The verdict in the Sitzer/Burnett commission trial is in. The jury wasted little time in finding for the plaintiff sellers in the bombshell commission suit involving major real estate brokers and NAR. The jury awarded damages to the seller plaintiffs in the amount of $1.78 billion, with the potential for up to $5.35 billion with treble damages. Jurors ruled that the National Association of Realtors’ cooperative compensation rule inflated commission expenses for sellers and that major brokers were also to blame. Defendants NAR, Keller Williams, Anywhere (formerly, Realogy), RE/MAX, HomeServices of America and two of its subsidiaries were specifically called out.

Not long after the Sitzer/Burnett jury verdict came in, the plaintiff’s attorney in the case (Michael Ketchmark) filed a new class action with three new sellers. The new suit names Compass, eXp World Holdings, Redfin, Weichert Realtors, United Real Estate, Howard Hanna, and Douglas Elliman as defendants.

The suit will likely have wide-reaching ramifications within the industry. At the very least it will force the major brokerages to re-evaluate how they  do business. Potential changes to NAR’s cooperation rule could depend on the judge Stephen Bough’s final order in the case. Buyer’s agents could be forced to have their clients pay them out of their own pockets. That’s something NAR does not want to see happen. If buyer agency goes away, you can certainly expect some real disruption. Overall commission expenses and industry revenues will likely decline, perhaps significantly. Sellers stand to benefit with lower overall commission expenses. Buyers could see an end to their free ride for representation services, and that could ultimately make things more expensive for them.

There are still a number of unanswered questions.  Will buyers still be able to roll commission expenses into their mortgage when they buy a home? Will MLS boards be forced to change their policies? How many agents will leave the industry if the pool of commission revenue shrinks? How many brokerages will survive the fallout?

The share prices of major brokerages suggest that change is definitely afoot. Publicly-traded brokers saw their stocks take a hit as soon as the verdict was announced. This is not surprising. I think it’s pretty clear the existing structure benefits NAR and the major brokers, as well as the MLS systems across the country. Is it the best setup for consumers? Some home sellers certainly don’t think so.

The reality is that the current setup in the residential real estate industry invites many unproductive and unqualified license holders. The typical agent does very little production. Similar to the old 80-20 rule, a small portion of agents generate a bulk of the sales every year. There are many hard-working agents who earn their fees and provide real value to their clients. There are also many agents who treat their customers as a means to an end, providing little value at all. This is why we find ourselves in a situation where there are far more licensed agents in the U.S. than active listings. There simply isn’t enough business for everyone. Many of the unqualified agents and bad apples will be culled from the system. That will be a positive development for consumers in the long run. Fiduciary duty should improve with the remaining field of agents, and that will be a welcome change over the current system.

It will be interesting to see how the industry adapts. Commissions have been historically sticky, and the jurors in the case apparently decided that NAR and major brokers are largely responsible for that. MLS systems and boards will also need to adapt. They may finally be forced to deal with the threat posed by Zillow. Many boards sat by for years and watched a direct competitor steal the audience for listings, naively assuming there wouldn’t be long-term consequences. Those potential consequences should be painfully obvious now!

While commission rates are always supposed to be negotiable, some agents have resisted even the hint that they should accept anything less than a six percent fee. Those days are coming to an end. With prices near record highs, I’m honestly surprised something like this didn’t happen sooner. You shouldn’t have to pay a six percent commission to sell a home. If you don’t want to pay those high (and often unjustified) commission expenses many big brokerages want to charge, just pick up the phone and give me a call. Aaron Layman Properties will continue to offer more affordable solutions for Denton County home sellers who need or want to save money when they are selling a home.