Home buyers and sellers face the prospect of major changes to the amount and the ways they pay their real estate agents, following a recent historic verdict against the National Association of Realtors and large residential brokerages. Those changes could range from minor tweaks to the commission system to a more radical restructuring of the residential real estate industry, such as more people buying homes without using agents or buyers paying their agents by the hour.

A federal jury in Missouri found NAR and large brokerages conspired to keep costs artificially high and awarded $1.8 billion in damages, which could be tripled to more than $5 billion under antitrust rules. NAR has said it plans to appeal. The verdict raises the possibility of the biggest changes in decades to how Americans buy and sell homes, and the costs associated with those transactions.

Nothing has changed yet for real estate agents or for consumers in the middle of transactions. But new commission policies could come from a variety of directions. The federal trial judge might require changes to how the brokerages operate, or real-estate brokerages or multiple-listing services could institute new practices on their own due to concerns about potential liability.

Here are some scenarios for potential changes ahead:

Seller’s agents cannot offer commissions upfront — The Missouri trial centered on how real-estate agents that represent buyers are paid. Under the current system, sellers pay their own agent’s commission—typically 5% to 6% of a home’s selling price—which is in turn shared with the buyer’s agent. In most markets, sellers are required to include the amount they will pay a buyer’s agent in order to advertise a home on a database known as a multiple listing service. 

NAR says the current system helps buyers because it allows them to direct their funds toward a down payment. The plaintiffs’ lawyers argued that the current model makes it difficult for buyers and sellers to negotiate, and keeps commission costs high, even though technology now enables buyers to find listings and research the market themselves.

One outcome favored by consumer advocates is that buyers would pay their own agents but could negotiate for the seller to help cover that cost as part of the deal. “It’s not turning the whole system on its head, but it’s injecting market forces into the process to make sure you’ve got a correlation between service provided and the commission that the broker is getting,” said Ted Tozer, a nonresident fellow at the Urban Institute’s Housing Finance Policy Center. 

Such a system is likely to work better for buyers in a weaker market when they would have more leverage to try to get the seller to cover the cost. In the current market, with historically tight inventory, sellers may have more leverage not to cover the cost.

Buyers must pay their own agents — If sellers are banned from paying buyers’ agents, then buyers could be forced to come up with additional cash—or go without an agent of their own. This could affect first-time home buyers the most. They are the least likely to have additional savings to pay for an agent on top of their down payments and closing costs. The typical down payment for homes purchased with mortgages in the second quarter was $31,500, according to Attom Data Solutions.

In this scenario, more agents would likely offer hourly rates or a menu of services that buyers could choose from, such as touring properties, reviewing inspection reports or looking over final contracts. Buyers could also choose to have the listing agent facilitate the transaction for both parties at a lower cost. “Any system that makes it harder for first-time home buyers, or low- or moderate-income home buyers, to have their own loyal representation isn’t going to save them money,” said Rich Rosa, a Massachusetts broker and president of the National Association of Exclusive Buyer Agents. “It’s going to cost them money because there’s going to be more costly mistakes made.”

Sellers can choose whether to offer a commission upfront — The most modest of the outcomes would make it optional for sellers’ agents to offer upfront to compensate the buyer’s agent. That would barely differ from the current scenario, because NAR has already said in recent weeks that sellers’ agents can make an offer of compensation as low as zero. Northwest MLS, a broker-owned multiple-listing service in Washington state, hasn’t required sellers to make a minimum offer of compensation since 2019. Thus far that has led to little change, according to court documents in one of the class actions. Some 99.75% of sellers in those markets continue to offer compensation to buyer brokers, and 95% of those offers are at rates exceeding 2%, according to the documents. “Sellers and buyers are, with ever-increasing frequency, availing themselves of the opportunity to negotiate compensation with their brokers,” said Justin Haag, Northwest MLS’s general counsel.

New business models arise — For years, well-funded startups have tried new business models for paying agents and they have almost universally failed or adopted a more conservative approach. A change to the rules for commissions could open the door to new ventures.

• Purplebricks, a British company, entered the U.S. about five years ago charging sellers a flat fee to sell their home much lower than the typical percentage commission. The firm burned through tens of millions of dollars in the U.S. before closing up shop.

• REX, co-founded by a longtime Goldman Sachs partner, also charged lower fees and didn’t promise to pay a buyer’s agent commission. It aimed to be more efficient in marketing properties through targeted ads rather than the multiple listing service. It too floundered. REX co-founder Jack Ryan said he believes the verdict and the changes he hopes follow will help new startups enter the market. “This will be a catalyst because no one could break the cartel,” he said.

A much larger suit against the Realtors Association and brokerages, involving 20 markets from Philadelphia to Miami, could go to trial next year, and a nationwide lawsuit against NAR and other large brokerage companies was filed Tuesday.

News Corp, owner of The Wall Street Journal, operates Realtor.com under license from the National Association of Realtors.

Edited and courtesy of  WSJ, Nicole Friedman and Laura Kusisto 

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