How a Verdict on Real Estate Commissions Could Flip the Housing Market

Real estate broker commissions are in the crosshairs after a federal jury on Tuesday sided with home sellers in a class-action lawsuit, ruling that the National Association of Realtors and residential brokerages colluded to keep fees artificially high.

The MLS might not be a household name, but the network is the backbone of how homes are marketed in the U.S. These networks also inform home listing portals such as Zillow, Redfin, and Realtor.com. Analysts say the verdict could weaken the MLS system. Agents may no longer use MLS if they are no longer guaranteed compensation by using it, analysts at KBW wrote. That could benefit consumers because it “could reduce the barriers to entry for alternative solutions available to homebuyers, home sellers, and real estate agents,” they wrote, adding that such an outcome could increase innovation in housing transactions.The judge Stephen R. Bough in the case needs to issue his final order.

Even with a verdict, there are still plenty of unknowns. Among them: the substance of the judge’s final judgment. “Changes to these rules, or elimination of these rules, will significantly increase transparency for consumers around real estate agent compensation,” KBW analyst Ryan Tomasello said in a previous interview with Barron’s. The change would allow buyers to negotiate fees with agents or negotiate with the seller to pay their brokers’ fee, Tomasello said.

But commissions might not fall as much as one would expect, RBC analyst Brad Erickson wrote in a Tuesday report. In RBC’s own discussion with agents who are subject to what the firm described as higher transparency requirements, “we found agent commissions fell 15-25 bps over the course of 4 years,” Erickson wrote. “Presumably, if this goes through without contestation, the impact would likely be greater but unclear by how much—our view is it would be slightly more, not significantly more.

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