How does the $1.8 billion class action lawsuit affect you, the home seller or the home buyer? And if you’re a real estate agent, what are you going to do in the future? In this podcast episode, let’s dive into it and I’ll tell you exactly what’s going to happen and how it will affect you.
Hi, everyone. My name’s Craig Massie. I’m a local real estate agent in the Charlottesville, Virginia area. I live actually in a smaller town west of the city about 20 minutes called Crozet. This is my first podcast and it will most likely be a weekly podcast. That is what my hopes and dreams are. Thank you for joining me. I wanted to do a weekly podcast where I talk about real estate, I talk about local events thats happening in the area, I talk with local business owners. I’m really excited about this. I’ve wanted to do a podcast for a really long time. I dabbled in podcasting, but I’ve never really done one on my own, so this will be kind of my first episode here, and I think that this is a good starting point to talk about commissions and how it will affect home buying and selling in the future and what it is doing right now to the Charlottesville area and the resale market.
Let’s just do a little background on the case. in 2019, this lawsuit was brought to the Missouri courts. And it basically said that the National Association of Realtors and other brokerages have been conspiring to artificially inflate commissions to keep them high. And that also would raise, you know, home prices. And that they’re one of the main reasons why homes are so unaffordable right now. And home sellers, over 260,000 of them brought this class action lawsuit, And there’s actually been a lot of copycat and as soon as this verdict was awarded to the damages of 1.8 billion, those same lawyers filed in other states pretty much the same thing against other brokerages claiming this. They claim that brokerages are artificially inflating commission, you know, raising prices and conspiring to do this.
Now, how do the commission’s work as we sit now? Commissions have always been negotiable. Okay. If you’re a home seller, you’ve always had the opportunity to negotiate that commission on selling your home. 95% of people go with agents. There’s a reason they are asking for help in selling their home. It’s a huge asset to them. It’s most people’s savings account. If you’ve bought a home, that’s a huge chunk of change that you’re getting back and you want to make sure that you get as much as you can. And these commissions, there’s always been kind of a cooperative agreement where if I’m selling your home, I’m going to take half of my commission and give it to the buyer side. And that is where this lawsuit takes place, is saying, why are we paying the buyer side of the transaction?
Okay. Now, buyers, on the other hand, let’s look at them. They’ve been coming into it. They are spending especially first time home buyers. They’re spending all of their money trying to buy a house. And with all of that, how high prices are. It’s very unaffordable for them. They do not have enough money to pay that 3% or two and a half percent or 2% commission. They don’t have enough money to do that. So the sellers have been paying that for them because closing costs for buyers is much higher. You can expect to pay 4 to 6% in closing costs and down payments, whereas the seller, they only pay about 1% in closing costs. You know, if they sell $400,000 home, they’re paying about 1200 dollars, you know, up to, you know, around $2,000, depending on who’s all doing their closing for them. And the buyers they’re paying like, you know, 40, 50, 60,000 depending on their down payment and everything for that state, for that home. So there’s been this cooperative agreement between the brokerages to split those commissions so that the buyers are able to purchase the home. Then when those buyers go to sell it, they then pay, you know, end up paying that commission that they they didn’t pay when they bought the home. And that’s kind of the defendants that’s their whole thing is saying, well, even though they didn’t pay at the beginning, they do end up paying it. When they sell, they end up paying that commission. And sellers, of course, they don’t want to pay anymore.
And what this will do is for real estate agents and how it will change our industry is it will weed out the bad agents. It will weed out the part time agents who pay Zillow. So this how a lot of part time agents act and work. They work a full time job. They then pay Zillow or some other online service for leads. People search for homes on Zillow buyers. Do you know 98% of buyers start online. They say, hey, I want to look at this home. That buyer is being kicked out to an agent that pays for those leads and they are like, let’s go look at his home. And that part time agent now, not not all people getting leads from Zillow. I want to be clear, our part time, I mean, there’s a lot of people who make a lot of money using Zillow leads or or anything like that, but some agents out there, then they get that call. They go and show that home. They put in an offer and they get 8000, $12,000 in commissions or more depending on, you know, how expensive the home is. And that they’ve been doing that for years and they still are working full time job. It’s going to weed out those people
Now let’s look at the flip side of being a full time agent and even part time agents do this as well. Not all part time agents, you know, just do Zillow leads. But what usually happens with buyers and I want to make the distinction of the two is an agent usually meets their buyer six months to a year before they actually purchase. And in that time, they’re not just, you know, sitting around, they’re actively showing homes, talking with lenders, putting in offers. And those offers aren’t getting accepted. They are doing a lot of legwork to find the right home, maybe even finding an off market piece of property for their buyer. So they’re putting in a lot of work until finally they get paid after, you know, they get a home in that deal and that that $8,000 commission, when you look at it, spread out over a whole year, it’s actually a normal living wage. It’s not extreme at all.
