Changes to the Commission System: Will Real Estate Brokers Become a Casualty of the New Era?

Changes to the Commission System: Will Real Estate Brokers Become a Casualty of the New Era?

The real estate market is in the midst of a massive economic shift that presents a number of challenges for real estate brokers and agents. The once-popular real estate brokerage profession is having its future re-examined in light of a recent federal court ruling on how commissions are calculated. According to the Wall Street Journal, real estate professionals across the United States are reassessing their careers, and some brokers have begun to pull out, fearing that the golden age of real estate brokerage is over.

The National Association of Realtors and some large real estate brokerage firms are facing legal challenges over allegations of manipulating commissions on home sales, which has led to an increase in consumer spending. On October 31, the Federal District Court for the Western District of Missouri awarded $18 billion in damages. This case will change the commission system for home buyers and seller’s agents in real estate transactions, which could lead to consumers searching for homes on their own or hiring agents on an hourly basis in the future.

A report by investment bank Keefe, Bruyette & Woods estimates that nearly half, if not as many as 80 percent, of all U.S. real estate workers could seek alternative employment or lose their jobs following the joint litigation decision. The report also notes that commissions on U.S. home sales transactions, which total $100 billion annually, could be reduced by one-third over time, and that the dual impact of high home prices and interest rate hikes have further deepened concerns about the future of real estate brokers.

What’s in store for real estate brokers as the economic climate in the housing market changes?

Real estate brokers and agents are no longer in their prime. High property prices and interest rate hikes have dampened people’s desire to buy properties. What’s even more worrying is that the future of real estate agents doesn’t look so bright. The difficulties and challenges they are facing now come from technological advancement. On the one hand, in order to save commission, sellers will look for hi-tech companies with lower commissions to operate their business, which will “hurt” the market of estate agents, and it is very likely that their commissions will be reduced. On the other hand, some states have even started allowing buyers to pay for the commissions of the buyer’s agent, which will make the life of these agents even more difficult. It is predicted that if this development continues, more than 50% of brokerage firms and agents will go bankrupt within three years, and a large number of real estate brokers will fall victim to the future “flood of the housing market” under the pressure of the times

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