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As a court battle plays out this week over commissions and an alleged conspiracy among real estate’s biggest names, a new study has found evidence that agents tend to “steer their clients away from low-commission listings.”
The study comes from a trio of researchers at USC and the University of Texas at Austin, among other places, and was published last week — on the eve of the Sitzer | Burnett bombshell commission trial now playing out in Kansas City, Missouri. The trial is one of the most significant real estate events in recent memory, and arose after a group of homesellers claimed that industry players such as the National Association of Realtors and major franchisors conspire to keep commissions high.
The new paper isn’t connected to the Sitzer | Burnett case, but explores similar topics. And significantly, the researchers found “strong statistical evidence that buyer agents nationwide steer their clients away from low-commission listings.” Lower commission homes receive less attention from buyers, the paper also argues, and the effect increases “as the buyer agent’s commission drops farther below the going rate in a given market.”
In other words, the less commission on offer to buyers’ agents, the less attention a listing gets.
The paper additionally argues that this situation has negative consequences for homesellers.
“Compared to homes that offer going-rate commissions, homes that offer commissions below 2 percent take 33 percent more time to sell,” the paper states. “And that assumes that these homes sell at all — in a typical geographic market, our best estimate is that such properties are 75 percent more likely to remain unsold.”
The paper is based on an analysis of 265,000 listings from dozens of the largest housing markets in the U.S. The researchers analyzed data from Redfin, looking at factors such as the number of page views listings received as well as the buyers’ agent commissions those listings offered.
The paper notes that the commission data used in the research is newly available thanks to a settlement between NAR and the U.S. Department of Justice. The DOJ later withdrew from that settlement and has been fighting with NAR in court ever since.
In any case, the paper suggests that agent steering to more lucrative properties is widespread and potentially a problem. Failed sales, for example, “can be especially difficult for sellers, forcing them to pay mortgages on both their new and old properties, potentially for an extended period of time.” The paper also argues that “friction” when moving from home to home drags on the economy and the labor market.
Relevantly to the ongoing bombshell cases, the paper goes on to claim that “steering behavior has significant potential to prop up commission rates against competitive and technological pressures.”
“Steering by buyer agents also has the potential to boost listing agent commission rates,” the paper later adds.
Such statements would seem to bolster the claims of the homeseller-plaintiffs in the bombshell lawsuits, who are arguing that costs are higher because they have to pay for buyers’ agent commissions.
The bombshell lawsuits have tended to produce anxiety and fear among many in the industry thanks to their disruptive potential. Experts have suggested that if the plaintiffs win, it could decimate NAR membership and significantly drive down commission rates. Nevertheless, many industry members have gradually come to the conclusion that change is inevitable: When Inman ran a poll earlier this week, 53 percent of respondents said they thought the homeseller-plaintiffs will ultimately win.
Inman launched a similar poll Wednesday asking readers if agents tend to steer their clients away from properties that offer lower or no commissions. About an hour after it launched, the poll had garnered 70 responses, with 63 percent indicating that commission-based steering does happen.
The new paper ultimately offers a number of policy solutions. Among other things, it proposes changing the visibility of buyers’ agent commissions, and ending requirements for sellers to offer commissions to buyers’ agents — the latter of which NAR did earlier this month. Ultimately, though, the paper suggests more regulation is likely in order.
“Commission-based steering is thus a promising target for regulatory or legislative intervention,” the paper states. “Policymakers can simultaneously help U.S. homeowners and reduce potentially wasteful competition among agents.”