Key Takeaways
- Current ongoing legal cases involving charges of price fixing of agent commissions against the National Association of REALTORS® (NAR) and some of the country’s largest real estate brokerage firms and Multiple Listing Services (MLSs) could dramatically change the real estate market.
- Plaintiffs in these cases charge that this conspiracy has resulted in millions of dollars in costs to sellers, alleging the NAR’s Buyer-Broker Compensation Rule, which has been in effect for the last decade, causes listing brokers to inflate commissions to attract buyer brokers and forces sellers to pay buyer agent commissions.
- Sellers/buyers can continue to use a member REALTOR® of the NAR or other real estate agent but should review all contracts carefully to clearly understand how agents will be compensated and how the payment of commissions affects any proceeds and costs for buying and/or selling their home.
- While changes to rules around the structure of agent compensation will not be immediate, settlements and judgments have already been made in some key cases. Given the nature and length of time involved in normal judicial proceedings, including appeals, etc., changes will come gradually and the transaction of typical real estate sales, in the meantime, remains “business as usual.”
Current cases
Currently, there are four major antitrust cases – three class action suits brought by home sellers and one federal case brought by the U.S. Department of Justice – against the NAR. In each case, plaintiffs claim the Buyer-Broker Compensation Rule in the MLS Handbook is a violation of the Sherman Antitrust Act and a conspiracy by the NAR and some of the country’s largest real estate brokerages to overcharge consumers billions of dollars in unwarranted commissions, in one case going as far back as 2014.
The overall impact of these and other “copycat” cases that have already been filed will literally be a game changer and could eventually alter the real estate market and how agents are compensated moving forward.
For example, in a verdict reached on October 31 in a class action suit in Missouri, a judge ruled against the NAR and brokerages Keller Williams® and HomeServices of America® to the tune of potentially $5 billion that must be paid to plaintiffs. (That verdict is now pending final approval, with the NAR planning to appeal.)
As reported by CNN on November 5,1 two other firms initially named as defendants in that case – RE/MAX® and Anywhere Real EstateSM, formerly known as Realogy, the parent company of Coldwell Banker®, Century 21®, Sotheby’s International Realty® and Corcoran® — settled out of court for a combined $140 million. As a term of that settlement, both companies announced a commitment to make changes in their business practices, including not requiring agents to be members of NAR.
The impact on home sellers and buyers
So what does all this mean if you’re currently working with a REALTOR® or other agent? How and will it affect you? Here’s a (very) high-level look at what you need to know and what to ask your agent.
How does the antitrust litigation against NAR affect me as a home seller?
Right now, it’s just wait and see. Typically, when a home goes on the market for sale, the seller offers their broker a set commission to list their home on the MLS. For years, that’s been around 6% of the sale price, usually with a 3% split for the buyer’s and seller’s agent. Home sellers in these cases are arguing that commission sharing as a condition for access to the MLS is unfair and keeps commissions artificially high.
Keep in mind that listing brokers decide how much compensation to offer in their seller’s best interest. It can be $0, a penny, or any other amount. NAR rules do not specify an amount. This is negotiated between agents and their clients.
The longer-term impact of the verdict in the Missouri case may be that the pairing of the buyer’s and seller’s agent commissions will eventually be separated, resulting in a more price competitive system that could lower consumer costs and increase quality of agent services. In the meantime, it’s helpful to stay informed and, if needed, seek legal or professional advice regarding your individual situation.
I’m looking to buy a home. How might this affect me?
As with sellers, if successful, changes in policies resulting from these cases could impact the options home buyers have in choosing to work with a buyer agent. They could also potentially influence the costs you pay associated with buying a home.
If your agent hasn’t already provided you with a buyer broker agreement, ask them about signing one. In addition to outlining the scope of responsibilities and services you and your agent agree to in helping you find and purchase a home, this contract should clearly outline how your agent is paid.
While currently it’s the home seller who normally pays both the seller and buyer agent commissions (which again is the gist of the ongoing lawsuits), it’s very important to understand exactly what you’ll be on the hook for in the event a seller refuses to pay or you breach the terms of the agreement. Be sure to review this section of the agreement carefully before signing. Ask questions about anything you’re unsure or unclear about.
