National Association of Realtors lawsuit settles

A lot of people who study the residential real estate market think this is a big deal:

The National Association of Realtors has agreed to a landmark settlement that would eliminate real estate brokers’ long-standing commissions, commonly of up to 6% of the purchase price.

Instead, home buyers and sellers would be able to negotiate fees with their agents upfront. If the $418 million legal agreement is approved by a federal court, consumer advocates predict the ranks of real estate agents will thin, further driving down commission prices.

“For years, anti-competitive rules in the real estate industry have financially harmed millions,” said Benjamin Brown, managing partner at the Cohen Milstein law firm and one of the settlement’s negotiators. “This settlement bring sweeping reforms that will help countless American families.”l

One thing that has long puzzled me is why real estate estate commissions have seemed largely impervious to the information technology revolution wrought by the Internet, that has greatly reduced the economic costs of so many other agent-driven transactions (When’s the last time you used a travel agent for example?).

A generation ago, sellers and buyers had no practical way to get more than the vaguest sense of the price structure of the housing market, except by using real estate agents. The various multiple listing services were completely controlled by the brokerage industry, there was no way to get a real sense of a property except by actually going into it, etc.

All that has of course changed radically, and in addition the real price of residential real estate has skyrocketed in many areas, and to some extent across the country as a whole. Yet the 6% (or thereabouts) commission structure has largely survived all this.

Perhaps this lawsuit marks the beginning of the end for that.