A federal jury this week dealt perhaps the biggest blow to the American home-buying industry in a century when it found that the powerful National Association of Realtors and several big brokerages had conspired to keep agent commissions artificially high.
Brokers, analysts and consumer advocates hailed the verdict – which awarded the plaintiffs nearly $1.8 billion in damages – a game changer. More antitrust lawsuits against associations and brokerages await trial, while federal regulators trying to intervene Too.
Here’s what the changes could mean for the home brokerage industry, which pulls in an estimated $100 billion in commissions each year.
Real estate experts say the current system will not be sustainable. Right now, home sellers essentially pay a fee to both their own agent and the buyer’s agent, with the typical commission being around 5 to 6 percent, split between the two brokers.
This structure is largely enforced by the National Association of Realtors, which has approximately 1.5 million dues-paying members. If a seller does not agree to those terms, the listing is not shown on the many listing services that underwrite most home sales.
This week’s decision may have changed that. “The industry can no longer trust that a jury will rule in favor of their pricing system,” Steve Brobeck, senior fellow at the Consumer Federation of America, told DealBook.
Experts identified a range of possible changes, including:
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Making commission sharing optional, so that sellers’ agents who do not want to pay buyers’ agent fees can still list on the database.
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Negotiating for the home seller to cover the buyer’s broker costs as part of the transaction price. Or, if banks and federal regulators agree, home-lending rules could be changed so that mortgages can be financed directly through buyers’ agent fees.
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Buyers’ agents charge a flat fee, bill by the hour or offer a menu of services that home buyers can choose from.
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Skipping buyers’ agents altogether, as buyers do in most countries.
According to analysts at investment bank Keefe, Bruyette & Woods, 30 percent of the industry’s commissions could disappear.
Start-ups are trying different business models. Some, including CoStar’s Homes.com, promote house listings rather than selling buyer leads to agents, as Zillow and Realtor.com do. (Agents can pay Homes.com to promote their listings more prominently.) And companies known as iBuyers, such as Opendoor and Oferpad, freelance from multiple-listing services by listing homes they own. Tries to stay. After the realtors’ decision, the shares of those companies have increased rapidly.
The brokerage industry may contract. According to KBW analysts, the lower fees could reduce the number of US agents by 80 percent. Those at risk include part-time brokers or poor performers. “We’ll find out who the real professionals are,” said Jason Haber, an agent with Compass.
Such a decline could have devastating consequences for the National Association of Realtors, which collects about $150 annually from each member. According to the non-profit organization Most recent annual tax filingIt earned net income of $79 million on revenues of $327 million.
the group said this will appeal Court’s decision. – Michael J. de la mercede
In Case You Missed It
Sam Bankman-Fried was found guilty on all counts. The founder of the FTX cryptocurrency exchange was convicted on seven charges of fraud and conspiracy and could face up to 110 years in prison. The decision cements the fall of the crypto industry’s former poster child.
Efforts to regulate artificial intelligence were made on both sides of the Atlantic. President Biden issued an executive order requiring companies to test AI tools that could be a threat to national security and share the results with the government. At the first global AI security summit hosted by British Prime Minister Rishi Sunak, 28 governments agreed to cooperate on risk management.
Auto workers ended their strike. After weeks of labor conflict, General Motors agreed to a tentative deal with the United Automobile Workers, the last of the Big Three Detroit manufacturers to do so. The concessions were seen as a major victory for the Union.
An old trade rule creates new problems for US retailers
American retailers have faced an existential crisis after e-commerce disrupted the industry’s traditional business models. But a group of retailers and policymakers say their latest threat is coming from a nearly century-old trade rule, The Times’s Jordan Holman reports for DealBook.
The rule, de minimis, exempts packages sent to the United States from duty and charges if they are worth less than $800.
Critics of de minimis say that because Chinese-founded online retailers like Shein and Teemu ship goods from their overseas warehouses directly to shoppers’ homes, some of their packages cost at least $800. But products made overseas and shipped in bulk to the United States – where retailers store them in warehouses before shipping them to customers – are less likely to fall under this limit.
