Insight

Are Real Estate Broker Commissions Under Attack?

Are Real Estate Broker Commissions Under Attack?

Roy D. Oppenheim

Roy D. Oppenheim

March 2, 2021 04:56 PM

Broker commissions for residential real estate are being challenged. With more and more home buyers relying more on technology for video-tours and neighborhood research, “traditional” real estate commissions are being challenged and yet have largely remained unchanged. Paid by the home seller, the commissions are typically as high as six percent, three percent being paid to the seller’s agent and three percent being paid to the buyer’s agent. Across Europe and Asia, real estate commissions generally range from one to two percent of the contract sale.

Legal Challenges

Over the past two years, seven different lawsuits have been filed, brought by private home sellers, an online brokerage, groups of California brokers, and the US Justice Department, claiming that brokers’ practices in charging and collecting commissions violate US Antitrust laws and amount to a conspiracy to keep their fees artificially inflated.

One such lawsuit has been brought by REX, an online brokerage whose fee start at two percent. When REX represents a home buyer and is given a three percent fee from the seller’s agent, it will give the buyer 50% of its broker commission back to the buyer as a rebate. In Oregon, REX filed suit in December 2020, challenging Oregon’s policy of banning REX and other brokers from refunding the commissions back to the buyer. REX is looking to potentially file suit in Louisiana, Missouri, and Tennessee which have similar anti-rebate laws.

Other suits have been filed against the National Association of Realtors, and in April 2019, the US Justice Department began investigating whether brokers steered their buyers to homes that offered larger commissions, thereby omitting brokers who may have been willing to collect less. In November 2020, the Justice Department filed and settled an antitrust case alleging the National Association of Realtors have “established and enforced illegal restraints on competition,” and asked the association to provide transparency around commissions to buyers and sellers.

Typically, brokers have the current commission fee structure to protect both buyers and sellers as each agent comes to the table representing their client’s best interests. Yet, during the pandemic, many home buyers started relying more on on-line resources to find their home purchase. As a result, there is the argument that since home buyers are doing more of the legwork in their home searches that broker commissions should be reduced.

Change is Brewing

As a result of the Justice Department settlement, Redfin, the online real estate brokerage announced that it will publish agent commissions on thousands of its public listings. This sense of transparency may change the traditional commission fee structure as more and more buyers and sellers may wish to negotiate broker commission rates.

This pandemic has created challenges for us all. It has also created disruptions in the real estate industry as residential purchasing and selling has had to resort to technology as traditional open houses and meeting face to face with buyers and sellers were not happening. With the distribution of vaccines to acceleration, the question remains if our old ways of transacting real estate deals will revert back to pre-COVID-19 days.

While change is all around us, our law firm, Oppenheim Law, and our title company, Weston Title & Escrow, Inc. remains consistent. For over 30+ years, we are here for you. Should you need assistance in purchasing, or have a legal question about a potential purchase, our team at Oppenheim Law is here for you. Our sister company, Weston Title & Escrow, Inc., is able to assist you with your closing.

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