A landmark ruling against some of the real estate industry's biggest players could lead to major changes in the way homes are bought and sold.
Last month, a federal jury in Missouri found that the National Association of Realtors and several major brokerages conspired to run a price-fixing scheme that increased the commissions agents earned on each sale.
So what does this mean for Florida's housing market? Here's everything you need to know.
What was the lawsuit about?
The lawsuit centered on the group's rules regarding fee-sharing.
To list a home on the Multiple Listing Service, an online database that agents use to find available properties, national agents require seller agents to offer a commission. Industry standard is typically 5% to 6%. That commission is taken from the proceeds of the sale and split between the buyer's agent and the seller's agent.
Ray Wedge, a professor of finance at the University of South Florida's Muma College of Business, said, “In this lawsuit, home sellers say, “You have all the power to pay artificially high fees.'' “They are forcing us to do so,” he said.
While sellers technically could choose not to list on the MLS or offer lower fees, Wedge said that would make it nearly impossible to compete under the current system.
“All real estate agents rely on MLS listings,” she says. “In most cases, a real estate agent will only show you homes that will pay her 6% commission.”
What were the results?
The jury sided with the plaintiff. A group of home sellers was awarded $1.8 billion in damages, but that number could jump to $5 billion depending on the judge's ruling.
The National Association of Realtors plans to appeal.
What does this mean for buyers and sellers?
The lawsuit could result in the commission's distribution being halted. Instead, the buyer's agent is paid by the buyer and the seller's agent is paid by the seller.
Some argue this puts an unfair burden on low-income buyers because they have to pay that cost upfront on top of their down payment.
Some say this could reduce costs by giving sellers and buyers the freedom to negotiate fair fees instead of defaulting to 6%.
“People are going to take a closer look at what real estate agents do and what their value is,” said C.B. Williams, broker and owner of People's Choice Realty Services LLC in Tampa. ” he said.
What does this mean for real estate agents and brokers?
Agent fees could fall by as much as 30%, according to analysts at investment bank Keefe, Bruyette & Woods. This could lead to a mass exodus from the industry, reducing the number of agents by up to 80%.
Some of the nation's largest securities firms could face huge losses as a result of the lawsuits.
Along with the Realtors Association, Keller Williams and HomeServices of America also face damages in a $1.8 billion lawsuit in Missouri. The lawsuit also named ReMax and Anywhere realestate as defendants, but the companies opted to settle for a total of $140 million.
Similar lawsuits have been filed in Missouri, Illinois, Texas and South Carolina, and more are likely. No lawsuit has yet been filed in Florida.
What happens next?
One of the National Association of Realtors' rules has been deemed anti-competitive, potentially leading to further scrutiny of the organization's business practices.
“The truth is, most people don't want to be part of (the association), but they're forced to,” Williams said.
He pointed out that agents must pay membership fees if they want access to MLS and important tools such as so-called digital master keys used to unlock homes before each showing.
If the group loses its gatekeeping power, Ray said more people could avoid using real estate agents.
“Buyers and sellers can now connect more easily with the help of the internet,” she said. “This is similar to what happened in the old industry of travel agencies. Now everyone just goes to Expedia or Travelocity.”
Florida Realtors, a statewide association, did not respond to a request for comment.
