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Real Estate Commissions Could Be the Next Fee on the Chopping Block

The Wall Street Journal

October 18, 2023

A pair of lawsuits seeking billions in damages allege the home-sales industry has conspired to keep costs high

In recent years, technology has made a host of consumer transactions cheaper—from booking a vacation to buying stocks—but commission rates for selling a home haven’t really budged. That could soon change.

A pair of class-action lawsuits challenging real-estate industry rules—including one that went to trial beginning this week—and continued pressure from U.S. antitrust officials are threatening to disrupt a compensation model that hasn’t meaningfully changed in decades.

Home buyers rarely pay their agents. Instead, sellers pay their own agents, who in turn share their commissions with the buyer’s representative. In the typical transaction, total agent commissions are 5% to 6% of the sale price. For a $400,000 home purchase, that is roughly $20,000, split two ways.

In most markets, publishing the amount of compensation offered to the buyer’s agent is a condition for listing a home on a multiple-listing service—a vital tool for marketing a home.

In the current environment, trying an alternative approach can be risky. When Jon Anderson decided to sell his khaki-colored three-bedroom house in Colorado Springs four years ago, the veteran home seller was fed up with paying a real-estate agent tens of thousands of dollars.

He hired a low-fee brokerage company, REX, that was bucking a widespread industry rule by not guaranteeing the seller would pay a commission to the home buyer’s agent. At the time, homes were often selling in days, but for several weeks Anderson said virtually no buyers even toured his home. It eventually sold for $15,000 less than he originally listed it.

“I believe that when my house went on the market through REX that we were completely and utterly blackballed by the real-estate market,” he said. 

REX, which is now defunct, recorded a call with a buyer’s agent interested in Anderson’s home until she realized there was no guaranteed commission. “I won’t bother to show it,” she said. A former REX data scientist said the recording and about 600 similar ones have been turned over to plaintiffs’ attorneys and the Justice Department.

The plaintiffs in the class actions, who are home sellers in different regions of the country, say the longstanding industry rules amount to a conspiracy to keep costs high in violation of U.S. antitrust law. Buyers, they say, have little incentive to negotiate with their agents because they don’t pay them directly, while sellers are loath to experiment with a lower commission rate for fear that agents will steer clients away from their home.

An academic study released this month provides some evidence of these concerns. It found that home listings offering lower buyers’ agent commissions take significantly more time to sell and are much less likely to sell at all, even after controlling for factors such as the home’s age and location and listing-agent attributes.

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