Lawsuits May Do Little to Ease High U.S. Real Estate Commissions

 

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Overseas investors in the U.S. real estate market should know that American real estate agents receive some of the highest commissions in the world.

A recent lawsuit has brought to light that U.S. real estate agents receive some of the fattest commissions in the world – and that lawsuit might do little to whittle that commission.

 

American real estate agents earn about a 6% commission – far more than the next-highest country, Germany – with the U.S. national average being 5.49%. Around half of that goes to a buyer’s broker in America, which is part of the American National Association of Realtors (NAR) Participation Agreement requiring listing brokers to compensate buyer’s brokers.

 

(Commissions are comparable for agents of commercial real estate.)

Even in the current inflated American real estate market, sellers are unhappy.  For last year the biggest regret among more than a quarter of home sellers surveyed was that their agent’s commission was too high. More than two out of five sellers didn’t realize they’re expected to pay the buyer’s agent’s commission and just 11% of Americans knew that the average commission rate nationwide is close to 6%.

Observers have said the high commissions have inflated home sale prices by as much as 15,000 USD. Though this may seem a system favoring buyers, it can drive up the price of U.S. real estate as more American sellers learn about high commissions.

Which they’re likely to start doing after a recent headline lawsuit and settlement.

Prices will fall?

Last October, a jury in the American state of Missouri found the NAR and some residential brokerages liable to pay at least $1.8 billion to sellers in the U.S. Midwest for conspiring to inflate commissions for home sales. The verdict reportedly spawned more than a dozen other lawsuits.

NAR agreed to change its behavior as part of an agreement to settle several lawsuits, agreeing to pay $418 million over four years, without admitting any wrongdoing. NAR also reportedly plans to appeal and seek reduced damages.

Some say that in the wake of the settlement U.S. real estate commissions could drop 25% to 50% later this year. “The agreement effectively will destroy the current homebuying and selling business model, in which sellers pay both their broker and a buyer’s broker, which critics say have driven housing prices artificially higher,” CNN reported.

Cost of ‘true value’

Others aren’t so sure commissions will drop soon.

“For those who missed the declarations in the media that this outcome will render transacting real estate almost free, protect consumers and make homeownership affordable once again, the settlement does none of that,” writes Budge Huskey, CEO of Premier Sotheby’s International Realty, in the

Sarasota (Florida) Herald-Tribune.

“The settlement in no way establishes a standard or limitation on Realtors for what they may charge nor services they elect to deliver,” Huskey adds, “Those fees have always been negotiable and there has never been any collective bargaining. In every market, there is a wide variety of fees, just as there are levels of marketing, service and competence … There has never been an obligation for a seller to pay buyer agent compensation, yet it’s a practice that’s worked well.”

“Commission rates have always been negotiable,” Kevin Stern, president of Greater Palm Springs (California) Realtors, adds in another editorial. “The true value of a Realtor’s services lies beyond monetary compensation, including guidance and advocacy throughout transactions.”

As they enter this market, investors in U.S. real estate should monitor if and how this and other lawsuits and settlements influence prices.

 

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About the Author 

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.

 

Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.

Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

 

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.

 

Alicea is fluent in Spanish and has a working knowledge of Portuguese.

 

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).

 

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.

 

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth’s Powerwomen Awards in the category USA – Woman of the Year – Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world’s elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.

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