The National Association of Realtors was recently hit with a $1.8B lawsuit for illegally colluding to keep real estate commissions high.
While this might sound like this would save you money on buying or selling a home, it could easily make it more expensive. Including driving up your property taxes while you own a property.
Realtor Commissions Under Increasing Pressure
This latest lawsuit comes on the heels of several other court cases and settlements against major brokerages. The Justice Department has also been reportedly investigating the issue for years.
After the recent case with NAR, the stock values of major firms that rely on commissions like Zillow and Redfin fell sharply.
It is a trend that is creating more downward pressure and a potential downward spiral. Whether or not regulators step in to enforce new commission rates, this news already makes house sellers reluctant to pay commissions, and more adamant about negotiating lower rates.
Whether Realtor commissions are worth it or not is another debate. It can depend a lot on the market and your circumstances and priorities. As well as the value that individual agent delivers. For many the privacy, negotiation help, liability protection, and efficiency is more than worth it. While most agents net just a tiny slice of the gross commissions that are paid by sellers.
The Consequences And Side Effects
Bloomberg poses that the overall idea is to do away with 5% and 6% traditional commission rates, and move towards lower rates as seen in the economies of the UK and Australia.
While these ‘savings’ may sound great to the public, no one is talking about the reality of what that looks like.
Just look at those and similar property markets. They are notoriously expensive. Agents are not working in the interest of buyers. Much higher property prices mean that even at lower commission rates, you can be paying a lot more in real dollars.
It also breaks the advantages the US has offered for investing. Investors abroad are used to having to invest in property for flat yields, and negative cash flow.
In this current environment when there is already a lot of distress and inflation, this could easily have a compounding effect on taxes. Not only meaning higher real estate transfer taxes, but high annual property taxes as well.