A series of legal challenges aims to upend long-standing real estate industry practices that determine what commissions agents receive on the sale of a home — and who foots the bill.
A federal jury in one of those cases on Tuesday ordered the National Association of Realtors and some of the nation’s largest real estate brokerages to pay nearly $1.8 billion in damages, after found that they had artificially inflated the commissions paid to real estate agents.
The class action lawsuit was filed in 2019 on behalf of 500,000 home sellers in Missouri and some border cities. The verdict said the defendants “conspired to force home sellers to pay the broker representing the buyer of their homes, in violation of federal antitrust law.”
If treble damages – which allow plaintiffs to potentially receive up to three times actual or compensatory damages – are awarded, then defendants could have to pay more than $5 billion.
“This case is not close to being final as we will appeal the jury’s verdict,” Mantill Williams, a spokesperson for the NAR, said in a statement. “In the meantime, we will ask the court to reduce the damages awarded by the jury.”
Williams said it would likely be several years before the case was resolved.
But already, NAR and several real estate brokerages are facing another lawsuit over rules on agent commissions. After winning the verdict in the 2019 case, the attorneys filed a new class action in the U.S. District Court for the Western District of Missouri, seeking class action status covering anyone in the United States who sold a house over the past five years. . It names the trade association and seven brokerage firms, including Redfin Corp., Weichert Realtors and Compass Inc.
“What is at issue nationally is costing Americans about $60 billion in additional real estate commissions,” said Michael Ketchmark, one of the attorneys representing the plaintiffs in the suits.
The lawsuits focus on a NAR rule that requires home sellers to offer to pay the buyer’s agent’s commission when they list their property on a local multiple listing service, where the majority of U.S. homes are put up for sale. This is in addition to having to cover their listing agent or broker’s commission as well.
NAR rules also prohibit a buyer’s agent from submitting home purchase offers to reduce their commission, according to the complaint.
“Defendants’ conspiracy requires home sellers to pay a cost that, in a competitive market and without Defendants’ anticompetitive restrictions, would be paid by the buyer,” the plaintiffs argued in the complaint filed Tuesday.
The plaintiffs also claim that the NAR requirement effectively keeps a home buyer’s agent’s commissions artificially high.
If NAR’s “Mandatory Compensation Offer Rule” wasn’t in place, then homebuyers would foot the bill for their agent’s commission, opening the door to competition – and lower commissions – between agents vying to represent a home buyer, the plaintiffs claim.
The NAR maintains that the practice of listing brokers making compensation offers to buyer brokers is best for consumers.
“This gives the most buyers the opportunity to afford a home and professional representation, while also giving sellers access to the most buyers,” Williams said.
The NAR spokesperson also noted that the trade association’s policies have always required that an offer of agent compensation be made without specifying an amount, adding that it could be as small as $1 or even one cent.
In July, the independent Bright MLS, which covers some eastern states, changed the rules so that it is acceptable for a home listed in the MLS in that region not to include an offer at all. agent compensation. This still falls under NAR guidelines.
“Also, regardless of the offer, those offers are always negotiable,” Williams said.
Like house prices have exploded in recent yearspushing the national median sale price to $394,300 in September, as did agent commissions.
“Today, what’s effectively happening is that buyer’s agent commissions are being added to the sale price of the home, which inflates the sale price,” said Stephen Brobeck, a senior researcher at the Consumer Federation of America. “If sellers no longer had to pay buyers agents, there would be no inflation and buyers could negotiate the commission down and they would end up paying less money.”
Typically, the home seller pays their listing agent, who then splits the commission with the buyer’s agent in accordance with NAR rules. Traditionally, this equates to a 5-6% commission split about equally between the buyer’s and seller’s agents.
Such commissions are justified, given the professionalism agents offer their clients and the high expenses they often incur in preparing a home for sale, including staging fees, marketing fees, photography fees, safes and even cleaning, said Matthew Shelton, a Kansas City-area real estate agent. real estate agent.
“I’ve never seen a salesperson roll an eye or question a commission,” he said. “If someone takes control and limits the commissions that can be charged, it would be even more concerning, you know, if they capped anything. I don’t think this is accurate or correct.
The 2019 trial also originally included Real estate everywhere Inc. and Re/Max, but the two companies reached a settlement agreement, which included Anywhere paying $83.5 million, Re/Max paying $55 million and both companies agreeing to terminate their relationship with NAR.
Buyers and sellers likely won’t see an immediate change in how agent commissions for homes listed on the MLS are typically handled, as the NAR vowed to appeal Tuesday’s verdict.
However, the industry will be watching to see what the court does next now that the jury has decided.
“What is crucial is the extent to which the court will order the industry to restructure its compensation and packages,” Brobeck said. “The real solution is for buyers to be able to finance buyer’s agent commissions as part of their mortgages…. But there are currently regulatory barriers to this – regulatory barriers that are strongly supported by the industry.
In a blog post published Tuesday, Redfin CEO Glenn Kelman noted that it may take days or weeks for the judge to decide what structural changes the jury’s verdict will bring, and perhaps years appeal to court.
“For now, the initial scale of the damage alone will ensure major change,” he writes.
Last month, Redfin announced it would require its brokers and agents to opt out of NAR membership, citing in part the trade association’s requirement of a buyer’s agent fee on all advertisement.
The lawsuits related to agent commissions are not the first time the residential real estate industry has faced scrutiny over the impact of its rules on competition.
The Justice Department filed a lawsuit in 2020 against the NAR, alleging that it established and enforced rules and policies that unlawfully restricted competition in residential real estate services. The government withdrew a proposed settlement agreement in 2021, saying the move would allow it to conduct a broader investigation into the NAR’s rules and conduct.
Associated Press writer Michelle Chapman in New York and Heather Hollingsworth in Kansas City contributed to this report.