The era of Zillow, Redfin, and an online Multiple Listing Service (MLS) has completely changed the way the world buys and sells real estate, but a court settlement may finish off the real estate business model for good. Indeed, the creative destruction of the real estate business combined with the $418 million legal settlement reached this month has already begun to shake the very foundations of the business and open it up to a complete renovation.
The jury verdict reached in November 2023 between a group of real estate buyers and the association representing real estate agents was formally approved this month but has already set off a tectonic rumble throughout the business as people begin to understand they don't actually need a real estate agent to buy a piece of property anymore.
The net result will likely be that sellers will reduce the price of their homes to accommodate home buyers who are already on the hook for a huge list of costs aside from buying the home. The number of real estate agents could be reduced by 50%, and realtor-associated costs of buying a home could go down by $100 billion according to a real estate analyst.
NAR, Keller Williams Realty, and HomeServices of America were found liable in a Missouri lawsuit for conspiring to protect the commission structure of real estate agents, which is typically 5-6%. Other defendants named in the original lawsuit -- Re/Max and the parent company of Coldwell Banker, Century 21, Corcoran, and Sotheby's -- settled out of court for $140 million, according to CNN. The real estate firms agreed not to require their agents to be members of NAR.
The New York Times says the settlement will be transformational.
National Association of Realtors, a real estate trade group that represents more than 1.5 million members, agreed to settle several antitrust lawsuits by paying $418 million in damages. As part of the settlement, the association also eliminated some of its longstanding rules around agent commissions, a move that will transform the home buying and selling process.
For example, a seller’s agent can no longer offer to split commissions with a buyer’s agent on the databases commonly used to list homes, a practice that the home sellers in the lawsuits said had led to inflated commissions. As a result, buyers will most likely have to pay their agents.
Silicon Valley nerds on the All In Podcast believe the decision will be the end of commission price fixing, paving the way for AI-assisted home buying and selling to fill the void and "catalyze change in the real estate industry," including a "more seamless, direct marketplace for consumers." AI expert David Friedberg says he thinks that the "trusted advisor" many buyers may wish to have by their side for such a big purchase will eventually be "a piece of software" and that certain jobs done by agents will be be reduced to fee for service. The workaround for real estate brokers is likely going to be a contract for services before any services are rendered.
The individuals bringing the lawsuit said the closed-loop way of doing business—basically acting as a cartel— protected the high commissions. Usually in this long-time scheme, the seller is responsible for covering both commissions. Now it's an open market.
It is liberating to consider that you can buy a home without an agent. One of our purchases was done through an attorney after we negotiated a price with seller. It can be done.
Now real estate agents are going to have to figure out where they fit in to the new regime.
