Jury Awards Home Sellers $1.8B in Damages After Brokers Inflate Commissions
In a significant victory for consumers, a federal trial in Missouri resulted in a jury finding the National Association of Realtors and several large brokerage firms guilty of conspiring to artificially inflate commissions. The parties were found liable and ordered to pay $1.8 billion in damages, a figure that could increase to over $5 billion under antitrust rules.
Traditionally, the real estate industry has operated on a model of sellers paying a 5% to 6% commission, split between the seller’s agent and the buyer’s agent. However, this verdict and an upcoming federal lawsuit in Illinois may bring about major changes, potentially eliminating the practice of sellers paying both fees. Stephen Brobek, a senior fellow at the Consumer Federation of America, believes this decision is a watershed moment that will increase price competition in housing markets, potentially saving consumers $20 billion to $30 billion per year in real estate commissions. The Consumer Federation of America predicts commission rates could decline from 5% to 6% to 3% to 4%.
The National Association of Realtors plans to appeal the decision, but industry experts expect that the requirement for sellers to pay both commissions will likely be eliminated. This change will benefit consumers, allowing them to negotiate directly with their agents and potentially reduce costs. The Missouri lawsuit, the Illinois case, and subsequent legal actions, as well as the involvement of the Department of Justice and the Federal Trade Commission, will likely lead to increased transparency in how commission rates are set, paid, and negotiated for home buyers and sellers.
Real estate industry analyst Ryan Tomasello suggests that these legal proceedings could result in a 30% reduction in the $100 billion paid in real estate commissions annually by Americans, potentially leading to 60% to 80% of the 1.6 million agents leaving the industry. These changes will introduce a structure that forces buyer agents to compete on quality and price, potentially resulting in lower commissions and fewer buyers using dedicated buyer agents.
While some argue that prohibiting seller agents from paying commissions to buyer agents may harm consumers, the National Association of Exclusive Buyer Agents President, Rich Rosa, disagrees. He believes that any system making it harder for first-time and lower-income home buyers to have trusted advocates will ultimately cost these buyers more money.
Furthermore, the potential changes to commission structures may have a disproportionate impact on minority buyers, particularly Hispanic individuals, according to Gary Acosta, co-founder and CEO of the National Association of Hispanic Real Estate Professionals. Acosta suggests that these changes could provide listing representatives with an unfair advantage, potentially hindering the progress of minority buyers.
Regardless of the Missouri judge’s decision, industry experts believe change is inevitable. Redfin CEO, Glenn Kelman, states that traditional brokers will likely adapt their practices, becoming more open to fee negotiations, which has been Redfin’s approach for years. However, significant changes may cause initial confusion and require educating consumers about their rights and agents about their obligations.
The National Association of Realtors, with 1.5 million members, has faced its fair share of troubles recently, including sexual harassment allegations against its president and the early retirement of its CEO. As these legal battles and industry changes unfold, the real estate market will undergo a transformation that aims to put consumers’ interests first.
Contact Betty Lin-Fisher at [email protected] or follow her on X, Facebook, or Instagram @blinfisher.
