Becoming a real estate agent can still be a worthwhile career choice, but whether it’s the right choice for you depends on your individual interests, skills and local real estate market conditions. And money.
On October 31, a Kansas City court verdict found the National Association of Realtors (NAR) and two brokerage firms liable for $1.8 billion in damages for conspiring to keep buyer and seller commissions unnaturally high.
Although nothing much will change in the near future (the NAR and the two firms, Homeservices of America and Keller Williams Realty, will appeal the decision), this case and others (including one set for 2024 in Illinois), could eventually change the way houses are bought and sold in America and the current manner in which commissions are structured in the real estate industry.
A Need for Transparency
For years, commissions have been set at around 6% of a home’s sale price, generally with 3% going to both the buyer’s and seller’s agent and paid by the seller. In the Missouri case, home sellers argued that the NAR was forcing them to pay an inflated commission that should be paid by the buyer receiving the service.
The defendants noted in court that commissions are always up for negotiation and that buyers already have a lot of expenses like down payments, inspections and closing costs.
The verdict and future legal proceedings should bring a new era of transparency to real estate commissions, how they are set, paid and negotiated, said Ryan Tomasello, a real-estate industry analyst with Keefe, Bruyette & Woods.
“In this new world, you’re going to have a structure whereby buyer agents are for the first time going to be forced to compete on quality and price,” Tomasello said.
The Role of the Agent Has Changed
The NAR and home buyer and seller agents fear changes to the current commission framework will hurt prospective homebuyers. Speaking to USA Today, Rich Rosa, president of the National Association of Exclusive Buyer Agents, said that buyers need someone in their corner looking out for their best interests.
“Any system that makes it harder for first-time and lower-income home buyers to retain a trusted advocate will cost home-buying consumers more money,” said Rosa. “The lack of loyal representation will lead to costly mistakes, ultimately hurting the most vulnerable home buyers.”
However, industry observers claim that the real estate game has changed over the years, and some challenge the need for agents altogether. According to The Washington Post, although not directly linked to the lawsuits, many are questioning the agent’s role in our internet-reliant society and the inflexible nature of buyer and seller agent payments.
With a wealth of resources and scads of current listings and comparable sales at anyone’s fingertips, agents taking clients through the buying process is not as crucial anymore. Yet commissions have remained a relatively stable 6% over the years. Additionally, commissions tend to be the same regardless of how much work an agent puts into the sale and how long and complicated negotiations turn out.
Is It Still Worth Becoming a Real Estate Agent?
Those with a strong work ethic, are well-prepared and are committed to building a successful career, will find one that is worthwhile and financially rewarding, whether they are selling real estate or ice cream, But earning your keep by commission is hard work. If commissions decrease from the current 5% to 6% to a potential 2% to 3% (or whatever the seller is required to share via future court decisions), it could spell a drop in the number of people willing to broker house sales in the future.
According to USA Today, Tomasello predicts that the Missouri decision and similar future lawsuits could mean a 30% decrease in the $100 billion paid to real estate agents in commissions every year and may result in driving away 60% to 80% of the 1.6 million agents currently plying their trade in homes for sale throughout the country.
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