THE BASIS POINT

3 Ways Real Estate Commissions Will Evolve (as new lawsuit hits 2 dozen NYC brokerages)

 
 

The wars against real estate commissions are proliferating.

The latest is a suit against 2 dozen Manhattan real estate brokerages.

It claims sellers using the Real Estate Board of New York’s listing service should not pay 2.5% to 3% commissions to buyers’ brokers.

Reuters said the suit claims buyer commissions are lower in neighboring areas like Brooklyn, where buyers negotiate separately and pay an average of 1%.

A key question these commission lawsuits raise is whether sellers should pay 5-6% on average nationally so that the listing agent can give half of that to buyer’s agents.

Today, in situations where seller’s agents don’t offer the customary half commission to buyer’s agents, those buyer’s agents typically don’t show the homes.

Everyone has just accepted this for decades so the message from a buyer’s agent to a buyer is: don’t worry, I’ll work incredibly hard for you and I get paid by the sell side.

This Manhattan lawsuit claims that commissions on NYC residential sales remain in the 5-6% range even as average apartment prices topped $2 million last year.

And more important, this is another suit chipping away at the seller-pays model.

The endgame will likely be that home sellers pay their part and home buyers pay their part.

This means a few things:

First, buyer’s agents will have to work harder to prove their value and get buyers to sign commission agreements up front like seller’s agents do with sellers.

Second, buyers will need options to finance their real estate agent commission if they can’t afford to pay it in cash.

Third, it may lead to lower real estate agent commissions overall because both seller and buyer side commissions are entering an era of open negotiation rather than people just accepting pre-existing, long-standing pricing models.

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Reference:

Manhattan real estate brokerages are sued for inflating commissions

 

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