A federal jury dealt the biggest blow to the American home-buying industry in perhaps a century this week when it found that the powerful National Association of Realtors and several large brokerages had conspired to keep agent commissions artificially high.
Brokers, analysts and consumer advocates called the decision — which awarded plaintiffs nearly $1.8 billion in damages — a game changer. More antitrust lawsuits against the association and brokerages are awaiting trial, while federal regulators are looking to intervene as well.
Here’s what changes might be in store for the home brokerage industry, which pulls in an estimated $100 billion in commissions each year.
Real estate experts say the current system won’t stand. Right now, home sellers essentially pay fees for both their own agent and the buyers’ agent, with a typical commission around 5 to 6 percent, split between the two brokers.
That structure is largely enforced by the National Association of Realtors, which has about 1.5 million dues-paying members. If a seller doesn’t agree to those terms, the listing isn’t shown on the multiple listing services that underpin most home sales.
This week’s decision may have changed that. “The industry can no longer believe that any jury will decide in favor of their price-setting system,” Steve Brobeck, senior fellow at the Consumer Federation of America, told DealBook.
Experts identified a range of potential shifts, including:
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Making commission sharing optional, so that sellers’ agents who don’t want to pay buyers’ agent fees can still list on databases.
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Negotiating to have the home seller 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 to allow mortgages to directly finance buyers’ agent fees.
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Having buyers’ agents charge flat fees, bill by the hour or offer a menu of services that home shoppers could choose from.
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Forgoing buyers’ agents altogether, as buyers in most countries do.
According to analysts at the investment bank Keefe, Bruyette & Woods, as much as 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 instead of 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, like Opendoor and Offerpad, try to remain independent from multiple-listing services by listing homes they own. Shares in those companies have risen sharply since the Realtors verdict.
The brokerage industry could contract. Lower fees could drive down the number of U.S. agents as much as 80 percent, according to the KBW analysts. Among those at risk are part-time brokers or underperformers. “We’ll find out who the real professionals are,” said Jason Haber, an agent at Compass.
Such a drop could have disastrous consequences for the National Association of Realtors, which collects about $150 from each member annually. According to the nonprofit’s most recent annual tax filing, it earned $79 million in net income on $327 million in revenue.
The group has said it will appeal the court ruling. — Michael J. de la Merced
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 verdict cements the fall of the crypto industry’s former poster child.
Efforts were taken to regulate artificial intelligence on both sides of the Atlantic. President Biden issued an executive order requiring companies to test A.I. tools that could be a threat to national security and share the results with the government. At the first global A.I. safety summit, hosted by Rishi Sunak, the British prime minister, 28 governments agreed to cooperate on risk management.
Autoworkers ended their strike. General Motors agreed to a tentative deal with the United Automobile Workers, the last of the three big Detroit manufacturers to do so, after weeks of labor strife. The concessions were seen as a big win for the union.
An old trade rule causes new problems for U.S. retailers
American retailers have faced an existential crisis since e-commerce disrupted the industry’s traditional business models. But their latest threat, a group of retailers and policymakers say, is coming from a nearly century-old trade rule, The Times’s Jordyn Holman reports for DealBook.
The rule, de minimis, exempts packages shipped into the United States from duties and fees if they are worth less than $800.
Critics of de minimis point out that because Chinese-founded online retailers like Shein and Temu deliver merchandise straight from their overseas warehouses to shoppers’ homes, few of their packages are worth at least $800. But products made overseas and shipped in bulk to the United States — where retailers store them in warehouses before sending them to customers — are less likely to fall under the threshold.
U.S. retailers want that rule changed. If it isn’t, they argue, U.S. jobs are at risk.
De minimis “played a significant role” in financial strain that led to David Bridal’s bankruptcy in April, which was its second in five years, Jim Marcum, the company’s chief executive, told DealBook. The company said it paid about $20 million in fees to U.S. Customs last year while its Chinese-based competitors that ship dresses straight to shoppers paid nothing, Mr. Marcum said. Over six years, that amounted to about $100 million in duties that could have been invested in modernizing the business, he added.
Temu and Shein most likely account for 30 percent of packages shipped daily under the provision, according to a report from the House Select Committee on the Chinese Communist Party. A Shein spokeswoman said de minimis “is not critical to the success of our business,” and in July, Shein’s executive vice chairman said the company was “eager” to work with lawmakers to help change the rule. A Temu spokeswoman said that its “growth isn’t dependent on the de minimis policy” and that the company was “supportive of any policy adjustments made by legislators that align with consumer interests.”
One group of U.S. retailers wants Congress to expand de minimis so that it applies to U.S. distribution centers in foreign trade zones. In these zones, companies are not required to immediately pay duty fees for imported products. Instead, they pay the fees when they ship those products to customers. That delay helps them manage cash flow, but unlike packages shipped out of a warehouse abroad, packages shipped out of warehouses in foreign trade zones aren’t exempt from fees if they’re worth less than $800. “What we want is parity,” said Ron Sorini, a lobbyist and trade expert working with the group.
Some favor other approaches. Kim Glas, the president of the National Council of Textile Organizations, said it would be better to limit the use of de minimis to fewer retailers. She supports a bill, introduced in Congress in June, that would exclude “nonmarket economies,” such as China and Russia, from using the exception, though she would like to see legislation ban all e-commerce shipments from using the de minimis exception.
“We don’t want to have a law in existence that creates an incentive to move your distribution offshore,” Sorini said. “And that’s the incentive that exists today.”
Dissecting the American dream
In “Ours Was the Shining Future,” The Times’s David Leonhardt examines the rise and fall of the American dream, arguing for progressive policies aimed at economic improvement for the working class. In a recent interview, Leonhardt answered questions from Andrew. His responses have been condensed and edited.
You write that the U.S. started to lose its way in the early 1980s when wages stagnated. 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 that it was global competition that led to wage stagnation?
I think that’s partly true. But the United States also made a set of decisions that have damaged most people’s economic prospects. We used to be the most educated country in the world, and we’ve fallen behind. We didn’t have to. We used to have some of the best transportation infrastructure in the world, and we’ve fallen behind. We used to spend more of our government funds on scientific research than we do. Our economy is vastly more unequal than it used to be. And that didn’t have to happen, either.
The book makes the case for stronger labor unions, something we’re now seeing play out in the U.S. However, some automakers — and even employees — have a view that in the past, auto unions extracted so much money that the industry ultimately fell into bankruptcy. Do you agree with that?
I think there are particular cases of unions overreaching 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 has been low wages for too many workers. Inequality has absolutely soared. And historically, there is a very strong relationship between the labor unions and the wages of most workers. Can unions sometimes be too strong? Yes. Has that been the main problem in the U.S. economy in recent decades? No. The main problem has been that we’ve had weak unions, weak wage growth for most workers and really high inequality.
You appear to praise Franklin D. Roosevelt’s entitlement programs. Given the nation’s debt problem, how would you think about revising those entitlement programs?
I understand why Roosevelt made them universal. It was a political decision. But I think there’s a very good argument that they should no longer be universal. The United States today sometimes spends more government money on affluent old people than it does on poor children. One of the ways to address our long-term debt problems, which are real, is to cut spending on affluent retirees. And I don’t just mean the very rich. I also mean upper-middle-class people who are more numerous than the very rich, many of whom don’t need as generous benefits as they receive. There’s also room in our economy to raise taxes, and there is room to cut a bunch of other benefits that flow largely to well-off people, like the mortgage interest deduction.
Thanks for reading! We’ll see you Monday.
Please email thoughts and suggestions to dealbook@nytimes.com.
