There’s a major shift on the horizon in the real estate sector – with big implications for real estate agents, brokers, and other real estate professionals – as well as a significant opportunity for title agencies.
We’re not talking about rising interest rates, the demise of iBuyers, or even the slow-motion collapse of the mortgage industry.
We’re talking about… real estate commissions?
In a story that’s not gotten a lot of press, outside of a mention on NPR and industry publications and a mention by reality TV star/broker Jason Oppenheim, we could be facing a major shift in how real estate commissions are structured.
The Sitzer Lawsuit
The lawsuit, on behalf of two home sellers, was filed in 2019 and upgraded to class action status in April 2022, meaning that anyone who recently sold a home in or near Missouri using an agent who paid a buyer’s representative may be eligible for relief, including those who “sold a home after April 29, 2014, via the MLSs in Columbia, MO, Kansas City, MO, Springfield, MO, or St. Louis as well as anyone after April 29, 2015, in Kansas City, KS, or in Illinois near St. Louis.”
Among the NAR rules in question is the requirement that listing brokers offer buyer brokers a commission to list a property. The attorneys for the class action allege that this (standard, almost ubiquitous) practice effectively inflates sellers’ costs and, as such, is anticompetitive- a big no-no under the Sherman Antitrust Act.
This past December, in a major defeat, defendants NAR, Keller Williams, RE/MAX Anywhere, Home Services of America, and subsidiaries BHH Affiliates and HSF Affiliates lost a motion that sought to put a kibosh on the matter via a summary judgment.
The decision cleared the way for the case to go to trial in a case with damages that might rise as high as $6 billion, including a staggering $1 billion in commission reimbursements and treble damages alone. While the current suit only affects firms operating in and around parts of Missouri, a loss in court could see many other suits arise in other regions, like the Northeast and West Coast.
How the Sitzer Case Will Affect the Real Estate Industry
In most cases, it takes two agents to sell a home- one agent representing the buyer and one representing the seller. Should the plaintiffs emerge victorious, the real estate industry would essentially see buyers’ agents dropped from most real estate transactions- something that could have a huge impact on the 3 million people that hold active real estate licenses in the United States.
This is unwelcome news for a group of professionals already reeling from a nationwide CRE and housing slowdown and a locked-up market with no liquidity, largely due to a pernicious combo of rising rates and flatlining home prices. According to SoCal-based Oppenheim, one of the stars of the Netflix original series “Selling Sunset” and the upcoming “Selling the OC,” a loss for NAR could be near-cataclysmic for the industry.
In a recent Yahoo Finance article, he recently remarked: “You could see hundreds of thousands of real estate agents leaving the profession, and major brokerages go out of business.” Not one to sugarcoat it, he also laments: “We’re on the precipice of an armageddon that nobody talks about.”
According to Oppenheim, if the buyer’s agent’s commission is removed, we may see listing agents represent buyers in 90% of transactions, essentially making dual agency standard practice in most transactions. This might not end up being great for consumers, as most buyer’s and seller’s agents currently represent their clients alone and not both parties in the transaction (in most cases).
Regardless, should this lawsuit prevail, we’ll likely see more and more conflicts of interest pop up throughout the American real estate industry. We may even see situations where your own agent is negotiating against you- which is not a great situation to be in as a participant in a property transaction.
Listing agents will likely come out on top, as they no longer have to split commissions with buyer’s agents. Individual home sellers will probably also benefit, as they can avoid paying a buyer’s agent. It’s a complex topic and a touchy subject, with potential winners and losers on both sides.
Sitzer vs. NAR: Title Industry Impacts
So what does this mean for the title industry?
In two words: not much.
Buyers and sellers will still have to purchase title insurance and need a dedicated team to handle their transaction closing. As a title professional, your day-to-day will remain the same or at least not be significantly affected by this lawsuit.
But the agents you work with will be. Many may lose business or lose their jobs. Others will find tremendous opportunities by either working both sides of a transaction or just focusing on representing sellers.
How Title Companies Should React in a Post-Sitzer World
Savvy title firms – and their principals – will take advantage of this once-in-a-generation opportunity to be there for their agents, offering whatever help they need and educating and supporting them. Despite the slow advance of all sorts of digital solutions, e-signings, blockchain settlement, and other game-changers in the title space, it still remains a people-based business.
Standing with agents in their time of need will not only give you the ability to win their business in the future, but it will also help you maintain and develop your professional network – of which agents are likely to make up a large percentage.