Lawsuits challenging real estate commission could shake up housing market

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• William Brangham:

  The Federal Reserve is projecting as many as three interest rate cuts next year. That could help lower mortgage rates, which this year have been at a two-decade high, and make homeownership more affordable for many.

  Some experts also point to a landmark jury decision that could also change the cost of buying and selling a home.

  Economics correspondent Paul Solman has the story from Missouri.

• Tom Ferry, Realtor:

  If you think I'm going to cut my bleeping, bleeping commission…

• Paul Solman:

  One senior realty broker sharing his favorite commission tactic.

• Tom Ferry:

  You can take this home and shove it up your bleeping, bleeping, and I know that it will fit.

• Paul Solman:

  This clip from a real estate podcast, and ones not quite so bleep-heavy, helped persuade a federal jury in Missouri that the National Association of Realtors and its members have illegally conspired for decades to fix commission rates on home sales, money paid to selling agents, who invariably cut in the buyer's agents 50/50.

  Plaintiff attorney Mike Ketchmark.

• Mike Ketchmark, Attorney:

  Why is it that the only system in our entire country, if you want to sell something, that you're paying the other side?

• Paul Solman:

  Or, as one of Ketchmark's plaintiffs, former policeman Jerod Breit, put it:

• Jerod Breit, Plaintiff:

  What a weird system that the person that I had never met and did absolutely nothing for me as a consumer was getting the full percentage.

• Paul Solman:

  Three percent, fully half the typical total commission. Worse still, says winning attorney Ketchmark, large firms are coming to dominate the industry, and have a huge incentive to preserve the system.

• Mike Ketchmark:

  Half the time, these corporations are making their money representing sellers, and half the time they're making their money representing buyers. And so they're propping this system up and they're benefiting each other.

• Paul Solman:

  But not anymore, assuming the verdict withstands appeal. For now, Ketchmark has won a $1.8 billion judgment on behalf of some half-a-million home sellers in just Kansas, Missouri, and Illinois.

• Mike Ketchmark:

  We took 100 depositions of these top corporations in real estate, and they have training materials saying, fix your commissions at 6 percent.

• Man:

  When home sellers saw that I had written in a 6 percent commission into the contract, and would ask, Gino, aren't commissions negotiable, I would always answer confidently, yes, commissions are negotiable, but I can only go up.

• Mike Ketchmark:

  And what we did is, we started uncovering this.

• Paul Solman:

  So, this trial exhibit came as no surprise. Between 2015 and 2022:

• Mike Ketchmark:

  We looked at the actual closing documents for the 110,000 homes sold in the Kansas City area; 98 percent of the time, the commissions were set between 2.5 percent and 3 percent to the buyer's commission; 94 percent of the time, it was right at 3 percent.

• Paul Solman:

  The 3 percent the seller's agent gave the buyer's agent as a cooperation fee.

  So, in addition to through-the-roof mortgage rates these days, a now higher-than-ever median American home price of $430,000, about $26,000 of which is realtor commissions, $13,000 for each agent, regardless of effort, making homes that much more expensive than even their market price, and thus the complaint, industry-wide commission fixing, as the video clips so blatantly suggested, agents colluding with the national association which owns the word realtor.

  To call yourself one, you must be a dues-paying member. The trade group's response?

  Kipp Cooper, CEO, Kansas City Regional Association of Realtors: Commissions have always been completely negotiable, will always be completely negotiable. And those are set up front with the listing agent and the seller much ahead of time.

• Paul Solman:

  Look, a few individual brokers may behave badly, says Kipp Cooper, CEO of the Kansas City Regional Association of Realtors, but:

• Kipp Cooper:

  The National Association of Realtors has always been clear that — and it's in all of our guidance documents. It's in every meeting I have attended for the last 23 years, that we're not to talk about or set a commission rate.

• Paul Solman:

  Well, mum's the word for most of us when it comes to negotiating commissions.

• Stephanie Greene, Kansas City Homeowner:

  I have never heard anybody talk about commission as part of their buying experience.

