A Big Step Toward a Fairer Housing Market
Some overcharges are right there for everybody to see. One of them is how much Americans have to pay to buy or sell a house. The combined commission paid to agents for buyers and sellers is typically 5 percent to 6 percent, compared with below 2 percent in Britain, the Netherlands and Sweden, among other countries, according to studies cited by the Federal Reserve Bank of Richmond.
Fortunately, those commissions are coming under pressure, especially on the buyers’ side: A tentative settlement reached last week by the National Association of Realtors could knock a percentage point or two off commissions, which would mean $5,000 to $10,000 off the price of a $500,000 house if all the savings went to buyers.
The history of the real estate industry’s efforts to prop up commissions is long and inglorious. In 1939, the National Association of Real Estate Boards — the predecessor of the National Association of Realtors — formed a committee to standardize commission rates. “By 1950, the 5 percent commission rate was an industry standard, and calls for 6 percent soon followed,” according to an article in Chicago Agent Magazine that was cited by the Justice Department in another case last month.
For nearly as long, the Justice Department, the Federal Trade Commission and private citizens have tried to break the industry’s grip.
Things started heating up in 2019, when private plaintiffs brought class-action suits on behalf of home sellers in Illinois and Missouri. This past October a federal jury in the Missouri case found that the National Association of Realtors and several big brokerage firms had conspired to follow and enforce a rule on how buyers’ agents are compensated. Plaintiffs alleged that the rule inflated agent commissions. The jury ordered the defendants to pay $1.8 billion in damages. Several major brokerage firms have settled the claims against them with financial payments and an agreement to abide by future structural changes in the industry that would be part of a final settlement.
What happened last week is that the National Association of Realtors reached a settlement on those structural changes, pending a judge’s approval. The settlement doesn’t discuss commission rates, only policies. It also agreed to pay $418 million in damages. The settlement covers the cases in Illinois and Missouri as well as those in a number of other states. Most brokerage firms are covered, although not the biggest, Berkshire Hathaway-controlled HomeServices of America.
