Bye-Bye to the 6%: A Lawsuit May Change How Real Estate Agents Get Paid

A major lawsuit could change the real estate industry forever. No, this isn’t an exaggeration. As you know, in the home-buying process 6% of what the home is sold for gets paid to the real estate agents involved—3% to the seller’s agent, and 3% to the buyer’s agent. This system of commission has been unofficially in place for over 50 years, but now that could all change with a class action lawsuit in court as we speak.

What’s Going On?

Currently, as it has been for years, sellers are having to pay the fees for both their realtor and the buyer’s. However, a lawsuit brought on by three different lawsuits starting in March of 2019 may change that fact. The first one being from Illinois where five law firms banded together to make a case that alleges that high commission rates are a result of co-conspirating by the National Association of Realtors (NAR), a group made up of over 1.36 million members, and brokerage franchises, violating antitrust laws. Two more cases have popped up in addition to the one filed in March. These class action lawsuits are trying to shift the way realtors get paid. The plaintiffs (a.k.a the home sellers) want to move more of the responsibility of who pays the buyer’s agent into someone else’s hands–like the buyer, as well as lowering the seemingly high 6% commission rate. Their thinking is: sellers are already taking a chunk of their profit out to pay their own agent–why should they have to pay the buyer’s agent, too? Additionally, there’s an additional perception that with the age of the internet agents’ jobs are easier than ever before and do not need the 6% commission for the amount of work they do.

What Are The Professionals Saying?

Real estate agents are not going to take these lawsuits sitting down. Prepared to defend the current 6% rule, one spokesman from the NAR argues that the case is “without merit” and that the current system is good for all clients. With a drop in the 6% rate, agents would be making less money, in turn causing issues for clients. Realtors also argue that they do a ton of work for clients, even if 44% of consumers use the internet to do their own research on homes, as they help sort through all the information the client obtained, and can end up having to do a lot of correcting for the client since they were brought in later in the process. Agents also point out that the buyers do bargain over real estate fees, and what ever price is listed on the Multiple Listing Service (MLS) could change at any point during the process, causing a decrease in what the buyer’s agent will receive from the original asking price. For example, a seller’s agent may propose to their clients to negotiate a lower asking price in order to address issues with the home or keep furnishings (like a fridge) with the home after the sale. This completely affects how much a realtor gets paid on a home by home basis.

Additionally, fees being combined with the home price works out better for the clients as well, as they are paying for the commission fee through regular mortgage payments, rather than one large sum or having to pay a separate fee before or after using the realtor’s services.   

The Bottom Line: How Does This Affect You?

Should the lawsuit pass under the court of law, prepare for major pay cuts. Commission rates could drop to as low as 1% to 4% like that in the UK or Australia. Also be ready for more buyers going for “Sale by Owner” or direct transactions to avoid having to pay for an agent. Either way, the publicity of the lawsuit as well as an increasing demand for change over paying real estate agents is affecting the industry one way or the other.  Agents must expect and prepare for less commission, fewer clients, more competition with the ibuyer market, and getting paid in a different format whether or not the lawsuits wins or not.