NAR’s commission collusion case rattles real estate industry

Missouri verdict opens Pandora's box of lawsuits and potential overhaul in how homes are sold

NAR’s commission collusion case rattles real estate industry

After a Missouri jury found the National Association of Realtors (NAR) and others liable for collusion to maintain commissions, speculation has grown on how the decision could transform how homes are bought and sold in the US.

The jury demands nearly $1.8 billion in damages to compensate around 500,000 plaintiffs who sold their homes in Missouri in recent years. Bloomberg reported this amount could potentially triple since the jury found that the defendants had acted intentionally, not negligently.

Following the verdict, a law firm representing the plaintiffs escalated the stakes by initiating a more extensive class-action suit seeking over $100 billion in damages on behalf of US home sellers who paid commissions over the last four years.

The antitrust case, known as Sitzer/Burnett, revolved around the buyer-broker commission rule, a standard practice in the real estate industry. This rule mandates that sellers’ agents must compensate buyers’ representatives as a prerequisite for listing a property on a multiple listing service (MLS), the primary tool for marketing homes.

Read more: $1.8 billion penalty over commissions in landmark antitrust case

In practice, this rule translates to sellers paying commissions of roughly 6% on a typical transaction. The commission is subtracted from the sale proceeds, meaning that if a buyer purchases a $500,000 home, the seller receives $470,000, and the respective agents split $30,000.

Theoretically, this system incentivizes buyers’ agents to showcase listings to their clients, thereby securing the highest possible sale price.

However, the plaintiffs contested that this industry norm amounted to a conspiracy, forcing sellers to bear a commission that, in their view, buyers should shoulder. They also claimed that Keller Williams and Berkshire Hathaway’s HomeServices of America were complicit in a scheme to artificially inflate buyer commissions. In response, brokerages have signaled their intention to mount appeals.

NAR responded to the controversy by pointing to its settlement agreement with the Department of Justice (DOJ) reached nearly two years ago.

“NAR has upheld our end of the agreement, and we expect the DOJ to do the same as affirmed by a federal court’s careful ruling,” NAR stated in an email sent to MPA. “This is a completely separate matter from the trial of Burnett v. NAR et al.”

A looming legal avalanche

Adding to the Missouri verdict, another class-action lawsuit against NAR in Illinois is slated for trial early next year. Damages in this case could reach $40 billion, posing a significant threat to the trade group. Brokerages Anywhere Real Estate and RE/MAX have agreed to collaborate with the plaintiffs in that case.

The ongoing battles and the DOJ’s investigation could reshape industry practices, potentially dismantling buyer and seller commissions, affecting how buyers search for listings, and influencing the prices they are willing to pay for homes.

While previously constrained by an agreement reached during the Trump administration, the DOJ has signaled its intention to intervene in lawsuits related to buyer commissions, indicating a possible move to untangle the relationship between buyer and seller commissions.

Anticipating the impact of these legal battles, industry segments are already making significant adjustments to their compensation structures. Stung by the loss of several major brokerages, NAR recently announced rule changes allowing agents to list homes while offering zero commission to the buyer’s agent.

Going further, the Real Estate Board of New York, independent of NAR, has banned listing agents from footing the bill for buyer’s agents, placing the responsibility for compensating the buyer’s agent squarely on the seller’s shoulders.

Stephen Brobeck, a senior fellow at the Consumer Federation of America, predicted that consumer commissions could decrease by 20% to 30% with “effective competition.” He concedes that the transition may be tumultuous but firmly believes that consumers stand to gain significantly from these transformative changes.

“It’s going to be messy,” Brobeck told Bloomberg. “But consumers will benefit greatly.”

Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.