The National Association of Realtors (NAR), the largest professional organization in America and a powerful lobbying group for the real estate industry, has been dealt a major blow in a Missouri court. The verdict found NAR and two brokerage firms, Homeservices of America and Keller Williams Realty, liable for $1.8 billion in damages for conspiring to keep commissions artificially high. This ruling could potentially disrupt the way homes are bought and sold.
Two other firms, Re/Max and Anywhere Real estate (formerly known as Realogy), settled out of court for a combined $140 million, agreeing to make changes in their business practices, including not requiring agents to be members of NAR. NAR, which has an extensive code of ethics for its members, has vowed to appeal the verdict, meaning real estate commissions won’t be immediately affected.
However, this is not the first legal challenge NAR has faced regarding anti-competitive practices. The association has been fighting off US antitrust officials and litigation for years, and this verdict marks its biggest setback yet. In addition to the lawsuits, NAR is also under scrutiny from the US Department of Justice.
The verdict comes at a difficult time for NAR, which has already experienced challenges this year. In August, the NAR president resigned amid sexual harassment allegations, and last month, internet real estate company Redfin left the association.
The case revolves around the argument that NAR is forcing homesellers to pay inflated commissions that are then split between the seller’s agent and the buyer’s agent. The plaintiffs argue that commission sharing as a condition for access to the Multiple Listing Service is unfair and keeps commissions artificially high. Typically, commissions have been around 6% of the sale price, with a 3% split for each agent.
The defendants, including NAR, claim that commissions are negotiable and that the current system allows buyers to avoid additional expenses. However, consumer advocates celebrated the verdict and hope that changes will be made to how commissions are structured in the industry.
While the immediate impact on commissions is expected to be minimal, analysts predict that the verdict could eventually lead to a separation of buyer’s agent commissions from seller’s agent commissions. This could reshape the residential brokerage industry’s commission structure and potentially lower home prices.
Real estate agents believe that commissions will continue to be negotiable in the short term, but they also warn of unintended consequences. They argue that if buyers have to pay for a buyer’s agent in addition to other expenses, it may deter some from entering the market or lead them to make risky decisions without proper representation.
Overall, the verdict against NAR and the brokerage firms highlights the potential for major changes in the real estate industry and could be a significant step towards disrupting the traditional model of buying and selling homes.
