A century-old real-estate practice could soon end. Here’s how home sellers and buyers could be affected.

At the heart of the case, which is the first of two real-estate-related antitrust lawsuits, lies an effort to reform a longstanding practice of how home sellers pay fees to brokers. 

The verdict, which is pending a judge’s decision, is being heralded as a welcome change for consumers, according to consumer advocates and real-estate startups.

“It’s a great victory not only for the plaintiffs but also for all home buyers and sellers because it sets in motion for consumers to pay less 20% to 30% less in commissions each year,” Steve Brobeck, a senior fellow at the Consumer Federation of America, told MarketWatch. 

“There’s no guarantee that we’ll finally get to that place, but this is a huge milestone and really a watershed, because it’s now far more likely than not that the marketplace will become much more price competitive — eventually,” he added.

The NAR did not respond immediately to a request for comment.

One startup founder said it’s time to embrace the idea of removing intermediaries — and the commissions they’re paid — from the real-estate equation. In today’s digital age, one can buy and sell stocks on their phones “with no commission while waiting for a latte,” Amanda Orson, founder of real-estate startup Galleon, told MarketWatch. “Yet, real-estate transactions conducted in the U.S. would be totally unrecognizable to my grandparents and great-grandparents.” 

She added, “The idea that you need to use another human being to transact your home is old fashioned — that’s last century’s model.”

Galleon is an early-stage startup that aims to create a real-estate market consisting of what it calls “pocket listings,” meaning homes that aren’t listed by traditional real-estate brokerages, and that sellers sell directly to buyers, without intermediaries like real-estate agents.

A century-old practice thrust in the limelight

Today, the NAR, which has a membership of 1.6 million real-estate agents, has affiliate organizations that control the “multiple listing service,” where most homes for sale are advertised. It has also historically set the standard for the commission rate for real-estate agents across the U.S.

The MLS system first rose to prominence in the early 1900s, analysts at Keefe, Bruyette & Woods, wrote in a report. The vast majority of MLSs are owned or operated by local NAR chapters, the analysts noted.

Redfin, a real-estate brokerage that was also sued and accused of conspiring to inflate commissions, recently announced that it was leaving the NAR board over its opposition to the NAR’s requirement to charge sellers a fee for the buyer’s agent on every listing. But Redfin said that a full divorce from the NAR wasn’t feasible because “membership is required for agents to access listing databases, lockboxes, and industry-standard contracts. It’s impossible to be an agent if you can’t see which homes are for sale, or unlock the door to those homes, or even write an offer.”

In a similar vein, the commission structure for real-estate agents who sell homes and help buyers find homes was first set by local real-estate associations in the late 1800s and 1900s. The NAR standardized it in 1939, and by the 1950s, “a 5% commission rate became standard practice throughout the U.S.,” the analysts stated. “Over the next decade, commission rates generally increased to 5-6%.” Since then, the industry has stopped using any fee schedules, but the standard still prevails informally.

Typically, when a home is sold today, the listing agent and the buying agent each get a 3% commission, both of which are paid for by the seller. With the lawsuits, the stage is set for the buyer’s agent to no longer automatically receive a 3% commission, which is $12,000 on a median-priced $400,000 home.

Here’s what that means for home buyers and sellers.

1. Home sellers could end up paying less in broker fees

The biggest item on the chopping block would be to nix buyer’s agents fees, which could save home sellers thousands of dollars. As Brobeck put it in an interview with Axios, one could buy a car with the money saved from not paying broker fees.

Aside from a potential “win for anybody who’s selling their home… it’s a huge win for homebuilders,” John Burns, CEO of John Burns Real Estate Consulting, told MarketWatch on a recent episode of Barron’s Live. “Homebuilders pay a lot of real-estate agents to bring people to their communities, and the rule of thumb was paying 3%… this [jury verdict] opened the door for home builders to pay less in commissions.” 

He estimated that each percentage saved on commissions could add up to hundreds of millions of dollars per year for some big-name builders.

2. Home prices could go down in the immediate aftermath

Home prices could also go down in the immediate-term, if buyer’s agent fees were to be slashed, one expert said. But that outcome could be short-lived.

“With the decoupling of commissions, that was central to the case… it’s going to allow sellers to negotiate with their agent on what their compensation is, and buyers to negotiate with their agents,” Jonathan C. Bennie, co-founder at Cincinnati-based real-estate startup Homeshake, told MarketWatch. “When that happens, inevitably, that will cause commissions to drop.”

“As commissions go down, the cost to transact goes down, and that’s gonna have an ancillary benefit for consumers because that’s gonna drag down home prices,” he added.  

But the changes are far from being set in motion, Brobeck cautioned. 

“Everything depends on the specific decision of the judge in terms of the industry rules,” he said.