Maine real estate agents are closely monitoring potential fallout from a federal court case that could upend the way they make money – and they say the decision could hurt homebuyers, too.
A federal judge in Kansas City ruled last month that the National Association of Realtors and major brokerage firms, including Keller Williams and HomeServices of America (the parent company of Berkshire Hathaway), conspired to keep commissions artificially high, which in turn stifled competition and increased home prices.
The verdict awarded $1.8 billion to a half-million Missouri home sellers, and more money could be coming. The National Association of Realtors has denied the allegations and vowed to appeal the decision.
The judge has yet to decide what exactly needs to change. The entire “bundled” or “coupled” commission structure could be dismantled or it could stay in place, with some sort of increased transparency around how real estate commissions shake out.
Brit Vitalius, owner of Vitalius Real Estate Group in Portland, expects the latter.
“I don’t think in Maine this is going to change anything about the way real estate transactions are done and have been done for 100 years,” he said.
Traditionally, sellers’ and buyers’ agents split a commission – typically between 5% and 6% of a home sale price. The median home price in Maine was $376,000 in November, so the agents would divvy up anywhere between $18,800 and $22,560. Sometimes the split is 50/50, other times it’s some other configuration. The split is predetermined by the seller and the fees for both agents are usually baked into the list price.
This gives the impression that the seller pays for the commission, but real estate agents say that’s a misconception. Higher fees for sellers mean higher costs for buyers.
But in 2019, a group of Missouri home sellers sued the trade organization and brokerages for practices that they – and now the court – say violate antitrust laws.
These practices and policies include: prohibiting the multiple listing service database from disclosing to buyers the commission their broker will earn if the buyer purchases a home listed on the MLS; allowing agents to mislead buyers into thinking the agent’s services are free; and enabling them to filter MLS listings based on the level of commissions offered, effectively excluding homes with lower commissions from consideration.
To prevent price fixing, it’s illegal for agents to discuss their commissions or fees with one another, though they can discuss splits.
Unlike the MLS, real estate websites like Zillow and Redfin show what percentage of the sale the buyer’s agent is likely to receive, but it doesn’t say what the seller’s agent will receive. In York County, where real estate agents say there has historically been a 60/40 split, the majority of a sampled set of listings included a 2% commission for the buyer’s agent, while homes in Cumberland and Androscoggin counties had a 2.5% commission.
The general air of secrecy surrounding commissions also keeps buyers in the dark, preventing them from shopping around, creating competition among agents and therefore lowering commission rates, the lawsuit alleges.
In Maine, however, home buyers and agents sign a written buyer’s agent agreement, which includes the agent’s commission and how it will be paid. Maine’s MLS also does not allow agents to search by commission.
Carmen McPhail, president of the Maine Association of Realtors, said Maine has always been ahead of the curve in this regard, allowing for more transparency.
Without the agreements, other states are essentially playing in the “Wild West,” said McPhail, who is a broker at United Country Lifestyle Properties of Maine.
“The market is going to take care of this,” Vitalius said. “These lawsuits by these attorneys who think there’s some collusion going on here (are) not going to make the system actually work better for buyers and sellers.”
If anything, he and other real estate agents say it could have the opposite effect.
THE HAVES AND THE HAVE-NOTS
Because the agent fees and commissions are rolled into the list price, there’s no additional check for buyers to write and agents are paid at closing. Upending the industry’s commission-based model, however, could prompt agents to start charging hourly fees, a flat rate or an a-la-carte style system. That means prospective home buyers may need to weigh the costs of paying upfront for a real estate agent or forgoing their services altogether.
This would have a disproportionate impact on low-income families, veterans and first-time home buyers, said Holly Mitchell, a Portland-based real estate agent with Keller Williams.
The Veteran’s Administration expressly prohibits any buyers using a VA loan from paying fees or commissions for a real estate agent, so it has to be covered by the seller in the traditional model. And first-time home buyers who don’t have equity and may already have had to borrow money from family, may not have the extra cash.
“I don’t think that’s a good idea, limiting the pool of buyers … to the wealthy,” Mitchell said. “Then it becomes another story of the haves and have-nots.”
Often, they also are the buyers who’d most benefit from the advice of a real estate agent, Mitchell said, and going without one could further limit their ability to compete in the current highly competitive market.
“Without somebody in your court, there’s a whole bunch of potential pitfalls,” said Tom Landry, owner of Benchmark Real Estate in Portland.
If the commission structure goes topsy-turvy or if the rates fall substantially, Landry said some real estate agents may decide the industry isn’t worth the time and energy.
“People aren’t going to do it for $40 an hour, it’s too much time,” he said.
The pandemic electrified the housing market, spurring people to become real estate agents in droves, drawn in by the payday from record-high prices, seemingly insatiable demand and the ability to work from home. The number of licensed real estate agents in Maine increased 14% between 2019 and 2023.
But experts say those numbers tend to drop when the market is in a downturn, and right now, historically low inventory, high prices and high interest rates have sent sales dropping year-over-year and month-over-month.
“If you combined that with then the potential of this commission change, I think there will be a potential mass exodus of people who got into the industry in the last few years when times were pretty good and it was almost too easy money,” Landry said.
Those who stay will have to adapt to any changes, but the industry has weathered storms before.
With the introduction of sites like Zillow and Redfin, even Realtor.com, many feared their jobs would become redundant. Before the 1990s, buyer’s brokers were practically unheard of. Real estate agents almost exclusively represented sellers.
“If changes come and it has to be completely different than the way we do it now, then we will adapt and adjust,” said McPhail, the Maine association president. “If the way we get paid or the way we are hired, or the way that we offer our services needs to change for the benefit of the transaction of the benefit of the public, then we will do that.”
Mitchell dismissed the idea of collusion but hopes any changes will lead to more transparency.
Maine may be ahead of some states, but buyers don’t always understand how their agents get paid and sellers don’t always know they can negotiate commissions.
“Agents should and will be more rigorous in those conversations,” Mitchell said.
And no matter what change is brought on, people will experiment.
“I think there will be change and fallout, but I feel like there will be some people who are innovating” and developing new strategies, she said.
Read More:Maine real estate industry braces for changes to home sales commissions