Divorcing Real Estate Commissions (Transmission #152 Part II)

[Editor's note: Originally published on the XBroker.]

Guest authored over on the Moderne Ventures blog a few years ago. Super relevant today as new developments in the form of class-action lawsuits by Big Tobacco conquering law firms and the Department of Justice, seeks to reign in artificially inflated commissions around the sale of residential real estate. 

Picking up that thread below under the idea of taking the recent DOJ <> NAR anti-trust settlement one step further to achieve meaningful transparency and drive competition across the industry for the betterment of the consumer. 


Buy-side real estate agency is primarily a phenomenon of the U.S. real estate industry that causes total sales commissions paid upon the sale of a property to run almost twice as much as European, Australian, and other global residential real estate markets. This is perpetuated by obfuscating buy-side commissions in ways that confuse consumers regarding how real estate agents are paid and who is paying them. This fact has drawn the attention of both the DOJ in the form of (another) anti-trust lawsuit and 3 class-action lawsuits against the National Association of Realtors and a group of the largest real estate brokerages and brands in the country. 

First, the DOJ recently found the non-practice of making buy-side agency commissions readily apparent to consumers is to their detriment and required the NAR, through settlement, to impose new rules around how buy-side commissions are displayed and explained to consumers. Among other things, real estate agents can not say things like: ‘The seller pays my commissions, my services are free to you!’, which is bullshit. Every dollar you add to transaction fees is a dollar that the seller loses or the buyer pays. 

The DOJ also found it problematic that agents can filter and sort listings by buy-side commissions without disclosing such to consumers. Dense agents readily come out and say things like: ‘I’m not going to waste my time showing a property if I’m not paid what I’m worth!’ … which is exactly the type of behavior that’s deemed anti-competitive and indicates likely steering consumers to listings that pay an agent more rather than which listing is best suited to their clients’ interest. I also hear arguments like: ‘No other industry has to disclose how much profit they make!’ or something along those lines. Again, they’re missing the point. It’s not about disclosing profits; it’s about anti-competitive practices that cost consumers critical insights that can cause them substantial material harm. 

The DOJ’s lawsuit also has a proposed settlement in place with the NAR that will:

1) Require listings in MLS feeds to prominently display the buy-side commission negotiated by the listing agent for consumers to see. 

2) Stress agents cannot explain to buyers that their services are ‘free’ and avoid any semblance of steering based on commission rates. 

3) Require any licensed real estate agent to be able to show property listed in the MLS, even if the agent is not a member of the NAR or the MLS.