Impacts of the National Association of Realtors Lawsuit

What does the National Association of Realtors lawsuit mean for major brokerages? What changes could the verdict realistically bring about? Who stands to benefit if commissions drop?

In October, a federal antitrust lawsuit verdict found the National Association of Realtors and other big brokerages guilty of colluding to inflate home selling commissions. Experts forecast a substantial shakeup in the industry.

Below we’ll take a look at the National Association of Realtors lawsuit and what it means for brokerages and home buyers alike.

The NAR Lawsuit Ruling

A bombshell federal jury verdict in October found that the National Association of Realtors (NAR) and major brokerages like Keller Williams and Berkshire Hathaway conspired to inflate commissions paid by home sellers nationwide. The National Association of Realtors lawsuit ruling could lead to a seismic drop in real estate fees across the country, saving homebuyers and sellers thousands of dollars and triggering an exodus of agents from the profession.

Background

The US is home to at least three million real estate agents who spearhead 90% of all home sales. For decades, they’ve earned commissions of 5-6% of a home’s sale price—money split between the listing agent and buyer’s agent. This rate, which is two to three times what Realtors in other wealthy nations earn, has barely budged in years, even as the internet and new technologies have led to lower fees in other industries.

However, a recent federal class action lawsuit upended the seemingly intractable commission structure. The suit accused the National Association of Realtors (NAR), Keller Williams Realty, and Home Services of America of conspiring to require home sellers to pay inflated commissions to the broker representing their buyer—thereby suppressing competition and keeping commissions artificially high across the industry.

Plaintiffs presented evidence that US commission rates are significantly higher than in most other nations due to anticompetitive practices. In a truly free market, they argued, increased competition would likely push commissions down to 2-3%, still allowing agents fair compensation while passing along savings to consumers. 

On October 31, a jury unanimously agreed, finding the defendants guilty of violating federal antitrust laws and ordering them to pay sellers $1.8 billion in damages. The judge could triple this amount to over $5 billion.

The National Association of Realtors is appealing the decision, arguing that it’s “not close to final.” Even as appeals are ongoing—a process that could take years—the presiding judge could enforce interim changes to industry practices. 

Lawsuit Impacts

Experts predict that the upheld verdict could dramatically reshape the real estate industry in several ways.

1. Impact on Agents 

Widespread uncertainty surrounding the future of the industry is expected to trigger a significant exodus of real estate agents. According to investment bank Keefe, Bruyette & Woods, the current upheaval could cause between 50% and 80% of existing agents to lose their jobs.

2. Impact on Buyers and Prospective Agents

If the current commission system changes, with the burden shifting from sellers to buyers, buyer’s agents are expected to be hardest hit.

• The number of buyers who decide to bypass hiring an agent and find and purchase property independently to save money could rise, markedly decreasing Americans’ use of buyer’s agents.
• Buyers who do hire agents may negotiate for lower fees, negatively impacting agents’ income. 

3. Wider Legal and Regulatory Implications

As these changes evolve, the industry also faces legal pressure from other quarters. Copycat lawsuits are mushrooming across the country with potential damages climbing to $400 billion.

Potential Winners in Commission Fee Overhaul 

If the verdict stands, it could be a financial game changer for home buyers and sellers who have historically paid high commission fees. Among other things, it could empower buyers to negotiate how they pay their agents.

Lower commissions could also decrease property prices, enhancing affordability. Moreover, increased competition could further push down fees, resulting in additional savings for those using a buyer’s agent.

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