What would happen if the bulk of real estate agents disappeared and buyers had to start paying for their own agents separately?
Two active lawsuits may do just that. If successful, their verdicts would cause a tectonic shakeup of how you buy and sell your homes.
The Sitzer/Burnett class action lawsuit in Illinois and Missouri argues that sellers are hurt having to pay both the seller’s agent and the buyer’s agent. This is the norm nationwide: at closing, seller pays a 6% commission to their listing agent who then splits it with the buyer’s agent. The lawsuit equates to about $1.3 billion in commissions that those sellers want reimbursed to them. Then there’s the Moehrl antitrust class action suit that deals with the same issue.
Why DO Sellers Shell Out For BOTH?
Once upon a time, that was the model. Sellers only paid their agent - the listing agent. It made sense until the system derailed with representation issues and litigation.
Buyers, already saddled with a downpayment + closing costs + inspection + appraisal fees did the expected: went straight to the listing agent rather than pay 3% for their own exclusive representation. This created a tidal wave of Dual Agency, where the listing agent (representing the seller) was also representing the buyer.
Dual Agency can be a thing of beauty or a resentment-laced battlefield. I act as dual agent a few times each year and have yet to have an issue. Nor would any other Realtor who is both ethical and honest. Shepherding both sides can avoid all the drama and manipulation which often causes deals to fall apart. Still, even though buyer’s had knowingly decided not to pay for their own agent, claims of poor representation abounded. Ultimately the system was overhauled and the 6% seller-paid, agent-shared commission we have today took over.
Could Agents Be Eliminated?
While that’s not the goal of the lawsuits, any Realtors working strictly or mostly as a Buyer’s Agent would be out of work. Experienced agents with decades of wisdom may retire early or leave the profession. It’s likely many brokerages would go out of business. Few industries have been improved with wage suppression and job elimination. Sellers would benefit in the short run from a lower fee structure. After they sell, they might feel differently when they then become buyers - buyers lacking representation.
Is There No Better Solution?
Class action lawsuits can take years in court so these changes, if put into effect, won’t happen soon. Moreover there are lobbyists and trade groups all fighting for territory. Some have proposed wrapping the 3% Buyer’s Agent fee into the mortgage. However, brokers can’t be paid over 30 years and the houses likely wouldn’t appraise at the new, higher price tag.
Any outcome will be interesting, to say the least so...stay tuned.