The Groundbreaking Verdict Against NAR: A Catalyst for Change
The U.S. real estate industry faces a potential overhaul following a groundbreaking verdict against the National Association of Realtors (NAR) and major brokerages. On October 31st, a Missouri jury found NAR, alongside Keller Williams and Home Services of America, culpable in the antitrust lawsuit Sitzer Burnett v. NAR. The staggering damages of $1.78 billion, which might triple, signal a monumental shift in how real estate business is conducted in the U.S.
Unpacking the Traditional Commission Structure
For over a hundred years, the U.S. real estate market has operated on a commission structure that's largely remained unchanged. When you're selling your home, you typically hire a listing agent and agree to a commission, historically between 5 and 6%. This commission is then shared with the buyer's agent to entice them to bring buyers to the table. The buyer's agent generally receives about half. This system is now under scrutiny for potentially artificially inflating commissions and impacting consumer choice.
Steering and Inflation: The Core of the Lawsuits
The heart of these lawsuits lies in NAR's cooperative compensation rule (aka participation rule. The plaintiffs argue that this is a blanket rule that is mandatory and requires broker agents to offer a blanket non-negotiable commission to list the property on the Multiple Listing Service (MLS). Plaintiffs argue that this "conspiracy" has saddled home sellers with a cost that would have been borne by the buyers in a normal competitive environment. They also allege that the buyer brokers steer their clients away from homes offering a lower compensation to the buy side agent and thus it forces sellers to offer a higher commission to get cooperation from buyer's agents. This is a central theme in several lawsuits, including the massive Moehrl v. NAR case, suggesting a widespread impact across the industry.
Settlements and Shifting Practices
The settlements from Anywhere and REMAX, totaling over $130 million ($83.5M and $55M respectively), are more than just monetary compensations. They indicate a shift in industry practices. These firms have agreed to significant changes including:
Prohibiting affiliates and agents from claiming buyer agent services are free.
Prohibit the use of technology to sort listings by offers of compensation.
Advise affiliates and agents that there is no rule requiring offers of compensation.
Agents are no longer required to belong to NAR, follow the NAR code of ethics, or MLS handbook.
Requiring their brokers and agents to clearly disclose to clients that commissions are not set by law and are fully negotiable.
Eliminating any minimum commission requirements.
Develop training materials that support all the practices above.
Industry Shake-Ups: Redfin's Exit and NAR's Concessions
Prior to the start of the Sitzer Burnett trial there were some additional industry developments aside from the Anywhere and REMAX settlements. Redfin's decision to part ways with NAR and instruct their agents to cancel their membership to NAR in regions that they did not have to be members to gain access to the local MLS. In addition, NARs announced a policy change allowing zero-dollar buy-side compensation (where previously there had to be a minimum of $1 to list a home on the MLS). The attorneys for the plaintiffs jumped on NAR's pre-trial decision stating that it was a glaring admission of guilt. These decisions, potentially strategic, also reflect an acknowledgment of a need for change.
The Road Ahead: Scenarios for the Future of Real Estate
The repercussions of these lawsuits and settlements paint various future scenarios:
Enhanced Transparency: Sellers might become more informed about their commission responsibilities, and the negotiable nature of these rates could become more apparent.
Decoupling Commissions: A distinct possibility is the separation of commissions, where sellers and buyers handle their agent payments independently.
New Payment Models: The industry may see innovative payment structures like flat fees or hourly rates, moving away from traditional commission splits.
Digital Disruption: Online platforms could become more prominent, offering streamlined, cost-effective real estate services. Needless to say, Zillow and Redfin are closely watching these trials/outcomes.
The Fate of NAR and Its Members
NAR's appeal against the verdict and the DOJ's keen observation of these developments suggest that the industry's transformation is far from over. The outcome of these legal battles will profoundly influence NAR's future and the choices available to agents and brokerages.
What Does It Mean for You: Homebuyers and Sellers
Change is seldom immediate, but the real estate market is undeniably moving towards a landscape where transparency, fairness, and consumer choice are paramount. These developments will reshape how real estate services are rendered and priced, influenced by market conditions, legal outcomes, and heightened consumer awareness.
Stay connected as we navigate these changing tides together, keeping you informed on how these developments might impact your real estate journey.
Comments