Don’t count on the brutal housing market to get better soon

A landmark settlement in an antitrust challenge to the National Association of Realtors’ standards for real estate agent commissions has understandably been celebrated as a victory for homebuyers. At around 5.5%, average commissions in the United States are some of the highest in the world, and if the NAR settlement results in lower commissions (and if sellers, who typically pay the fees, incorporate the savings into their listing price), prospective homebuyers could save thousands of dollars.

Any such savings would be welcomed, and for good reason. But homebuyers shouldn’t expect fundamental changes to the brutal U.S. housing market.

First, it’s unclear just how much they’ll benefit from the settlement because it doesn’t address the other, and arguably bigger, anticompetitive facet of the U.S. real estate agent market: occupational licensing regulations.

All states require real estate brokers to obtain a license, and 44 states license real estate salespeople (who must work for a licensed broker). In many states, this system creates a high barrier to entry into the profession and severely limits competition.

Colorado, for example, demands 168 hours of education from a state-approved real estate school (or college equivalent), passage of the state licensing exam, fingerprinting and background check, a sponsoring broker, errors and omissions insurance and $485 broker licensing fee. All told, the process can take more than a year to complete and cost more than $1,000. Once licensed, brokers must annually complete another 24 hours of continuing education at a substantial additional expense.

In a free market, providers should be able to offer any service at whatever price they want, and if consumers don’t like it, a competing provider can – and almost certainly will – offer it for less. But this is no free market. And until state laws that create local real estate cartels are reformed or eliminated, we should expect commissions to remain higher than they’d otherwise be.

Licensing leads to higher costs for consumers

GETTY IMAGES Government licensing requirements are a significant reason why homebuyers pay more, the writer says.