Homebuyers in the United States may soon need to pay more money to cover their agent's commissions as part of a long-term impact of a landmark ruling against some of the country's largest brokerage firms.
In a federal civil case, a Kansas City jury last month found the National Association of Realtors (NAR) and other major brokerages liable for conspiring to artificially inflate commissions paid to the real estate agents of home sellers. The group was fined nearly $1.8 billion, which could later increase to $5 billion if the court issues treble damages.
In Illinois, firms have already made changes to their contracts before the jury's verdict. For instance, Jennifer Ames, an owner of real estate company Engel & Völkers, told the Chicago Tribune that her company is now working on a process to include how much a buyer will pay their agent. This means the buyer may have to pay additional cash on top of their down payment for the property or include the commission as a credit in the closing cost.
In comparison, previous contracts provided by Ames' company included the commissions of real estate agents in the price of the home. The increasing cost that buyers would have to shoulder may deter them from hiring an agent, which could put them at risk of closing a bad deal.
"Going forward, it is going to be a little bit of a wild west," Ames added.
Ames' forecast is also being echoed by other experts in the real estate industry. This includes Sophia Gilbukh, an assistant professor of real estate at Baruch College's Zicklin School of Business in New York, who said the higher upfront costs for buyers may also mean higher mortgage payments.
"That might put a lot of buyers at a disadvantage, especially liquidity-constrained buyers," she said, as quoted by The Washington Post. "They might not be able to afford a higher-fee agent - even if it's worth it for them - because they just don't have the money to pay for it upfront."
Changes Underway
Since the litigation against the NAR, the Real Estate Board of New York has announced upcoming changes to its local market rules in hopes of promoting transparency and consumer confidence. Starting Jan. 1, all offers of compensation to buy-side brokers will originate from the seller or property owner.
In addition, listing brokers will no longer be allowed to make the offer of compensation or shoulder the payment to the buyer's broker, per CNBC.
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