The National Association of Realtors (NAR) said on March 15 it has resolved a slew of litigation accusing the trade group and brokerages of conspiring to keep real estate commissions artificially high nationwide.
Under the settlement, the realtor group would pay $418 million over about four years.
The accord also resolves claims against more than 1 million members, state and local realtor associations, and most smaller brokerages, Reuters reported.
The settlement, which is subject to court approval, makes clear that NAR continues to deny any wrongdoing in connection with the multiple listing service (MLS) cooperative compensation model rule, which was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation.
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What’s In The Settlement?
As part of the settlement, the realtor group also agreed, starting in mid-July, to prohibit offers of broker compensation on its Multiple Listing Service and require participants in that service to enter written agreements with buyers.
Homebuyers had sued the realtor group and many brokerages over the longstanding industry practice of having home sellers pay the combined 5% to 6% commissions for their own agents and for buyer’s agents.
“NAR exists to serve our members and American consumers, and while the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost,” said NAR President Kevin Sears, in the statement. “This will be a time of adjustment, but the fundamentals will remain: buyers and sellers will continue to have many choices when deciding to buy or sell a home, and NAR members will continue to use their skill, care and diligence to protect the interests of their clients.”
The class-action lawsuit against the nation’s largest trade organization could have sweeping consequences for anyone looking to buy or sell a home.
The lawsuit — Sitzer v. the National Association of Realtors — alleged that NAR, Keller Williams Realty, Anywhere Real Estate (formerly known as Realogy), RE/MAX and HomeServices of America (all major real estate brokerages), colluded to artificially inflate agent commissions.
Last year, RE/MAX and Anywhere Real Estate settled out of court for a combined $140 million. A jury ultimately sided against the remaining defendants on Oct. 31, awarding a judgment of $1.8 million that could, depending on the judge’s decision, surge to over $5 billion in total damages.
“They ultimately agreed that there was a conspiracy among Realtors to keep their fees artificially high,” says Omar Ochoa, a class action attorney and founder of Omar Ochoa Law Firm in Texas.
It’s the latest hit for the 1.5-million-member group of real estate agents, which has faced several lawsuits (including one from the Department of Justice) regarding harassment accusations, executive shuffles and a surge of pullouts from big-name brokerages, like RE/MAX, Century 21, Redfin and more. It also has the power to forever change what it costs to buy and sell real estate.
As Richard Kruse, an agent with Gryphon Realty in Columbus, Ohio, and former member of NAR, put it late last year, “The fight will go on and an appeal will be filed and drag this out, but eventually agent payments will change.”
What Was the NAR Lawsuit About?
It’s a little complicated, but the basis of the NAR lawsuit boiled down to the group’s commission-sharing rule. To list a for-sale property on a multiple listing service — the databases that agents use to share properties amongst themselves — they must offer a commission to the agent who ultimately brings in the winning buyer. Historically, this has resulted in a 5% to 6% commission, with half going to the seller’s agent and half to the buyer’s.
Here’s the catch, though: The buyer doesn’t pay their agent’s fee directly. Instead, the commission is fully paid by the seller as part of their closing costs.
According to the Sitzer suit, as well as other litigation, this amounts to a form of antitrust, accusing the defendants ofreducing competition and pushing up commissions higher than services warrant.
[READ: What Do Real Estate Agents Do?]
What’s Next?
The settlement follows an October jury ruling in Kansas City, Missouri, ordering the National Association of Realtors and several brokerages to pay $1.78 billion, which a judge could have tripled, in an antitrust case over the commissions.
The March 15 ruling still needs court approval.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” said Nykia Wright, interim CEO of NAR, in a statement. “It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.”
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What It Means for Buyers and Sellers
Eventually, the lawsuit may lead to changes in how agent commissions are set and paid out. According to Kruse, the commission-sharing model could evolve into a referral fee system.
“In my opinion, there will be something in the form of a referral fee from the listing agent to the buyer agent for introducing the buyer to the property,” he says.
It could also mean an end to commission sharing altogether. A 2023 report from consulting firm Keefe, Bruyette & Woods projected this “unbundling” could result in commission decreases as much as 2 percentage points or more.
“The new buzzword for real estate will be ‘decoupling,'” says Sissy Lappin, a real estate agent and co-founder of ListingDoor in Houston. “The seller will pay their agent and the buyer will pay theirs.”
How that decoupling will play out is uncertain. Some experts say buyer’s agents may resort to flat fees or hourly rates. Others say variable fees may be more fitting, as services and time spent with each consumer can vary widely.
“There may be a variable agent fee that is determined when a buyer goes under contract or how many showings they’ve requested and viewed,” says Steve Nicastro, a real estate agent and content lead at Clever Real Estate in Charleston, South Carolina. “This could better align pay with the work required from buyer’s agents. For example, imagine a scenario where a homebuyer pays an agent $50 to $100 per house showing, and then another fixed rate for specific services related to completing the transaction — finding and hiring home inspectors, appraisers, attorneys, etc.”
Nicastro says there could also be a larger move toward using real estate attorneys — rather than agents — or more buyers going it alone entirely.
That all remains to be seen. In the meantime, consumers can likely expect more transparency as they go about buying and selling properties.
As Laura Ellis, president of residential sales at Chicago-based real estate firm Baird & Warner, explained late last year, “At its core, this issue is about being transparent, taking responsibility and earning consumers’ trust.”
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What the $2 Billion Realtor Lawsuit Means for Homebuyers and Sellers originally appeared on usnews.com
Update 03/15/24: This story was published at an earlier date and has been updated with new information.