And that right there, those are the buyers who will be listing their homes when they come to sell, offering a buyer commission as well. It’s the buyers who called up an agent. They went looked at homes that weekend. They bought a home that weekend. They closed in 30 days. And they’re the same agents who said or they’re the same buyers who said, man, my agent didn’t do anything and they just got $12,000. I can do that. And then guess what happens? Those people usually become real estate agents and then discovered super hard. And that’s why there’s an 86% failure rate in the first two years of why agents don’t make it. So. Those are the two distinct. You know, what this lawsuit will bring about is one, I’m happy it came about, meaning we need to shed light on how commissions work, but we also need to talk about how agents actually do get paid. The ones that work, you know, six months to a year to get that commission. And in that time, they’re paying for marketing, they’re paying for gas insurance, everything on their own. They’re not a salaried employee. And that’s one thing that a lot of buyers and sellers don’t understand is how us as agents actually do get paid.
We need to weed out the bad agents and have it be more of a professional. You know why you’re hiring an agent in the first place is you. You want it the best of the best. So this is actually good in that regard. Now, it’s not very good for buyers if they have to end up paying their own commissions because one, then, you know, they won’t be able to maybe go in afford your home anymore or they’ll have to go straight to the listing agent. Now, the listing agent say they have a home that’s super popular, but they’re not offering any buyer’s commission. So all of those buyers have to go to that one agent who then their fiduciary duties are to the seller. So what if they get ten, ten people coming to them because of super hot property and they and they’re like, seller, we need you to put in our offer. Can you do this for us? Of course. The listing agent is going to say yes, I yeah, I want to, you know, to get all these offers in for my my home seller. But how are they going to be on the same the, you know, best interest look after those buyers and sellers. They’re going to be in a dual agency commission, you know, dual agency agreements. And they’re going to be you know, they’re, of course, going to side with the seller on pretty much everything, whereas the buyer then doesn’t get that representation that they need.
And that is one of the areas that is not looking great for the future as far as you know, where buyers will end up having to do that. Now, do I see this happening out here in Charlottesville right now? I don’t want these podcast episodes to be super long, so I’ll just break it down for you that we most likely won’t see a huge change in the future because one sellers, they want to bring in as many buyers as they can to their home. And if they are not offering a buyer’s commission and their home is priced lower to where first time home buyers can purchase it, they are not going to kind of push away all those first time home buyers hoping to get, you know, more on their commission side. So we’re not seeing that out here. I have seen a couple listings, you know, on the outskirts of Charlottesville where maybe they’re offering a lower commission for buyers because commissions are negotiable. You can negotiate and say, we will only offer this much to the buyer side. We will only offer this much to the selling side, the listing agents. And that’s all negotiable.
And maybe it will bring prices down on homes because buyers will start to offer lower because you’re not paying the buyers commission. Will this be able to be put in a loan for buyers? Will lenders end up being able to put commissions in loans? So it’s really going to shake up the industry. And we’re nearing around, you know, 10 minutes now, and I want my podcast to be under 10 minutes or so. So that’s kind of where we’re at. I love to talk with you guys a little bit about it and just to summarize. Commissions will be changing. Brokerages and everyone should be discussing all of this. This should not be something pushed under the rug, because in the past, the buyers agents have been like, don’t worry about my commission. The sellers pay for it.
Well, that’s going to be changing. Everyone needs to discuss this. And that’s why I thought it would be a good episode to start with, because I want people to realize that commission structure will change. But the real estate industry, as far as representation, will not. There will just be a different way of how this is all going to come about. I really would love to discuss more, but I’m going to end it with that. And now future episodes I’m going to be discussing, all of the interest rates, affordability, things to do out here in Charlottesville and Crozet can’t wait to begin this podcasting adventure. But this is my first one. I’m going to get better as we go.
So please stick with me like, tell your friends review and subscribe. Thanks, guys. Have a good day.