The way real estate agents earn commissions could see big changes if the U.S. Department of Justice has its way. It’s looking to level the playing field between home buyers and sellers when it comes to fees.
Home sellers traditionally pay the entire commission to their agent, and it’s decided in advance how much the buyers’ agent will be paid. The buying and selling agent evenly split the fee, which often is 5% to 6% of the sale price. On a $400,000 home, which is close to the national median, that would cost the seller $20,000 or more.
The Justice Department thinks that should change, according to a court filing on Thursday detailing its objections to a preliminary settlement in a Massachusetts antitrust lawsuit, and outlining its recommendations.
A group of home sellers in that case claimed that a rule for listings on a local Multiple Listing Service—a platform used by real estate agents to share data and listings—was “anticompetitive and causes sellers to pay artificially inflated, supra-competitive commission rates,” according to the complaint. The suit named the MLS Property Information Network and a number of national brokerages.
The Justice Department isn’t a party to the case—its filing is a ”statement of interest”—but it’s the first time it has spelled out how it thinks real estate commissions should be paid broadly—and it could influence or even direct the debate about broker commissions—which is playing out in courts across the U.S.
“This is the first time that the DOJ is really showing its hand, in terms of what changes it envisions are necessary to drive a more competitive market for brokerage commissions,” Ryan Tomasello, a KBW analyst following the court cases, said in an interview.
For now, the recommendations are simply that, “but they’re recommendations that carry a lot of weight,” Tomasello said.
The Justice Department wants “an injunction that would prohibit sellers from making commission offers to buyer brokers at all,” according to the filing. Such an injunction “would promote competition by empowering buyers to negotiate directly with their own brokers.”
MLS PIN declined to comment on the filing, citing pending litigation.
The filing also may signal the intention of federal officials to get more deeply involved. In a report published Thursday, Tomasello wrote that ”in our view, the language in the filing also alludes to the likelihood of the federal government intervening more aggressively to enforce these changes.”
The Massachusetts suit is one of several recent court cases challenging the way real estate brokers are paid, variously naming brokerages, MLSs, and the National Association of Realtors trade group as defendants, as Barron’s earlier reported. At the core of many of the court battles are guidelines that require a seller’s agent to advertise the commission their client is willing to pay to a buyer’s agent.
The National Association of Realtors has said the current compensation structure “benefits consumers and creates efficiency in the real estate market.” It has also said that a change that requires buyers to pay for their own broker would “push the dream of homeownership even further out of reach” for low- and middle-income home buyers.
(
News Corp,
which owns Barron’s, also owns Move, which operates real estate listings website Realtor.com under an agreement and trademark license with NAR.)
The Justice Department objected to the Massachusetts settlement, saying it would offer ”inadequate, cosmetic changes” to the way buyers’ agent commissions are determined. Making commission payments optional isn’t enough, officials wrote.
“As long as sellers can make buyer-broker commission offers, they will continue to offer ‘customary’ commissions out of fear that buyer brokers will direct buyers away from listings with lower commissions—a well-documented phenomenon known as steering,” according to the filing.
The Justice Department has been largely on the sidelines as it appeals a previous settlement with NAR over its commission practices. The result of that appeal is expected by the end of March, says KBW’s Tomasello.
Write to Shaina Mishkin at [email protected]
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