Legal battle could make real estate broker commissions a thing of the past

The traditional home buying process could be about to be disrupted.

For more than a century, real estate agents have served as a sort of beacon for buyers, navigating the murky waters of real estate purchasing. But with a federal jury trial underway in Kansas City, Missouri, challenging the long-standing commission model, the world of real estate could be about to change.

Giants like the National Association of Realtors (NAR) and major real estate companies are accused of conspiring to keep commissions high, with critics arguing that the centuries-old system lacks transparency and disproportionately affects sellers.

At the center of the debate is the typical way commissions are split between buyer’s and seller’s agents. Historically, sellers pay their broker, who then splits the commission between the two agents. Supporters of the system, such as NAR, say it ensures housing affordability for buyers. Opponents, like Joshua Sitzer, see it as an opaque practice that unfairly charges them based on old industry standards.

If commission rules change, the consequences for sellers could be minimal, according to a report from BTIG, which expects sellers to continue covering buyer-side agent fees. However, Valerie Saunders of the National Association of Mortgage Brokers warns that making home buyers bear the costs of the real estate agent could disproportionately fall on low- and middle-income earners.

Aleksandra Jako, a Chicago-based real estate attorney, offered a sobering perspective News week about what could happen if the commission structure was dismantled. She predicts that the removal of a buyer’s agent could make consumers more vulnerable. They might lose the guidance of an agent who deeply understands market dynamics.

As a result, buyers may increasingly turn to lawyers, Jako said, which could overburden them with roles they are not fully equipped for.

More precisely, the question arises of the future of the MLS (Multiple Listing Service) system, and whether the system can evolve, or even become obsolete. In a scenario where the MLS doesn’t exist, how could buyers ensure they’re getting a fair deal? While some might turn to assessments such as Zestimates as a safety net, Jako cautions that these tools are often lagging indicators and can prove unreliable in volatile markets.

Uncertainty about a home’s true value could also prompt potential homeowners to rely heavily on the Internet, a decision fraught with risk. They could easily misinterpret the inspection results or overlook key details in the owner’s documents, Jako said, putting their investments at risk.

The ramifications don’t stop at transactional intricacies. Jako said there could be wider societal implications, which could spill over into housing affordability. With house prices rising and interest rates still high, changes to the commission model could deter many, particularly those on low incomes or first-time buyers.

Jako’s colleagues predict that any reduction in commissions could lead to lower property prices. However, the lawyer disagrees, saying News week she predicts that without the usual commissions, more customers could end up being taken advantage of. She envisions a scenario in which real estate listing companies expand their influence, armed with more protections, legal aid and waivers, leaving consumers vulnerable to sellers’ demands.

According to Jako, this could be a consequence of transactions in which there is no buying broker, or where there are low-budget brokers or dual agencies.