One of the items discussed was the “uniformity” of commission rates across the country which average approximately 2.5% on both the buyers and sellers side of the transaction. It is customary that these commissions are paid by the seller. We say “uniformity” because it is a market-driven system that is mutually beneficial to the agents involved. There is no law or regulation that sets commission rates and no requirement that there be a minimum or maximum rate established.
What is disruptive is when a low commission broker enters into the marketplace. When such brokers decide not to play along with the system and instead think that they will make their fortunes on high volume. While attractive to the selling homeowner consumer for cost-saving benefits, there has been research indicating that other agents are less likely to show the property because the low commission is not enough motivation. In 2015, the National Bureau of Economic Research released a paper entitled Conflicts of Interest and the Realtor Commission Puzzle. In the paper, the NBER found that properties with commission rates for buyer’s agents that were lower than 2.5% were actually less likely to be sold at all and, when they did sell, these properties stayed on the market 12% longer than other properties with commission rates of 2.5% or more.
The USDOJ settled its lawsuit against the National Association of Realtors (NAR) in 2008, just days before trial. The anti-trust lawsuit alleged, among other things, that the NAR controlled all of the Multiple Listing Service (MLS) data and was restricting access to virtual brokerage services in an attempt to unjustly reward member agents. The Consent Decree required full access to all MLS data and the result has been today’s consumer experience of online home searching. There is a lot of speculation regarding what changes may be expected following the expiration of the Consent Decree.
Another item reviewed in the workshop was ‘un-coupling’ or ‘unbundling’ buyer and seller commissions. This would have buyers pay their broker commission and sellers would be responsible for the listing broker rather than today’s practice where the seller pays for both sides. This would have a significant impact on the market and the business of real estate professionals.
The workshop brings up important questions for real estate professionals regarding the future of real estate commissions. The Trump Administration seems generally to be against regulation of business. Republican lawmakers generally favor free market forces over-regulation. Would regulation of real estate commissions change the way that you do business?
At Joseph James Real Estate, we want our agents to keep more of their commissions for each transaction regardless of whether the listing offers 2.5% or less. As the markets continue to change, savvy agents are turning to Joseph James Real Estate. Fill out the form below to talk with one of our talent scouts.