The world of residential real estate is grappling with the changes that could be coming to agents’ commission structure in the wake of the Sitzer/Burnett case.
The Kansas City jury in the landmark antitrust suit found NAR and two brokerages guilty of conspiring to keep commissions high under the industry group’s rule dictating commission splits in exchange for access to the MLS.
The defendants have pledged to appeal but the case, which is awaiting a final decision by the judge, has already prompted copycat suits, including a nearly identical one filed minutes after the Sitzer/Burnett verdict was delivered.
The filing identifies several countries with a more competitive commission structure, including the United Kingdom, Israel and Australia, as a potential answer to the billion-dollar question facing U.S. brokerages and agents.
The comparisons to international markets spell out few exclusive listings, the end of the MLS and online listings, and agent commissions as low as 1 percent, brokers outlined to The Real Deal.
“Our view is the U.S. has a very unique model that actually, the representation is actually properly separated [between] the buyer’s agents and [the] seller’s agent,” said real estate entrepreneur Thomas Ma.
But that could change, should the industry be forced to adopt commission structures that more closely resemble those foreign markets.
“I think it will be a race to the bottom,” said Ma, founder and CEO of Real, a social media app for real estate listings.
If commission rules are decoupled from MLS access, Ma said agents could be incentivized to undercut one another until a 1 percent commission, or something close to it, becomes the standard. It’s the norm in markets around the world: In the United Kingdom commissions are 1 percent and in Israel and Australia the standard commission is about 2 percent.
For clients, Ma said spending less on agents will come at a cost.
“The service level will be so bad,” said Ma. “The consumer is getting half of that 1 percent service that they used to get at 6 percent or around there.”
Exclusive listings are rare in such markets, because the necessary time and money doesn’t make financial sense for a 1 percent commission. And if listings aren’t exclusive, there’s no incentive to share them with an MLS or a Zillow.
“The consumer takes it for granted that the listing is going to be there,” said Ma. “It’s not going to be there.”
In Israel, the only MLS system is in Jerusalem, according to Isidora Fridman, founding partner of Israel Sotheby’s International Real Estate. In other parts of the country, agents join WhatsApp groups to discuss listings. Getting an exclusive listing is very difficult, because sellers think they can get more exposure by offering a listing to multiple agents.
“It’s very hard to promote and market a property,” Fridman said. “We even have to sometimes reach out to agents one by one.”
Compass CEO Robert Reffkin was optimistic during the company’s third quarter earnings call that changes would be minimal.
Reffkin pointed to the Northwest MLS, which covers Seattle and surrounding areas, and which in 2019 eliminated the requirement that sellers offer a commission to the buyer’s broker. The change had little impact on commission rates, with the average commission there now at 5.3 percent, according to Reffkin, roughly evenly split between buyers’ and sellers’ agents.
“We have evidence in a major US market of what this change will look like. That gives us confidence,” said Reffkin. “I feel confident that Compass is positioned well.”
But some precedent suggests it’s not clear brokerages will be so lucky in upcoming financial quarters.
Anywhere and RE/Max proposed settlements ahead of the Sitzer/Burnett trial that included a financial sum and some rule changes, similar to a deal NAR negotiated with the DOJ in 2020, which the DOJ subsequently revoked.
NAR clarified language in its participation rule ahead of the trial, but commentary from the Department of Justice on a case in New England suggests the government isn’t convinced that not requiring sellers to pay buyers’ brokers goes far enough.
“Merely tweaking a buyer-broker commission rule to allow zero-percent commissions does little to ‘unfetter a market from anti-competitive conduct,’” attorneys for the department wrote in the New England antitrust case, which doesn’t involve NAR.
The Justice Depatment’s ongoing investigation adds to the stack of concerns for the residential works, as it would run independently of the class-action lawsuits given its approval by an appeals court.