2022 the NAR spent over $82 million to win over state and federal lawmakers, even more than the Chamber of Commerce. Of the 2 million or so licensed real estate agents in the US, more than 1.5 million are members of the NAR, making it the largest professional organization in the country. This means that the NAR still holds massive sway in shaping housing policy and determining how we buy and sell houses. While the current commission structure may begin to fade, the NAR hasn’t recommended any alternative.
Aside from the NAR’s political and economic power, real estate agents are an entrenched part of the housing market. Despite the rise of housing websites, 86% of buyers and sellers in the US were represented by agents in 2022. In my own research observing interactions between agents and their clients, as well as interviewing prospective homebuyers about their decisions to use or avoid agents, I found that buyers were skittish about relying on information gleaned online and preferred using agents who had often been referred by relatives or close friends.
The purchase of a home is a massive financial and emotional decision, and buyers have been, for the most part, happy to rely on agents’ advice. For now, many consumers will likely not know that agents’ fees are negotiable, and they will continue to think that their agents’ recommendations are their only options.
Even if the recent settlement leads agents to be more transparent about the commission structure and more open to negotiating fees, the market can still punish agents who do not hew to the standard 6% commission arrangement. A recent paper analyzing home sales in Massachusetts between 1999 and 2011 found that listings that had lower commission rates not only took longer to sell than properties with the standard commission rate, but that they were also more likely to not sell at all. Agents, in other words, are more likely to do business with other agents when they all agree on higher commissions.
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It is clear that more consumer knowledge and more oversight are both necessary. It should become standard that agents both in writing and verbally alert new clients that fees are legally negotiable. We need stronger and more expansive training for licensed real estate agents, particularly around their financial and fair-housing obligations, as well as more data collection on real estate agent practices.
Legislation introduced in New York state is seeking to do just that by holding brokers accountable for their agents’ actions and requiring agents to better document their interactions with buyers and sellers. We must also consider more radical interventions into the housing market. Municipalities already maintain databases on all property transactions and they could easily require all listings to be posted in standardized ways on public websites so every buyer and seller has access to the same information. And publicly funded housing counselors who do not make commissions from completing transactions could be used to match buyers and sellers.
Without these changes to how we buy and sell housing, the NAR and exorbitant commissions will likely remain fundamental parts of the housing market in the years to come.
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