Will the commissions I pay as a seller or buyer change due to these cases?
If you’re in the process of selling or buying a home today, no. Any changes in the cost of commissions will depend on the outcome of these and future cases, which could take years. So, for the foreseeable future it’s “business as usual,” says Saul Klein, president of REALTOR VIP® Alliance Partner InternetCrusade, in a roundtable discussion on the topic last month with real estate professionals.2
Eventual changes in NAR and MLS policies could potentially impact how agent commissions are structured and who pays them. Keep in mind, though, the one thing that won’t change is the need for agents to be paid for their services by those who use them. And commissions are always negotiable.
For more information on how real estate commissions work and benefit consumers, visit www.realestatecommissionfacts.com.
Should I avoid listing my home or using a REALTOR® to buy one while cases are ongoing?
No. While state governments license all real estate agents, those who choose to join the NAR and are accredited by the Association as a REALTOR® have an extensive code of ethics they must adhere to. Individual agents and REALTORS® are not named in these suits, so they continue to serve their clients. If you have any concerns about the cases, talk to your agent about their affiliation with NAR and any effects the ongoing litigation against the Association may have on the sale or purchase of your home.
Are there alternative options for selling my house I should consider in light of these lawsuits?
There are ways, of course, to sell your home without worrying about paying commissions at all. Explore different selling approaches such as listing your home for-sale-by-owner (FSBO) or request a cash offer from Offerpad and skip all the hassles of listing a home altogether. No listing means no showings or open houses – and a free local move* — when you sell to us for cash.
Questions to ask your agent
In CNN’s report last month on the Missouri case, industry analysts predict that the NAR litigation and related government action is “likely to reshape the residential brokerage industry’s commission structure by eliminating the buyer-broker commission rule, and eventually the practice of listing agents and sellers setting and paying buyer agent commissions.”
Understanding the potential implications of these cases on how homes are bought and sold can help you make better, more informed decisions during your current or future home buying/selling journey. Use some of these questions as conversation starters with your agent to learn more.
- How might the ongoing antitrust litigation against NAR affect the home buying/selling process?
- Can you explain how your affiliation with NAR might affect the services you provide or the options available to me as a buyer or seller during this time?
- Are there any changes in the current commission structure I should be aware of due to these lawsuits?
- Are there other options or considerations I should be aware of when choosing a real estate agent given the current situation with NAR?
Final takeaways
Lawsuits take years, so in the interim it’s business as usual. Buying and selling a home will remain the same as it is today for the foreseeable future.
Recent verdicts and other pending actions don’t change the many choices buyers and sellers have when deciding to buy or sell their home. They can choose to hire a real estate agent who is a REALTOR®, to hire someone else, or to do all the work themselves.
Regardless of how the current cases against NAR are decided, one thing’s certain: people will always need to buy and sell homes. And Offerpad is here to help. 😊
If you’re in the market to do either, now’s a great time to talk with us. We have hundreds of newly renovated, move-in ready homes available for sale. Need to sell before you buy? No problem. We can send you a competitive cash offer in just 24 hours. And when you bundle services like selling, buying and getting a mortgage with us, you could literally save thousands.
Michael Hofstetter is National Head of Brokerage and Designated Broker at Offerpad. He has been a licensed real estate agent since 1993, holding positions as Designated Broker of West USA Realty (2,800 agents), CEO and team leader at Keller Williams Realty, managing broker at Prudential Arizona Properties and assistant broker at Zip Realty. He also currently serves as a real estate expert witness, Real Estate Special Commissioner with the Arizona Superior Court; professional standards for AAR and SEVRAR; Treasurer for SEVRAR; Director for PAR, AAR and White Mountains; and AAR Mediator and Ombudsman.
Content included in this blog is intended for informational purposes only and in no way should be considered or taken as legal advice. If you have any questions or concerns on these issues or cases, you are encouraged to speak with a real estate lawyer, your real estate agent or an Offerpad Solutions Expert.
*Terms & conditions apply. Visit www.oferpad.com/move-for-free for details.