Brokerage Fees Near 6% of House Price
Abolition of Seller-Paid Commission Practice
The U.S. real estate industry, accused of artificially inflating brokerage fees in collusion with real estate agencies, has agreed to abolish the decades-old commission practices. As competition to lower fees begins, brokerage commissions, which once reached up to 6% of the maximum home price, are expected to decrease.
According to the National Association of Realtors (NAR) on the 17th (local time), the association decided on the 15th to pay a settlement of $418 million (approximately 550 billion KRW) in response to a lawsuit filed by consumer groups alleging that the real estate brokerage industry maintained unfairly high commission rates. Along with this, the industry practice of sellers pre-notifying and bearing the buyer's brokerage commission when listing a property will also be abolished.
In the U.S., several states have enacted laws, lobbied by NAR, prohibiting a single broker from representing both the seller and buyer simultaneously. Additionally, the industry has maintained the practice for decades where sellers bear the buyer's brokerage commission, which typically amounts to 2-3% of the home price. Consumer groups have criticized this practice, pointing out the paradoxical situation where a single real estate transaction requires paying up to 6% of the home price solely in brokerage fees.
This settlement came about four months after a federal jury in Missouri ruled last October that NAR and major real estate agencies colluded to maintain high brokerage fees and ordered them to compensate 500,000 home sellers with $1.8 billion (approximately 2.4 trillion KRW). If the federal court approves this settlement, the revised regulations will take effect starting July.
Under the newly amended regulations, home buyers will be able to negotiate commissions directly with their brokers. Experts expect that as buyers seek brokers offering lower fees, competition to reduce commissions within the real estate industry will be triggered.
The Wall Street Journal (WSJ) evaluated, "This landmark settlement will transform the brokerage fee system for U.S. home buyers." Steven Sheldon, an analyst at U.S. investment bank William Blair, said, "This change in the real estate industry will clearly pressure brokers to revise their commission policies," and forecasted, "In the short term, the overall commission rates in the housing market are expected to decrease."
Meanwhile, on the 15th, when news of the lawsuit against NAR became public, the stock price of Zillow, a U.S. online real estate platform company, closed at $47.71, down 13.49% from the previous session.
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