A series of lawsuits seeks to end long-standing real estate industry practices that determine what commissions real estate agents receive when selling a home — and who pays the bill.
In one of those cases, a federal jury on Tuesday ordered the National Association of Realtors, along with some of the nation’s largest real estate brokerages, to pay nearly $1.8 billion in damages after finding that they had lost the commissions paid to brokers were paid artificially.
The class action lawsuit was filed in 2019 on behalf of 500,000 home sellers in Missouri and some border cities. The verdict stated that the defendants “conspired to require home sellers to pay the real estate agent representing the purchaser of their homes, in violation of federal antitrust law.”
If treble damages – potentially allowing plaintiffs to receive up to three times actual or compensatory damages – are awarded, defendants may have to pay more than $5 billion.
“This case is not close to finality as we will appeal the jury’s verdict,” Mantill Williams, a spokesman 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 will likely take several years before the case is resolved.
But the NAR and several real estate brokers are already facing a new lawsuit over the rules for broker commissions. Fresh from winning the 2019 case, the attorneys filed a new class action lawsuit in the U.S. District Court for the Western District of Missouri, seeking class action status for anyone in the U.S. has sold a house in the past five years. . It names the trade association and seven brokerage firms, including Redfin Corp., Weichert Realtors and Compass Inc.
“What is happening nationwide is costing Americans approximately $60 billion in additional real estate commissions,” said Michael Ketchmark, one of the attorneys representing the plaintiffs in the lawsuits.
The focus of the lawsuits is on a NAR rule that requires home sellers to offer to pay the commission for the agent representing the home buyer when they advertise their property on a local Multiple Listings Service, where a majority of U.S. homes are for sale . This is in addition to the fact that they also have to cover the commission for their listing agent or broker.
NAR rules also prohibit a buyer’s agent from making offers to purchase a home conditional on the reduction of his commission, the complaint said.
“Defendants’ conspiracy forces home sellers to pay costs that, in a competitive market and if not for Defendants’ anticompetitive restrictions, would have been paid by the buyer,” the plaintiffs argued in the lawsuit filed Tuesday.
Plaintiffs also allege that the NAR requirement effectively keeps a homebuyer’s agent’s commissions artificially high.
If NAR’s “Mandatory Compensation Rule” were not in effect, homebuyers would foot the bill for their agent commissions, which would open the door to competition (and lower commissions) among agents vying to represent a homebuyer, the plaintiffs allege.
The NAR states that the practice of listing brokers offering compensation to buyer’s agents is best for consumers.
“It gives the greatest number of buyers the opportunity to afford a home and professional representation, while also giving sellers access to the largest number of buyers,” Williams said.
The NAR spokesperson also noted that the trade association’s policy always requires that an offer of compensation for agents be made without specifying an amount, adding that it could be as little as $1 or as much as a cent.
In July, the independent Bright MLS, which covers some states in the eastern part of the country, changed the rules so that it’s OK for a home listed on that region’s MLS to have no agent compensation offer at all. That still falls within NAR guidelines.
“In addition, regardless of the offer, those offers are always negotiable,” Williams said.
While home prices have soared in recent years, pushing the national median sales price to $394,300 as of September, so have real estate agent commissions.
“What’s effectively happening today is that the buyer’s agent commissions are being added to the sales price of the home, driving up the sales price,” said Stephen Brobeck, a senior fellow at the Consumer Federation of America. “If sellers no longer had to pay buyer’s agents, there would be no inflation and buyers would be able to negotiate the commission and end up paying less money.”
Typically, the home seller pays their agent, who then shares the commission with the buyer’s agent according to NAR rules. Traditionally, that equates to a 5% to 6% commission split roughly evenly between the buyer’s and seller’s agents.
Such commissions are justified given the professionalism real estate agents bring to their clients and the high costs they often incur in preparing to sell a home, including costs for staging, marketing, photography, lockboxes and even cleaning, says Matthew Shelton, a real estate agent from Kansas City. Broker.
“I’ve never had a salesperson who even batted an eye or questioned a commission,” he said. “If someone takes control and limits the commissions that can be charged, that would be more concerning, you know, if they put a cap on something. I don’t think that’s accurate or correct.”
The 2019 lawsuit also originally included Anywhere Real Estate Inc. and Re/Max, but the two companies reached a settlement agreement, with Anywhere paying $83.5 million, Re/Max $55 million, and the pair agreeing to end their dealings with NAR.
Home buyers and sellers likely won’t see an immediate change in how broker commissions for homes listed on the MLS are typically handled, as the NAR has vowed to appeal Tuesday’s ruling.
However, the sector will be looking forward to what the court will do next now that the jury has spoken.
“What is critical is to what extent the court orders the industry to restructure their compensation and offerings,” Brobeck said. “The real solution is for buyers to be able to finance buyer agent commissions as part of their mortgages…. But there are regulatory barriers to that right now – regulatory barriers that are strongly supported by the industry.”
Redfin CEO Glenn Kelman noted in a blog post Tuesday that it could take days or weeks for the judge to decide what structural changes the jury’s verdict will bring, and potentially years of appeals.
“For now, the initial extent of the damage alone will make a big difference,” he wrote.
Last month, Redfin announced it would require its brokers and agents to withdraw from NAR membership, citing in part the trade association’s requirement to charge a buyer’s agent fee on all listings.
The lawsuits against broker commissions are not the first time the residential real estate industry has faced scrutiny over the impact its rules have on competition.
The Department of Justice filed a complaint against the NAR in 2020, alleging that it established and enforced rules and policies that illegally restricted competition in residential real estate services. The administration withdrew a proposed settlement agreement in 2021, saying the move would allow it to conduct a broader investigation into NAR’s rules and conduct.
___
Associated Press writers Michelle Chapman in New York and Heather Hollingsworth in Kansas City contributed to this report.