Legal Battle Could Make Real Estate Broker Commissions a Thing of the Past

The traditional process of buying a home could be poised for potential upheaval.

For more than a century, real estate agents have been a sort of lighthouse for buyers, navigating the murky waters of property purchasing. But with an ongoing federal jury trial in Kansas City, Missouri, challenging the longstanding commission model, the real estate world might be on the cusp of change.

Giants like the National Association of Realtors (NAR) and major real estate firms stand accused of conspiring to maintain high commissions, with critics arguing that the age-old system lacks transparency and disproportionately affects sellers.

Real estate agent boards advertising properties to rent and sell are pictured. A legal battle may end up reshaping the landscape of broker commissions.
Susannah Ireland/AFP/Getty Images

Central to the debate is the customary way commissions are split between the buyer’s and seller’s agents. Historically, sellers pay their broker, who then divides the commission between both agents. Advocates of the system, such as NAR, argue it ensures home affordability for buyers. Opponents, like Joshua Sitzer, see it as an opaque practice that unfairly charges them based on ancient industry norms.

If commission rules change, the aftermath for sellers might be minimal, according to a BTIG report, which expects sellers to continue covering buy-side agent fees. However, Valerie Saunders of the National Association of Mortgage Brokers warns, having home buyers shoulder real estate agent costs could disproportionately burden those with low to middle incomes.

Aleksandra Jako, a Chicagoland-based real estate attorney, offered a sobering perspective to Newsweek on what might happen if the commission structure is dismantled. She anticipates that the removal of a buyer’s agent could leave consumers more vulnerable. They might lose the guidance of an agent who deeply understands market dynamics.

Consequently, buyers may increasingly turn to lawyers, Jako said, potentially overburdening them with roles for which they aren’t fully equipped.

More to the case, there’s the looming question of the MLS (Multiple Listing Service) system’s future, and whether the system can evolve or even become obsolete. In a scenario where the MLS doesn’t exist, how would buyers ensure they’re getting a fair deal? While some might turn to appraisals like “Zestimates” as a safety net, Jako warns that those tools are often lagging indicators, and can prove unreliable in volatile markets.

Uncertainty around how much a home is actually worth might also drive potential homeowners to lean heavily on the internet, a move fraught with risks. They could easily misinterpret inspection results or overlook key details in homeowner documents, Jako mentioned, ultimately jeopardizing their investments.

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People stop to check out residential properties displayed for sale. A trial in Kansas City, Missouri, could change the process of real estate commissions, as an attorney discusses risks for buyers and the MLS system’s uncertain future.
ISABEL INFANTES/AFP/Getty Images

The ramifications don’t stop at transactional intricacies. Jako said there could be broader societal implications, which can filter to housing affordability. With escalating home prices and still-high interest rates, shifts in the commission model could dissuade many, especially lower-income individuals or first-time buyers.

Jako’s colleagues predict that any reduction in commissions might subsequently lead to a decrease in home prices. However, the lawyer disagrees, telling Newsweek she predicts that without the customary commissions, more clients might end up being exploited. She envisions a scenario in which property listing companies expand their influence, armed with more protections, legal aids and waivers, thereby leaving consumers vulnerable to the demands of sellers.

According to Jako, that could be a consequence of deals where there’s no buyer’s broker, or when there are budget brokers or dual agencies.