Understanding the Lawsuits Challenging Real Estate Commissions and What They Mean for Real Estate Markets
There have been lots of headlines recently about the lawsuits filed against the National Association of Realtors (NAR) and various real estate brokerages. These lawsuits are making waves in real estate communities and have the potential to substantially impact how people buy and sell houses. At the very least, they raise several questions about realtor commissions and present short and long-term uncertainty for the industry.
To help you navigate this changing landscape, here’s an overview of ongoing litigation and how we think it will impact investors in the short- and long-term.
Missouri Jury Verdict in Favor of Homesellers for $1.8 Billion
In October 2023, a jury in a federal courtroom in Missouri found NAR and two brokerages liable to home sellers for $1.8 billion in damages for conspiring to keep real estate commissions artificially high.
In this case, known as Burnett v. NAR et al, a group of home sellers in Missouri sued NAR and six real estate brokerages, alleging that the defendants conspired to keep real estate commissions inflated (all but two brokerages settled before trial). The heart of the claim is the commission-sharing rule, where sellers pay the commission for both their agent and the buyer’s agent. The Plaintiffs argued that the connection between the listing agent and the buyer’s agent should be severed and that the requirement that sellers pay the buyer’s commission is a violation of federal antitrust law.
In defense of this argument, the home sellers noted that real estate is the only industry in the country where one party pays the fees for the other side and that sellers are forced to do this to list their property on the MLS (multiple listing service). Further, they argued that there’s no opportunity for sellers to negotiate the rate of the buyer’s agent, and the requirement of paying this fee unnecessarily increases transaction costs for sellers.
Currently, the parties are filing post-trial motions and awaiting a final verdict from the judge, which could include treble damages (up to three times the $1.8 billion verdict), an award of attorney’s fees, and/or changes to the commission-sharing rules. NAR has already indicated that it plans to appeal if the verdict stands. The result is that it will likely be years before this case is resolved or has any impact on the industry.
The Rise of Additional Lawsuits Against NAR, Brokerages, & Individual Brokers
An immediate impact of the Missouri verdict, however, has been an influx of new lawsuits. Since October, there have been over a dozen new cases filed against NAR, individual brokerages, regional branches of NAR, individual agents, and teams of agents. Here are two important cases to follow:
- Moerhl v. NAR et al: A nationwide case against NAR and different brokerages targeting commission sharing. This case is scheduled to go to trial in 2024 and damages could be as high as $40 billion.
- Gibson et al. v NAR et al: A nationwide case against NAR; Compass, Inc.; eXp World Holdings, Inc.; Redfin Corporation; Weichert Realtors; United Real Estate; Howard Hanna Real Estate Services; and Douglas Elliman, Inc. It similarly targets commission sharing and damages could be as high as $200 billion.
While these are two nationwide cases to watch, similar cases are popping up across the country based on the success of the Burnett case. This is a trend that will likely continue until the commission-sharing rule is banned or industry practices are changed.
What These Suits Mean for Home Sellers & Buyers
There are two important things for buyers and sellers to take away from this litigation. First, it will likely have no immediate impact on buying and selling real estate. The active cases will take months or years to litigate, and the Missouri verdict will be in the appeal process for years.
That said, in the longer term, this type of litigation could change industry practices. If the sharing rule is found to violate antitrust laws, buyers’ agents will be forced to change their policies. The results would be positive for sellers, resulting in fewer transaction costs. However, it would increase the upfront costs for buyers.
In addition to a down payment, closing costs, inspection fees, and appraisal fees, buyers would be responsible for paying a fee to their real estate agent. To compensate for this expense, buyers might negotiate lower commission rates with agents or we could see a drop in home prices. If neither of those things happens, we’d expect to see fewer buyers working with agents.
As we wait for these cases to be litigated, it’s a safe bet to expect some future shifts in how the sharing rule works and the standard 6% commission that sellers have been responsible for.
Until then, buyers and sellers should keep in mind that they always have the right to negotiate with agents when setting a commission fee and that it’s important to interview multiple agents to find the right fit.
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Emily Koelsch, ezLandlordForms Contributing Writer
Emily Koelsch is a freelance writer and blogger, who primarily writes about business, real estate, and technology.