Why one Kansas City lawsuit could permanently change real estate

A low barrier to entry, the prospect of high commissions, and a high degree of flexibility—not to mention some wildly popular reality TV shows—made real estate one of the fastest growing professions in the U.S. Now its workforce is at risk of a decline, and unlike previous market downturns, it may never be the same again.  

That’s because the sector isn’t just facing the usual headwinds that come with a high interest rate environment and supply shortages, which resulted in a 14.6% drop in transaction volume this year.

In late October, a Kansas City jury found the National Association of Realtors (NAR) guilty of anticompetitive practices—namely forcing sellers to pay a commission fee to buyer’s agents—awarding the plaintiffs nearly $1.8 billion in damages. The landmark ruling in the Sitzer/Burnett case, and similar lawsuits filed in other jurisdictions since, disrupts the industry’s long-standing compensation model for buyer’s agents, and may serve to cut realtor fees—and with it, revenues—in an industry already struggling from the effects of a market in decline.

While this could be good news for those looking to purchase property, how buyer’s agents will be compensated in the wake of the ruling remains an open question. While some in the industry are hopeful that sellers will continue to offer the standard 3% commission fee to buyer’s agents, others suggest price-conscious sellers will opt out, leaving buyers to either foot the bill themselves, go without an agent, or pursue a different, fixed-fee model.

What Goes Up Must Come Down

These challenges are converging around the industry following a period of historic growth. The last time the industry took a major hit, during the 2008 housing crisis, NAR membership dropped from a high of about 1.36 million in 2007 to less than one million in 2012.

Since that time, however, the number of agent members has increased consistently every year through to its 2022 peak of 1.6 million. In fact, the top job-related Google Search term in 2021 was “how to become a real estate agent.”

“The reality is the number of real estate licensees has been bloated for many, many years,” says Anthony Marguleas, the founder of Los Angeles-based real estate firm Amalfi Estates. “The barrier to entry is so low, and the reality TV shows didn’t help, because everyone is watching Selling Sunset and Buying Beverly Hills thinking everyone makes a million dollars a year.”

A February 2023 survey of American real estate agents found that agents who work between 40 and 50 hours per week make an average annual salary of $113,000, and that agents typically do not earn six-figure sums until their fourth year on the job. 

A Mass Exodus From Residential Real Estate?

Now, he says, the industry is on the cusp of a mass exodus—one which he welcomes.

“You have this huge increase in the number of agents . . . and you have the number of transactions dropping, so I firmly believe with these losses—and the amount of compensation being reduced for buyer’s agents specifically—I think you’ll have about 50% of the agents leaving the industry over the next 18 months, which is a good thing,” he says, adding that those who are in it for the wrong reasons are likely to be the first to exit. “I think there’s going to be a fire tornado going through residential real estate’s ranks, and it’s going to be the biggest reversal of real estate agents in the industry that we’ve seen in the past 50 years.”

NAR, however, doesn’t quite see it that way. According to its data the association’s membership only declined by about 22,000 people between October of 2022 and October of 2023, a modest drop considering October home sales hit a 13-year low.

“Maybe the industry itself is shrinking a bit, but I don’t see it shrinking at all [in direct response] to the verdict itself,” says NAR president Tracy Kasper. “It’s what we’ve seen throughout our history: agents come into the industry when things are good, and when the market slows down or has its little hiccups we see people exit and go to other jobs or industries.”

Kasper says that real estate has remained a widely appealing career opportunity due to the flexibility it offers, as well as the opportunity to help people with what is often the largest transaction of their lives. Those elements, she argues, won’t go away in the wake of the Sitzer/Burnett case, which she says NAR intends to appeal.

“There’s a lot that attracts people to the business, but I think at the end of the day it really truly is about helping people achieve that dream,” she says. “Our industry is one of those where change happens every single day, and if we have to navigate and help buyers in a different way, we’ll figure it out.”

Making Room for the Next Generation

Instead of dramatically depleting its workforce, Kasper says the current downturn could serve to expedite a generational shift in the industry. According to NAR’s data the average member is 59 years old, and 80% had a prior career before entering the real estate sector.

Matthew VanFossen, the chief operating officer of New Jersey-based Absolute Home Mortgage, says the old guard of buyer’s agents may not be willing to adjust to a different compensation model in the wake of the Sitzer/Burnett verdict, but newer entrants might.

“The industry ebbs and flows, and we’re on the ebb side rather than the flow side, so you’re going to see a natural exodus,” he says. “The question is where is the exodus going to happen? Is it going to be among the new entrants that can’t get a foothold? Or is it going to happen among the senior employees that are just frustrated that they now have to do more work for less?”

VanFossen, who also serves as the vice president for Community Home Lenders of America, imagines a scenario in which more experienced buyer’s agents operate in the higher end of the market on a traditional commission fee model, while less experienced agents offer buyers at the lower end of the price spectrum a discount using a fixed fee model. 

“Consumers will have to make a decision: Do I want to go with the year one agent for a $1,500 flat fee, because they’re the cheapest?” he says. “Or do I want a seasoned buyer’s agent that has 200 transactions under their belt that I’m going to pay $5-, $10-, $15,000 for out of pocket?”  

While the industry will undoubtedly shrink now that the market has cooled, some, like Marguleas of Amalfi Estates, expect its employment numbers to remain low, while others, like VanFossen, believe it will bounce back as soon as the market inevitably heats back up. 

He explains that the entrepreneurial lifestyle of real estate agents is a natural fit for Gen Z, many of whom already participate in the gig economy, and value the flexibility that comes with self-employment. “Any time the market gets hot people come in, that’s just inevitable,” VanFossen says. “People will flock to where there’s opportunity.“

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