The American real estate industry is undergoing a radical transformation that could change the way we buy and sell homes forever.
A jury in Missouri ruled last month that the National Association of Realtors (NAR) had artificially inflated commissions by allowing real estate agents to collude. That ruling could set a national precedent — and experts estimate it could cut commissions for real estate agents by as much as 30 percent.
Lower rates would be good news for home sellers and buyers, but what does the ruling mean for the 1.6 million members of the NAR? They include single mothers, veterans and ambitious young professionals. One report estimates that as many as 80 percent are now at risk of losing their jobs.
“I feel like this gives real estate agents an unfair reputation,” agent Desirae Wykoff, 36, told DailyMail.com. “I saw a lot of these people hang up their driver’s licenses.”
In recent years, obtaining a real estate license has become a popular side hustle for Americans. In 2020 and 2021 — when the pandemic left many unemployed — a record 156,000 people became real estate agents, according to the NAR.
Agents in the US charge home sellers an average commission of between 5 and 6 percent of the sales price of their property. That’s more than double the average fee charged in Britain, according to investment bank Keefe, Bruyette & Woods
Desirae Wykoff, 36, got her real estate license in 2015 and earns between $15,000 and $25,000 a year to supplement income from her full-time job
Wykoff got her license in 2015 when her husband quit his job to start a new business, but it was slow to take off.
When they divorced five years later, she became a single mother of three children. She worked full-time at a local car dealership in Tulsa, Oklahoma, and also brokered real estate transactions to supplement her income – usually an additional $15,000 to $25,000 per year.
‘If you look at this profession from the outside, it seems like you can make easy money. It seems like you’re doing a little work for a lot of money, but that’s not what it is at all,” she told DailyMail.com.
When someone sells a home, the commission he or she pays is split between the buyer’s and seller’s agents. The Missouri jury found that agents conspired to artificially inflate the commission and awarded home sellers in the state $1.78 billion in damages.
The presiding judge can now triple the damages award under antitrust law. The plaintiffs have also asked the judge to order changes in the way the industry operates.
Similar class action lawsuits will be heard in Illinois and South Carolina.
According to a report by investment bank Keefe, Bruyette & Woods (KBW), American real estate agents account for approximately 90 percent of home sales. Labor Department figures show they earn an average of $65,850 a year.
Estate agents in the US charge home sellers an average commission of between 5 and 6 percent of the sale price of their property – more than twice the average fee charged in Britain, for example.
This commission is paid entirely by the seller, but is split between the two agents according to NAR standards.
The NAR is the largest trade association in the US and only its paying members are allowed to call themselves “Realtors.” They are also the only people who have access to the company’s own database of properties for sale.
These databases are called “multiple listing services” or MLSs and require the seller’s agent to list the commission amount their client pays. In theory, this allows the buyer’s agent to ‘steer’ buyers to houses where the commission is higher and from which they can benefit more when selling.
The buyer’s agent can see which properties have the best sales commission and ‘steer’ buyers there. More than 76 percent of agents said buyer agents would be more likely to show a home if the seller offered a higher commission
Drake Johnson, a veteran and real estate agent based in North Carolina, said sellers were not required to pay fees as high as 5 or 6 percent
According to a survey by consulting firm 1000watt, more than 76 percent of 640 real estate agents in the U.S. said buyer’s agents would be more likely to show a home if they knew the seller was paying a higher commission.
This system, in turn, allows the seller’s agent to tell sellers that if they don’t offer enough commission, buyers will never see their home.
But many brokers bullishly defend the current system.
Drake Johnson, a veteran real estate agent based in North Carolina, said, “You always have the option of not using a real estate agent.”
“There’s nothing stopping sellers from putting a ‘for sale’ sign in their yard and putting their house up for sale on Zillow,” he added. “There are a lot of cheap options.”
He also noted that sellers sometimes offer to list homes on the MLSs for a flat fee of just a few hundred dollars. But even in those cases, the buyer’s agent is still paid as a percentage of the sales price.
Missouri Western District Court, where a jury last month ruled that $1.78 billion in damages must be paid to hundreds of thousands of home sellers
The National Association of Realtors was found guilty by a jury of conspiring to keep home sales commissions high. The commission on home sales in the US is usually between 5 and 6 percent. The photo shows President Tracy Kasper
Industry insiders have suggested that buyer and seller agents should be ‘split’, meaning they are paid by the buyer and seller respectively. This also causes problems because first-time buyers on the housing market may not be able to afford the costs.
Both Johnson and his wife make money through real estate brokerage. He pointed out that while brokers earn fees, they also have costs.
“They have to pay their brokerage fees, they have to pay all these other things. And then all of a sudden that cop is working for less than minimum wage,” he said.
‘Ninety percent of real estate agents sell 10 percent of the houses and 10 percent sell a whole bunch.’
A spokesperson for the NAR said the association would appeal the verdict.
“This case is not close to finality as we will be appealing the jury’s verdict. In the meantime, we will ask the court to reduce the damages awarded by the jury,” spokesman Wes Shaw said.
“We support that NAR’s guidelines for local MLS broker markets ensure consumers receive comprehensive, fair, transparent and reliable home information.”