What the Realtor lawsuit verdict means for home buyers

A lawsuit in the real estate industry might actually end up being good news for home buyers. Axios reported a Missouri jury this week found the National Association of Realtors had conspired with brokerages to inflate commissions on home sales. The decision "puts the defendants on the hook for $1.8 billion" in damages. While the decision will be appealed, "these fees are going to start dropping now." How low? "A seller's fee could be as low as zero." And that could bring home prices down.

"It's a decision that has the potential to rewrite the entire structure of the real estate industry in the United States," The New York Times reported. Under the NAR rules, home sellers have been required to pay commissions to the buyer's agent. The seller of a $1 million home can pay as much as $60,000 in agent fees as a result. If the verdict holds, though, "sellers would no longer be required to pay their buyers' agents."

That change would be an "earthquake" in the real estate industry, Lance Lambert wrote at ResiClub, a news and research firm that analyzes the housing market. And more lawsuits against the real estate industry could be in the offing. "The big outstanding question here is if today was a small quake, or this first tremor in something much much bigger."

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'Nearly invisible to buyers'

In the United States, home sales usually involve an agent each for both the buyer and seller. "The seller pays the commission to both of them," Rachel Kurzius explained at The Washington Post. If a seller tries to opt out of paying the buyer's agent, the house won't be listed on multiple listing sites (MLS) like Zillow or Redfin. And a home that can't be listed on Zillow "becomes nearly invisible to potential buyers." But those same sites have made real estate information so accessible that most buyers don't need an agent to find a house. "Yet commissions have not changed to reflect that."

One possible change to the system "is that buyers would pay their own agents but could negotiate for the seller to help cover that cost as part of the deal," The Wall Street Journal reported. Buyers could benefit in weak housing markets by getting sellers to cover the whole cost; sellers in tight markets would have leverage to charge a little more. One expert said that process would let market forces "make sure you've got a correlation between service provided and the commission that the broker is getting."

Some observers believe any changes will affect home prices only at the margins. The current tight supply of housing "will keep prices high," Marketplace reported. And the verdict could threaten the future of those MLS websites, making the market a bit less transparent than it is now. "The buyer would need to go to several different services to get a sense of what's in the market as a whole," said Susan Wachter, a professor at the Wharton School of Business.

'Paying less money'

Indeed, Yahoo reported that Zillow's shares dropped 7% in the immediate aftermath of the Missouri verdict. The company doesn't rely directly on commission income, but "its core business is selling marketing services to buyers' agents." 

Back in Missouri, there is still more work to be done in court. The Associated Press reported that the core $1.8 billion in damages could be "trebled," putting the ultimate penalty on the defendants at more than $5 billion. For most home buyers, the lawsuit's importance will be the changes to the housing market: As housing prices have soared, so have agent commissions, which in turn have added to the price of a sale. "If sellers no longer had to pay the buyer agents, there wouldn't be that inflation and buyers could negotiate the commission down and they would end up paying less money," said Stephen Brobeck at the Consumer Federation of America. That could take some time to play out, a spokesman for the Realtors said. "This matter is not close to being final as we will appeal the jury's verdict."