May 4, 2024 - News

How Twin Cities will be impacted by the national Realtors lawsuit

Illustration of a set of keys with a percent sign keychain

Illustration: Sarah Grillo/Axios

The National Association of Realtors and brokerages including the parent company of Edina Realty recently agreed to settle a big lawsuit that questions how real estate agents are paid — and who foots the bill.

The big picture: If approved, come summer, agents won't be able to make offers of compensation in the Multiple Listing Service, the database where agents post homes for sale.

Why it matters: The seemingly small change, which a court preliminarily approved last week, is causing major confusion.

How it works (currently): Sellers and their agent negotiate a fee, which is typically 5%-6% of the purchase price and is shared with the buyer's agent.

  • That commission is advertised in the MLS listing, and the seller pays both agents from the home sale earnings.
  • Many are concerned agents steer clients toward higher-fee deals.

Under the new rules, buyers and their agents would come to terms about payment upfront, antitrust lawyer Brian Schneider says.

  • Minnesota is one of 20 states that already require a contract when working with an agent, but now buyers would need to sign it before the agent can show them homes.

Reality check: Some companies have already ditched agent fees altogether, like Kris Lindahl Real Estate in the Twin Cities, the Star Tribune reports.

  • Others charge a flat fee, such as Golden Valley-based Home Avenue, per the outlet.

Yes, but: Many industry professionals are worried about first-time buyers, most of whom can't afford to pay their agent out-of-pocket, says former Zillow exec and Tomo cofounder Greg Schwartz.

That means sellers aren't entirely off the hook. They'll likely offer a concession that covers buyer agent costs, Faron King, a VP with NAR, tells Axios.

Zoom in: Some sellers and listing agents may offer compensation outside of the MLS, according to Twin Cities broker Ryan O'Neill.

  • The thinking is, "if [buyers] don't have to come up with that money, more buyers can be interested in the house," Twin Cities agent Jeff Anderson tells Axios.
Median annual wage for real estate agents
Data: BLS; Note: Annual wages have been calculated by multiplying the corresponding hourly wage by 2,080 hours; Chart: Tory Lysik/Axios Visuals

What's next: Most observers believe commissions will fall, possibly to 1%-1.5% per agent on each side, Axios' Emily Peck reports.

  • Some see opportunities for new business models, from paying agents a flat fee to AI broker bots.
  • Agents who can't demonstrate the value they bring clients, or those with less experience, might flounder.
avatar

Get more local stories in your inbox with Axios Twin Cities.

🌱

Support local journalism by becoming a member.

Learn more

More Twin Cities stories

No stories could be found

Twin Citiespostcard

Get a free daily digest of the most important news in your backyard with Axios Twin Cities.

🌱

Support local journalism by becoming a member.

Learn more