National Association of Realtors Abandons Automatic Commission to Settle Price-Fixing Lawsuits

Up until now, if a home seller wanted to do business with any of the approximately 1.5 million members of the National Association of Realtors®, a group representing about half of all real estate agents throughout the United States, they had to agree to a 5% to 6% sales commission rate on their property. Not signing up for that fee would also effectively ban them from their homes and other properties being listed on at least some of the collective of around 540 separate Multiple Listing Services which act as one of the principal announcements – available to the public – that their homes were for sale.

Yesterday that Realtor® group agreed to settle four lawsuits, via class action suits in multiple states and one at the federal level, over a case alleging abuse of the group’s monopolistic power with the possibility the NAR might be forced to dissolve. In that settlement, the real estates agent group agreed to pay a $418 million fine, plus $3 million to pay for settlement notices. It also agreed to drop the mandatory up to 6% commission on all home sales for all sales contracts.

The fine is in addition to a separate previous related out-of-court settlements of $208.5 million involving additional defendants Anywhere Real Estate, RE/MAX, and Keller Williams.

The decision is already sending a shock wave through the real estate industry. When the mandatory commissions are eliminated in July 2024 as stipulated in court settlement agreement, it is estimated the amount of money consumers pay on home sales from the current roughly $100 billion total annually by about one-third.

The settlement grew out of a series of related court cases which the National Association of Realtors had been dealing with for over four years.

The largest and potentially most threatening to the NAR group was the federal one filed in 2020. This one was a civil lawsuit filed by the Department of Justice. In it, the DOJ asserted that the NAR unlawfully forced the individual Realtors to sign non-negotiable contracts which greatly constrained their ability to compete with one another for business. With 50% of the market under the control of the NAR, there was no question the group was leveraging its vast powers to regulate and constrain a business and ultimately harm a wide spectrum of consumers, despite that they had no right to regulate the sales contracts involved.

On November 19, 2020, the DOJ announced a settlement with the NAR in that case. According to the agreement with real estate group at the time, it required “NAR to repeal and modify its rules to provide greater transparency to home buyers about the commissions of brokers representing home buyers (buyer brokers), cease misrepresenting that buyer broker services are free, eliminate rules that prohibit filtering multiple listing services (MLS) listings based on the level of buyer broker commissions, and change its rules and policy which limit access to lockboxes to only NAR-affiliated real estate brokers.”

While that settled some issues buyers had with the NAR, one of the biggest issues remaining had to do with the Realtor group forcing homeowners to accept essentially mandatory and very high commission rates on the sales of their homes. Those rates had been rising over time, and for much of the nation reached 6% over the last years.

That commission rate issue was challenged in the state of Missouri in 2019, in a class-action lawsuit representing over half a million home sellers in the state. That case alleged that alleged that the National Association of Realtors® (NAR); HomeServices of America, one of billionaire Warren Buffett’s Berkshire Hathaway corporations; Keller Williams Realty; real estate giant RE/MAX; and Anywhere Real Estate, the enterprise formerly known as Realogy which is the parent behind brands such as CENTURY 21, Coldwell Banker, ERA, Sotheby’s International Realty, Corcoran and Better Homes and Gardens Real Estate; conspired to force home sellers to accept high and nonnegotiable commissions when they signed their listing contracts with the realtors. It further alleged that the home sellers would be blocked from using the Multiple Listing Service to announce their homes if they did not agree to the mandatory approximately 6% commission rate on the sale of the homes, a practice known in the industry as the “cooperative compensation rule”.

In November 2023, a jury took just three hours to find the National Association of Realtors guilty in this civil case. It also fined the group $1.78 billion for the crime.

A separate class-action lawsuit was also filed in Illinois on similar charges in the same year as the Missouri filing.

On March 6, 2019, the litigators in this suit alleged that “the National Association of Realtors (NAR) and the four largest national real estate broker franchisors, Realogy Holdings Corp., HomeServices of America, Inc., RE/MAX Holdings, Inc., and Keller Williams Realty, Inc., [had] conspire[ed] to require home sellers to pay the broker representing the buyer of their homes, and to pay at an inflated amount, in violation of federal antitrust law.”

According to that filing, “Plaintiffs allege that Defendants’ conspiracy has centered around NAR’s adoption and implementation of a mandatory rule that requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation (the “Buyer Broker Commission Rule”) when listing a property on a MLS”.

Like the Missouri suit, the Illinois litigation had been bouncing back and forth between multiple legal motions, discovery actions regarding documents on both sides, depositions of key personnel involved with the National Association of Realtors, and other steps. It was close to heading for a trial on its own as of this month. With the precedent established in the Missouri case, which read only on that state but was based on claims of federal antitrust violations, the lawyers representing the Illinois plaintiffs expected the jury resolution in their case to be just as quick and with damages possibly even larger than in Missouri, which has only half the total population of Illinois.

The settlement agreed on yesterday with the National Association of Realtors includes more than just the $418 million and the elimination of the mandatory 6% commissions currently being charged in much of the U.S. It also breaks the long-standing required Realtor practice of sellers’ agents having to offer a commission to the buyer’s agent as a condition of sale. The legal term for what was just agreed to there is called “decoupling”.

This is also a nationwide settlement, which means even those in states not involved in the litigations which led up to this will benefit equally.

The implications of yesterday’s agreement are significant. In eliminating the requirement for homeowners to pay the much higher commission rate, it will mean average homeowners can now shop for a more competitive rate in turn for the use of a skilled professional real estate agent. Some percentage of homeowners may even bypass having an agent represent them either as sellers or buyers, especially those with access to professionals who know how to handle the legal issues involved in a home transaction. Another option could be home sellers will still sign with real estate agents to represent them, but because they are no longer bound by an enforced package of services they may negotiate to receive fewer services in return for lower commissions.

Economists looking at the decision say this could lower the effective commission rate by over 30%, bringing down total home sales commission from around $100 billion per year to less than $70 billion. Home prices will also drop as a result, since with consumers no longer having to foot the much larger fees of the past, they can pass on those savings to their potential buyers.

Lower prices could also mean a spike in existing home sales beginning in July 2024, when the settlement goes into effect.

Although what this may mean to the National Association of Realtors is far from clear, one obvious result is that real estate agents will be less likely to sign with the organization than in the past. The legal changes about decoupling of the sales commissions are one reason, but there is also the delinking of Multiple Listing Services capabilities from the real estate agency contracts, at least at the NAR level.

A federal court will be called upon to certify the settlement for all parties, including the plaintiffs in the class-action suits which led to this. Few involved with the case believe there will be any substantial issues raised about this, and all should go into effect by July as agreed.

Meanwhile, the Department of Justice is reportedly continuing to investigate other aspects of the National Association of Realtors past monopolistic practices, including other terms controlling how its member Realtors are allowed to operate. That could result in a further lawsuit and additional pressures on the NAR.

In commenting on the current settlement, Michael Ketchmark, the lead attorney in the firm which prosecuted the Missouri case, summed up how many perceive what this litigation means to consumers.

“The reset button on the sale of homes was hit today,” he said. “Anyone who owns a home or dreams of owning one will benefit tremendously from this settlement.”

The next real estate cartel for attorneys to target is the Canadian Real Estate Association.