Washington, DC CNN — The traditional practice of using a travel agent to buy a plane ticket or a stockbroker to trade equities may seem outdated in the internet age. However, one industry that has managed to withstand disruption is real estate. The National Association of Realtors (NAR), the largest professional organization in America, has played a vital role in maintaining the status quo. Yet, a recent court ruling in Missouri might signal the potential downfall of the real estate industry as we know it. The jury found NAR, along with Homeservices of America and Keller Williams Realty, guilty of conspiring to artificially inflate commissions, leading to $1.8 billion in damages. Re/Max and Anywhere Real Estate (formerly known as Realogy), which includes Coldwell Banker, Century 21, Sotheby’s International Realty, and Corcoran, settled out of court for $140 million. In their settlements, they committed to changing their business practices, including not requiring agents to be NAR members. Although NAR and the brokerages plan to appeal the verdict, this ruling calls into question the future of real estate commissions. NAR has faced antitrust allegations for years and is currently under investigation by the US Department of Justice. Additionally, NAR has already experienced challenges this year, including the resignation of its president amid sexual harassment allegations and the departure of Redfin, an internet real estate company. While NAR intends to appeal the verdict, this lawsuit adds to the mounting pressure the association is facing. The plaintiffs argued that NAR’s commission structure, which requires homesellers to pay an inflated commission split between their agent and the buyer’s agent, is unfair and artificially inflates prices. Typically, sellers offer their brokers a set commission of around 6% of the sale price, with a 3% split for the buyer’s and seller’s agents. Sellers contend that buyers should negotiate the fees with their agents and not rely on the sellers to cover this cost. NAR and the other defendants argued that commissions are always negotiable and that the current structure allows buyers to avoid additional expenses. Consumer advocates celebrated the verdict, hoping for further changes in the industry’s commission structure. The judge will now determine whether the award, currently at $1.8 billion, will increase to $5 billion. The jury’s decision indicates that the industry has limited price competition and has maintained uniform commission rates. Analysts predict that this ruling, combined with government action against NAR, may reshape the commission structure by eliminating the buyer-broker commission rule. Consequently, if commission rates decline or become more negotiable, home prices may also drop. Although agents anticipate few immediate changes, the separation of buyer’s agent and seller’s agent commissions may occur in the long term. However, this could inadvertently lead to unintended consequences, such as excluding certain buyers who cannot afford to pay for a buyer’s agent. Overall, the real estate industry faces an uncertain future, as this ruling challenges the current commission structure and prompts a reevaluation of industry practices.
The NAR Lawsuit: The Urgency of the 6% Real Estate Commission after Securing a $1.8 Billion Verdict
