9 min read · September 28, 2023
The real estate industry may soon undergo radical changes that transform how homes are bought and sold forever. It’s all to do with the lawsuits brought against NAR and other organizations, who, according to the plaintiffs, have anti-competitive commission practices that inflate the cost of real estate.
The case is still pending, but if it’s successful, then home selling and buying will change forever. In this post, we’ll take a closer look at the commission controversies, and also outline why now could be the time for agents to make the switch to flat fee brokerages.
Two multi-billion dollar lawsuits have been filed against the National Association of Realtors (NAR) and some of the country’s largest brokerages, including RE/MAX. The lawsuits claim that NAR, RE/MAX, and other brokerage companies have engaged in commission practices that inflate the cost of selling/buying a home. The case against NAR is ongoing, but RE/MAX has offered $55 million in settlements to be extracted from the suit.
Currently, sellers that list their homes on NAR-related MLS agree ahead of time to pay 6% in commission; 3% goes to the selling agent and 3% to the buying broker. The entire sum is paid by the seller in a single payment, which is then divided equally between the selling and buying broker.
That percentage is not fixed, and for a good reason: in 1950, the Supreme Court determined that fixed prices broke antitrust laws. However, though it’s not an official fixed price, it’s in effect set in stone. You can negotiate the amount of commission you’ll pay, but it can be difficult to find an agent to work with since the vast majority see 6% as the set cost of doing business.
The traditional model, supports say, helps to streamline the home-selling process, since it allows home buyers to buy a property without having to stump up an additional 3% to pay the broker.
Critics say that the model is fundamentally flawed and doesn’t offer much value. Sellers can end up paying huge sums of money without getting any more than what the person next door — who sold their home for less — receives. Critics also say that 6% is simply too high; in other countries, such as in Europe, it’s standard to have commission-based selling costs that sit around the 1 – 2% mark.
Things have remained the same in the real estate industry for a long time. The plaintiffs in these cases say change is overdue. They argue that home sellers and buyers are paying over the odds without getting much in return. Equally, they say that it just doesn’t make sense: why should the seller have to pay 3% to the buyer broker?
The NAR says that the system works and helps to smoothen the home-buying process for both sellers and buyers. They also argue that the system has continually evolved over the past 50 years and that it is beneficial to consumers.
If the lawsuits are successful, then home buyers may have to pay their brokers upfront. As it stands, brokers get paid by the seller once the house is sold.
A successful lawsuit may result in lower house prices, but with the buyer paying the same cost and the seller receiving the same amount. The removed cost would be the high commission fees.
With no standard price, agents will have to justify their commissions in greater detail than they do currently. Attracting clients will be based on the level of service provided and the cost/quality ratio.
Ultimately, this lawsuit could save consumers huge sums of money, as much as $20 – 30 billion a year. The current commission on a $500,000 home would be $30,000. If the suit is successful, it could be significantly less — and that’s good for both buyers and sellers.
Not so good for the traditional brokerage model. Facing drastic income reductions, where will legacy brokerages make up this income? Flat-fee broker sponsors have already perfected the model that doesn’t depend on commission splits.
Flat-fee sponsoring broker platforms allow real estate professionals to take control of their brand and access a whole host of innovative features that can help them take their earning power to the next level.
Ultimately, it’s about taking control of your business. With the looming changes in commission payouts, brokerages that take a larger part of commissions in exchange for sponsorship will become more of a burden to agents. At Pinnacle Realty Advisors, we offer a host of tools, brand growth, marketing assets, and much more.
Transparency in pricing, especially in the real estate industry, can make a world of difference for agents. With a flat fee sponsorship model, agents no longer have to deal with hidden charges or unexpected deductions from their hard-earned commissions. This transparent approach not only allows agents to predict their earnings accurately but also instills a sense of trust and fairness in our partnership. Ultimately, it ensures that agents can focus on what they do best – helping clients buy or sell homes – without the constant worry of financial uncertainties looming overhead.
Flat-fee sponsorship brokerages firmly believe that every agent should be rightfully rewarded for their hard work and dedication. This unique model opens the door to greater earning potential for agents. Without the burden of hefty commission splits or hidden fees, agents can retain a significantly larger portion of their earnings. This not only boosts their immediate income but, over time, can substantially amplify their overall financial growth. As agents gain more from each transaction, they’re empowered to reinvest in their business, seek further training, and enhance their service offerings, leading to even more opportunities and success in the real estate market.
The flat-fee model not only benefits agents, but it also translates into an enhanced experience for their clients. When agents aren’t burdened by complex commission structures or hidden fees, they can channel their focus directly to the needs of their clients. This streamlined approach means faster response times, more personalized service, and often greater flexibility in negotiations. Furthermore, with a clearer earnings structure, agents can more transparently discuss costs and potential savings with their clients. In essence, our model fosters an environment where agents can prioritize their clients’ interests, simplifying the home-buying and selling process, making it smoother and more straightforward for everyone involved.
An end to 6% commission fees would have widespread implications for the real estate industry, and in particular, the amount of money that agents can earn from each home sale. While this will be bad news for some agents, others, such as those who have experience, expertise, and connections, can thrive. Agents will have to justify their flat fee, and if they can justify the cost — as many will — then they may end up earning more than before.
The lawsuit against traditional commission-split brokerages was prompted, in part, because of the lack of value it offered consumers. Many homeowners viewed the 6% fee as a rip-off, yet they felt more or less cornered into paying the fee because of the lack of viable alternatives. The flat-fee model will become even more popular in the coming years because agents will want to work for a thriving brokerage that isn’t dependent upon commission splits to earn revenue and provide benefits to the agents that work there.
While the flat fee sponsorship model in real estate, such as the one adopted by Pinnacle Realty Advisors, promises greater earning potentials for agents, it’s not without its challenges. Critics argue that these models can sometimes sacrifice the comprehensive support and training traditionally provided by more established brokerages that take a percentage of commissions. Opponents argue that agents might find themselves navigating complex real estate transactions without adequate backup or mentorship, especially if the flat fee model means less investment in continuous training and agent development. As with any model, the success and suitability largely depend on the specific needs and experience level of the agent.
There’s no urgent need to switch to a flat-fee brokerage. The lawsuit against NAR and others is still pending and may result in the preservation of the 6% commission standard. But if like many agents, you’re thinking of moving with the times, then think about when to make the switch.
Getting started today can give you a headstart with a new working process that many others are likely to join in the coming years.
You’ll need the right Brokerage-as-a-Service platform to successfully transition to the flat-fee model. Here at Pinnacle Realty Advisors, we’ve created a powerful, all-in-one platform that empowers agents to utilize innovative working practices that get results. We offer marketing services, tools and resources, vetted vendors, and much more, providing agents with everything they need to grow their business.
The new model is the future. To get ahead, agents should:
Understand your market
Having a specialty will attract more customers. Taking the time to build your own real estate brand will make a huge difference in the long run.
Develop your online presence
Modern sellers interested in the flat-fee model will be tech-savvy, making digital marketing essential.
Build your customer base
Agents with an existing customer base will have more flexibility and options than others.
Review the services you offer
What services will you include? More services can justify a higher fee.
Even if NAR defeats its lawsuit, it’s still likely that the real estate landscape will shift. With more and more people understanding the limitations and high cost of commission-based selling, there’s a growing market for flat-fee services, and, as such, forward-thinking flat-fee sponsorship brokerages will be in a strong position to take full advantage of these changing winds.
The future is uncertain, but things are changing. The best approach for agents is to stay informed of industry changes, and to be ready to adapt to the new reality when it arrives.