American retailers want the rules changed. They argue that if that is not the case, American jobs are at risk.
De minimis “played a significant role” in the financial stress that led to David’s Bridal going bankrupt in April, The company’s chief executive Jim Marcum told DealBook, which was its second in five years. The company said it paid about $20 million in fees to U.S. Customs last year, while its China-based competitors, who ship clothes directly to buyers, paid nothing, Mr. Marcum said. He said that over six years, the duties would have amounted to about $100 million, which could have been invested in modernizing the business.
Temu and Sheen probably contribute 30 percent of the packages sent daily under the provisionaccording to a report From the House Select Committee on the Chinese Communist Party. A Sheen spokeswoman said de minimis “is not critical to the success of our business,” and in July, Sheen’s executive vice president said the company was “eager to work with lawmakers to help change the rule.” ” Was. A spokesperson for Temu said that its “growth is not dependent on de minimis policy” and that the company “supports any policy adjustments made by legislators consistent with consumer interests.”
A group of US retailers wants Congress to expand the minimum threshold So that it applies to US distribution centers in foreign trade territories. In these areas, companies are not required to immediately pay duty fees for imported products. Instead, they pay a fee when they ship those products to customers. That delay helps them manage cash flow, but unlike packages shipped from a warehouse abroad, packages shipped from warehouses in foreign trade zones are not exempt from duty if their value is less than $800. “What we want is equality,” said Ron Sorini, a lobbyist and trade expert who works with the group.
Some people support other methods. Kim Glass, president of the National Council of Textile Organizations, said it would be better to limit the use of de minimis to a small number of retailers. She supports a bill introduced in Congress in June that would exclude “non-market economies” like China and Russia from using the exception, though she wants the law to exclude all e-commerce shipments from de minimis. Prohibit exceptions from being used.
“We don’t want any law in existence that creates an incentive to move your distribution offshore,” Sorini said. “And that same incentive still exists today.”
dissecting the american dream
In “We had a bright future,” David Leonhart of the Times examines the rise and fall of the American dream while debating progressive policies aimed at economic improvement for the working class. In a recent interview, Leonhardt answered Andrew’s questions. Their responses have been condensed and edited.
You write that America began to lose its way when wages stagnated in the early 1980s. What do you make of the argument that the period between World War II and 1980 was a historical aberration – the rest of the world was largely out of business – and it was global competition that led to wage stagnation?
I think this is partly true. But the United States also made many decisions that have harmed the economic prospects of most people. We used to be the most educated country in the world, and we’ve fallen behind. We didn’t have to do that. We used to have the best transportation infrastructure in the world, and we’ve been left behind. We used to spend more of our government funds on scientific research. Our economy is more unequal than ever. And this was not supposed to happen.
The book makes the case for stronger labor unions, which we are now seeing in the U.S. However, some automakers – and even employees – believe that in the past, auto unions took out so much money That industry eventually fell into bankruptcy. Do you agree with this?
I think there have been special cases of union overreach in the past, and I think the auto industry, particularly in the 1970s, might be a good example. But the bigger problem in the United States is low wages for a lot of workers. Inequality has absolutely increased. And historically, there has been a very strong relationship between labor unions and the wages of most workers. Can unions sometimes be too strong? Yes. Has this been the main problem with the US economy in recent decades? No, the main problem has been that we have weak unions, weak wage growth for most workers and really high inequality.
You seem to admire Franklin D. Roosevelt’s entitlement programs. Given the country’s debt problem, how would you think about revising those entitlement programs?
I understand why Roosevelt made them universal. This was a political decision. But I think there’s a pretty good argument that they shouldn’t be universal anymore. The United States today sometimes spends more government money on affluent older people than on poor children. One way to solve our long-term debt problems, that is real, is to cut spending on wealthy retirees. And I don’t just mean very rich people. I also mean upper-middle class people who far outnumber the very rich, many of whom don’t need as generous benefits as they get. There is also room to raise taxes in our economy, and to cut other benefits like the mortgage interest deduction that largely go to the affluent.
Thanks for reading! We will meet you on Monday.
Please email ideas and suggestions to dealbook@nytimes.com.
