Real estate industry facing pushback to longstanding rules setting agent commissions on home sales
LOS ANGELES (AP) — A series of court challenges are seeking to upend longstanding real estate industry practices that determine the commissions agents receive on the sale of a home — and who foots the bill.
One case brought in 2019 in federal court in Missouri by a couple of home sellers ended Tuesday with a federal jury ordering the National Association of Realtors and some of the nation’s biggest real estate brokerages to pay almost $1.8 billion in damages after finding they artificially inflated commissions paid to real estate agents.
The verdict stated that the defendants “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.”
If treble damages — which allows plaintiffs to potentially receive up to three times actual or compensatory damages — are awarded, then the defendants may have to pay more than $5 billion.
“This matter is not close to being final as we will appeal the jury’s verdict,” Mantill Williams, a spokesman for the NAR, said in a statement. “In the interim, we will ask the court to reduce the damages awarded by the jury.”
Williams said it will likely be several years before the case is resolved.
But already the NAR and several real estate brokerages are facing another lawsuit over agent commission rules. Fresh off winning the verdict in the 2019 case, the lawyers filed a new class-action lawsuit in the U.S. District Court for the Western District of Missouri by three different home sellers. It names the trade association and seven brokerage companies, including Redfin Corp., Weichert Realtors and Compass Inc.
The focus of the lawsuits is an NAR rule that requires that home sellers pay not only a commission on the sale of their home to their listing agent, but also cover the commission for the agent representing the homebuyer as a condition of being able to put their property on the Multiple Listings Service, where a majority of U.S. homes are listed for sale.
“Defendants’ conspiracy forces home sellers to pay a cost that, in a competitive market and were it not for defendants’ anticompetitive restraint, would be paid by the buyer,” the plaintiffs argued in the lawsuit filed Tuesday.
Plaintiffs claim that the NAR requirement effectively keeps commissions for a homebuyer’s agent artificially high.
If NAR’s “Mandatory Offer of Compensation Rule” were not in place, then homebuyers would foot the bill for their agent’s commission, which would open the door for competition — and lower commissions — among agents vying to represent a homebuyer, the plaintiffs contend.
The NAR argues that the practice of listing brokers making offers of compensation to buyer brokers is best for consumers.
“It gives the greatest number of buyers a chance to afford a home and professional representation, while also giving sellers access to the greatest number of buyers,” Williams said.
As home prices have soared in recent years, pushing the national median sales price to $394,300 as of September, so have agents’ commissions.
“Today, what effectively happens is the buyer agent’s commissions are added to the sale price of the house, inflating the sale price,” said Stephen Brobeck, senior fellow at the Consumer Federation of America. “If sellers no longer had to pay the buyer agents, there wouldn’t be that 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 according to the NAR rules. Traditionally, that works out to a 5% to 6% commission split roughly evenly between the buyer’s and seller’s agents.
The 2019 lawsuit originally also included Anywhere Real Estate 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 the pair agreeing to pull back on their relationships with NAR.
Homebuyers and sellers aren’t likely to see any immediate change in the way agent commissions for homes listed on the MLS are handled, as the NAR has vowed to appeal Tuesday’s verdict.
However, the industry will be watching for what the court will do next now that the jury has spoken.
“What’s critical is how far the court orders the industry to restructure their compensation and offers,” Brobeck said. “The real solution is for buyers to be able to finance the buyer-agent commissions as part of their mortgages. … But there are regulatory barriers to that occurring right now – regulatory barriers that are strongly supported by the industry. “