• Paul Solman:

  First-time homebuyer Stephanie Greene closed on this house in Kansas City last spring to accommodate the, well, extended family.

• Stephanie Greene:

  High-five?

• Paul Solman:

  To Greene, buying was all about price. Negotiating the commission never occurred to her or to plaintiff Breit.

• Jerod Breit:

  I thought, as a first-time homebuyer in this experience, that 6 percent is 6 percent is 6 percent.

• Paul Solman:

  But then — and please bear with me as I try to untangle this legal web — why do seller's agents share their commission, instead of pocketing the whole 6 percent?

  Real estate economist Norm Miller.

  Norm Miller, University of San Diego: The general feeling among the industry is that if they don't offer a competitive buyer co-op fees, no one will show the home. That is, they will steer away from it.

• Paul Solman:

  OK, a seemingly rigged system, just as the jury found.

  And yet Stephanie Greene likes the current system, even though she realizes homebuyers like her wind up paying a sizable commission sort of hidden as part of the final price.

• Stephanie Greene:

  It really helped us out to be able to work that into the mortgage, rather than having to pay it all up front.

• Tenesia Brown, Keys Realty Group:

  This is the monopoly board game, so this is the pathway to homeownership.

• Paul Solman:

  And buyer's agents certainly often do provide plenty of value, especially, as Tenesia Brown does, for first-time homebuyers.

  (Laughter)

• Tenesia Brown:

  Get a job.

• Paul Solman:

  I have a job.

• Tenesia Brown:

  You would never guess the amount of people who have reached out to us who are interested in buying a home, but don't have a job or a source of income.

• Paul Solman:

  Her agency walks clients through the very basics.

• Tenesia Brown:

  You need to buy a house because you have a baby. Now, you are thinking. You are thinking about the feature.

• Tialynn Beauvoir, Homeowner:

  I have two children. I have a son who's autistic. I wanted to write a letter, so who's ever home I was buying, they got to know a little bit about me.

• Paul Solman:

  Tialynn Beauvoir says one of Brown's agents coached her well beyond the inspection, title search, even financing.

• Tialynn Beauvoir:

  She was like, if you are going to write a letter, let them know why and get personal, if that's what you want. And so she attached it to every offer after that, that I put on there.

• Paul Solman:

  Beauvoir got the house from someone who was touched by her appeal.

  Brown, who runs the brokerage, worries about the judgment. Will her largely low-income clients be able to afford a buyer's fee up front if her agents are no longer paid as part of the price? Will they want to negotiate a commission?

• Tenesia Brown:

  The journey of homeownership or selling a home can be a roller coaster. So, adding in the difficulties of now another layer of negotiating what has been a standard for so long is just going to make it more difficult.

• Paul Solman:

  On the plus side of the judgment, maybe fewer of what Brown calls fly-by-night agents. There are some two million real estate agents in America, 1.6 million of them realtors, and yet barely five million homes sold last year.

  One in every 100 American workers holds a real estate license, and yet 80 percent of them sell little to nothing, says economist Miller.

• Norm Miller:

  If the fees come down and the good agents sell more homes, that means that there's a lot of part-timers and mediocre agents that are out of the industry.

• Paul Solman:

  So, what's the economy's final verdict likely to be, should the juries be upheld?

• Norm Miller:

  We should move towards what we see in other developed countries, like the U.K., Israel, Singapore. And that would suggest that the fees would move from 5 percent to 6 percent down to 3 to 4 percent.

• Paul Solman:

  If sellers and buyers start negotiating. Would Jerod Breit negotiate now?

• Jerod Breit:

  Absolutely, 100 percent.

• Paul Solman:

  In the end, for each 1 percent less in commissions, buyers and sellers would have saved more $20 billion last year, 3 percent less, more than $60 billion, something like $13,000 a house.

  And to up the pressure, Mike Ketchmark has now started a lawsuit against the industry nationwide, in the name of cutting home prices by bidding down commissions, which could lower prices and start a whole lot of haggling.

  For the "PBS NewsHour," Paul Solman in Kansas City, Missouri.