No not oldest professions, popular professions.
The Upending of One of America’s Most Popular Professions
Realtor commissions on home sales could be cut sharply after a federal jury verdict on artificially high fees
By Anne Marie Chaker, WSJ
Updated Nov. 13, 2023
Realtors across the country are rethinking their jobs, and some are backpedaling from the profession, fearing that the heyday of their business is over.
A court verdict last month stands to radically alter the way real-estate agents are paid for their work, and could result in far lower pay for the 1.6 million men and women who sell homes as their main job or as a side hustle.
Realtors were already facing the effects of rising interest rates, which have put a chill on inventory and helped bring home sales to their lowest level in years.
Nicole Noles Collins, a 51-year-old acupuncturist in Port Charlotte, Fla., got her license in 2020 when the pandemic shut high-touch businesses like hers and home sales were taking off.
Noles Collins says lower commissions from the homes she sells in Florida, which are priced between $100,000 and $350,000, wouldn’t be worth her time, especially now that business at her acupuncture studio is back to pre-Covid levels.
“It’s completely negating the reason to be an agent in the first place,” she says. While she had toyed with exiting, now “my goal is to completely transition out of real estate at the end of next year.”
U.S. real-estate agents drive 90% of home sales, according to a report released earlier this month by investment bank Keefe, Bruyette & Woods. Real-estate agents earn an average of $65,850 a year—typically paid by commission when a home gets sold, according to a Labor Department estimate. The downside: It leaves some agents in the lurch if buyers back out.
The federal jury in Missouri found that the National Association of Realtors and large brokerages conspired to keep costs associated with home sales artificially high by effectively locking in commission rates even as home prices have skyrocketed.
Keefe, Bruyette & Woods is predicting more than half of agents—and as many as 80%—could lose their jobs or leave the profession amid continued class-action litigation. Additionally, the bank predicts that over time the $100 billion annual commission pool on home sales in the U.S. could be cut by one-third.
“NAR and corporate real-estate companies have had a stranglehold on real-estate commissions for too long,” plaintiffs’ lawyer Michael Ketchmark said outside the Kansas City, Mo., courtroom.
A spokesman for the National Association of Realtors says it will appeal the decision. A potential outcome, if buyers are asked to pay brokers upfront, is that lower-income, first-time homeowners or communities of color might forgo hiring agents to represent them.
Realtors earn their living on commissions, which have stayed fairly locked-in over several decades, at roughly 5% to 6% of a home’s cost. That share is paid for by the seller, which is in turn shared with the buyer’s agent.
This model, class-action attorneys for homeowners across several Midwestern states argued, has inflated housing prices and suppressed competition. The federal trial verdict could lay the groundwork for widespread changes to commissions, though some residential brokerage firms predict the existing pay structure won’t change.
More questions than answers
Meanwhile, realtors are asking their bosses what the fallout could be for their industry as answers from management have been scarce.
Josh Meacham, an associate broker in Show Low, Ariz., says there were more questions than answers flying at a recent talk with his team.
If you are a real-estate agent, what does the court case mean for the future of your career? Join the conversation below.
“Does this mean we’re not going to have a job? Does this mean we’re not going to be able to do listings? Does this mean we’re not gonna make as much money?” he says agents asked. And, ultimately: “Should we start looking at getting a different job?”
Stephen Brobeck, a senior fellow at the Consumer Federation of America, says changing the commission model will weed out many part-time Realtors, leaving more business for full-time agents.
“In a more competitive marketplace, we predict the [commission] rates will come down to 3 to 4%, from 5 to 6% with greater variation from agent to agent,” he says.
Both the buyer’s and seller’s sides are going to negotiate commissions downward, and the business will become much more competitive, many Realtors and analysts say. It still is unclear how changes to commissions, which have long been baked into home prices, would affect the housing market.
Turning to flat fees
Franklyn Salas, a 42-year-old Realtor in Washington, D.C., says he would consider turning to a fee-based model.
One option might be to charge house hunters between $2,000 and $5,000 for a clear list of services and expenses, including transportation, time and gasoline mileage, over a period of weeks while they looked for a home to buy. If the potential buyer didn’t find one during that contract, they would have the option of continuing with the broker, and a new fee would kick in.
Franklyn Salas says he would consider turning to a fee-based model. “That would make it easy for everyone to understand,” he says.
Bonnie Brunson, a real-estate agent in Las Vegas, says such a fee-based structure might better compensate buyer agents in certain cases.
“The thing I hate about being a buyer’s agent is they pull your string,” she says. “I’ve had clients I’ve worked with for a year or so and they end up not buying anything from me.”
There would be downsides, too.
Brunson recalls being offered a flat fee of $5,000 for a regular customer who flipped homes for hundreds of thousands of dollars of profit, which she rebuffed. The flat fee would have amounted to much less than the commission she would have earned—and she would have had to share it with the buyer’s agent.
“I didn’t work with him anymore after that,” she says.
Write to Anne Marie Chaker at Anne-Marie.Chaker@wsj.com
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