And here comes the DOJ…

So by now everyone has heard of the massive NAR real estate lawsuit/settlement. What many people don’t understand is that the current $418 million settlement offer is just that…an offer. A federal judge still needs to sign off on it, and right now it’s the absolute best case scenario for real estate agents since it was proposed by their own agency. An agency that would otherwise be facing a $5+ billion settlement.

For anyone not in the know, the settlement offer comes down to this:

• The MLS can no longer list buyer’s agent commissions anywhere in a listing.

• Buyers must enter into written agreements with their agents.

Now, savvy agents are obviously saying, “that’s fine, we’ll just work list the buyer’s agent commission on our website or straight up tell them over email. Nothing will change.” In fact, head on over to the realtors subreddit (r/realtors) and you can see how they’re already colluding to keep the status quo.

And here comes the Department of Justice to ruin their day.

There is a separate lawsuit going on currently that the DOJ has weighed in on (Nosalek vs MLS PIN). Basically, the DOJ wants to have sellers pay for their own agents and buyers pay for theirs. Each side will independently negotiate for their own agent’s commissions and it will be illegal to offer anything to the buyer’s agent before the seller gets an offer. This is called decoupling. This case will affect commissions nationwide and will likely have an impact on how the judge ultimately rules in the NAR settlement/case.

The DOJ has been after agent commissions for decades, and it looks like this is going to be the one-two punch to finally change things. They have long believed that agents were wildly overcompensated for their work. In their statement of interest in the Nosalek case, the DOJ literally says:

“If buyers set the compensation for their own brokers directly, some buyer brokers might choose to offer flat fees or hourly rates in lieu of percentage commissions, since the amount of time and effort required by a buyer broker has a weak correlation, if any, to the ultimate sales price of the house. And most, if not all, buyers would likely prefer a fee structure that does not reward their broker for helping them to pay more for a home.”

What you will likely see is a mix of things. Some buyers will be able to pay a flat fee or percentage to their agents. Others, especially first time home buyers, won’t have the cash. In those cases, they can make an offer that has the seller give them a credit for agent commissions. And the seller can compare that with any other offers they get.

So how does this change things from the settlement that’s already been proposed? It’s basically a game changer if the DOJ gets what it wants, which it probably will.

You’re going to see a MASS exodus of agents because fees and commissions will be slashed. The ones left will be stuck negotiating with buyers who can’t afford their services and sellers who won’t budge. Sellers won’t be paying 5-6% of their home price to both sides anymore, and people are delusional if they think buyers are coming up with 2-3% on top of everything else they need. There will be a lot of buyers who go it alone. And once it starts happening and people realize they never needed buyer’s agents at all, it will become the norm.

Additionally (and this is the one that’s going to ruin agents), SELLERS are going to realize that they also don’t need to pay 2-3% to their listing agent. Why bother? Especially when sites like Redfin will pop up and offer everything for 1% and buyer’s agents will be offering to do their jobs for a flat fee or lower percentage. So instead of paying the 6% they used to pay, they’re looking at 1% unless their buyer uses an agent who needs a concession to pay their rates. And if that happens, their offer better be extremely strong or the only one a seller gets, because no one is losing a home sale over agent commissions.

So sellers are the short-term winners. Buyers, especially first time home buyers lose in the short-term, but win in the long-term when they eventually sell. And everyone wins because real estate agent commissions plummet.

And real estate agents lose.