In a landmark decision, a federal jury has unanimously found the National Association of Realtors (NAR) and several major real estate companies guilty of conspiring to inflate broker commissions. The result? A whopping $1.78 billion in damages, which will automatically triple to $5.356 billion.
The class-action suit represented about 500,000 Missouri home sellers who paid inflated commissions from 2015 to 2022. Despite the defense arguing that cooperative compensation is legal in Missouri, the jury sided with the plaintiffs. Their main beef was the requirement to offer and pay buyer agent commissions in order to be in the MLS.
This case could fundamentally alter the U.S. real estate commission structure, bringing into question the ethical and legal foundations of current practices. With the verdict in, it's clear: The industry is in for some serious scrutiny and potential reform.
It’s easy to miss with all of the chaos going on in the world today, but there are two big lawsuits taking a swing at the very foundation of the real estate world. They're challenging how agents get paid and how the MLS system operates. And yes, this could affect the cost of buying and selling homes in the near future.
Let me start off by saying that Glass House Real Estate was born out of the frustration of the real estate industry and its death grip on commissions. My mission was simple, offer amazing service while lowering my cost and passing those savings to our clients via commission rebates and reduced listing fees.
Believe it or not, I could not do this at any of the traditional companies that are out there right now. Despite my best efforts, I was basically forced to start a brokerage. I was basically a kid with only 5 years of experience starting a brokerage in 3 states. Since then, our clients have collectively saved millions of dollars in commissions. With all of that said, it’s a bit satisfying to see the industry being held to account, only about a decade too late.
Why This Matters to You
These legal battles could mean how you buy or sell a home and how much you pay for it, and the role of Realtors could drastically change.
- What's Being Challenged? Traditional home selling commissions where the sellers are paying both the listing agent AND the buyer's agent. Usually 5-6% of the sales price. The lawsuit fundamentally calls into question the legality and conflict of the seller paying the commission to the buyer agent.
- The Accusation: The current system is anti-competitive and makes agents richer at your expense by requiring sellers to offer a buyer agent commission if they want to be in the MLS.
- The Fallout: Changes to MLS systems and possibly new rules and/or laws prohibiting sellers from paying a buyer agent, effectively cutting the cost to sell a home in half. On the flip side, buyers will have to pay their own agent therefore creating a more competitive marketplace and effectively bringing down the cost.
The Lawsuits in a Nutshell
The claim is simple: sellers are boxed into using MLSs and paying about 5.5-6% commission on average, which is then divided up between buyer and seller agents. This rigid structure, plaintiffs say, needs to go. It is fundamentally unfair to pay for the buyer's representation when they are negotiating against you.
What could happen
- MLS Systems are already changing the rules to allow agents to enter homes in the MLS while not offering a buyer agent commission, something forsaken prior.
- Broker Fees: Sellers and Buyers could each be responsible for paying their respective agents. Currently, agents perpetuate the myth that the buyer agency fee, usually 2.5-3%, is paid by the seller at no cost to the buyer. Buyers will likely look to lower-cost alternatives if they are paying the commission out of their pocket.
- Financial Strain: Although unlikely, the sellers in the class action lawsuit are asking the companies to refund the commissions paid to buyer agents and outlaw the practice altogether.
Where we stand now
Two of the defendants—Anywhere (Coldwell, Sotheby’s, Century 21 & more) and RE/MAX—have already caved, agreeing to significant settlements. Anywhere is paying out $83.5 million, while RE/MAX is parting with $55 million. The maximum their respective companies can afford.
Two major cases are on the horizon. The Sitzer/Burnett trial has started and could result in multi-billion-dollar damages. Another, Moehrl v. NAR, could go to trial in 2024. The repercussions of these lawsuits could take time to ripple through the industry, so stay tuned.
Buyer agents are going to have to have the conversations Glass House has been having with buyers for the last 13 years, the buyer commission is not free. Buyers will very likely scrutinize their agents, and the commission, and given it will be a direct expense, many less experienced agents will have a hard time commanding huge commissions.
While the legal battle plays out, change will come slowly. NAR is the largest lobbying group in the United States, so I expect a hard-fought battle.
Let me know in the comments what you think. Thanks!