The recent antitrust lawsuit inadvertently highlighted something interesting during the trial. The plaintiffs’ attorney successfully argued that the whole real estate industry engaged in collusion and price-fixing. As real estate professionals, we know that isn’t true, right? Here’s the interesting part: Those attorneys who will be paid on contingency literally make their money in exactly that way.
This begs the question: Why is it an antitrust issue for real estate agents and not attorneys?
Let’s take a closer look at these two methods of getting paid.
The real estate commission model: real estate agents chiefly earn their livelihood through commissions. A commission is a negotiated percentage of the property’s final sale price. This commission is conventionally shared between the listing agent and the buyer’s agent, subject to adjustments based on negotiations between the agents and their respective agencies.
Agents only receive their earnings when the transaction successfully concludes. This means that agents invest significant time, effort and resources into activities like marketing, property showings, negotiation and handling paperwork without immediate financial return. If a property doesn’t sell, they don’t get paid.
Attorney contingency fee structure: Many attorneys are compensated through a predetermined percentage of the damages or settlement received from the opposing party if they’re successful. They spend significant amounts of time on research, building their case and reviewing evidence. The bigger the case settlement, the higher their pay is.
If they lose, the attorney doesn’t receive a fee, though they can still bill out their expenses to their client. Court fees are paid by the client as well, unlike real estate agents, who cannot recoup their costs.
The takeaway
When we break it down, “commission” and “contingency” are essentially two sides of the same coin. Both have a range of fee percentage, both get paid upon successful completion of the sale or case, and both put their own money into their project to serve their clients the best they can. To say one method is a breach of antitrust laws and not the other comes across as hypocritical, and if one system needs an overhaul, perhaps the other does, too.
Since the courts ruled in favor of the plaintiffs, we know that a number of changes are going to occur. Stay up to date on the impact this final ruling is likely to have, as well as what’s coming next by visiting our NAR commissions hub at https://darrylspeaks.com/nar-lawsuit.
