A US federal jury has ruled that the powerful National Association of Realtors and several large brokerages had conspired to artificially inflate the commissions paid to real estate agents. Photo / Avi Waxman, Unsplash
A US federal jury has ruled that the powerful National Association of Realtors and several large brokerages had conspired to artificially inflate the commissions paid to real estate agents. Photo / Avi Waxman, Unsplash
A US federal jury has ruled that the powerful National Association of Realtors (NAR) and several large brokerages had conspired to artificially inflate the commissions paid to real estate agents, a decision that could radically alter the homebuying process in the United States.
The realtors’ group and brokerages were orderedto pay damages of nearly US$1.8 billion (NZ$3.1b). The verdict allows the court to issue treble damages, which means they could swell to more than US$5b.
It’s a decision that has the potential to rewrite the entire structure of the real estate industry in the United States, lowering the cost of moving homes by reducing commissions. Under a NAR rule, a home seller is required to pay commissions to the agent representing the buyer, which sellers claimed forced them to pay excessive fees to the agents. The home sellers said the brokerages collaborated with NAR to enforce what is called the “cooperative compensation rule”.
But under the verdict, the sellers would no longer be required to pay their buyers’ agents, and agents would be free to set their own commission rates, which could be slashed in half or less. For example, a home seller with a US$1m home can now pay as much as US$60,000 in agent commissions — $30,000 to their agent and $30,000 to the buyers’ agent.
NAR, alongside Keller Williams, Anywhere (formerly, Realogy), Re/Max and HomeServices of America, had been on trial in Kansas City in an antitrust suit brought by nearly half a million Missouri home sellers.
The home sellers asked for damages of US$1.78b. Before heading to trial, both Re/Max and Anywhere Real Estate opted to settle, with Re/Max paying US$55 million and Anywhere Real Estate, whose subsidiaries include Coldwell Banker, Century 21 Real Estate, and Sotheby’s International Realty, paying US$83.5 million in damages.
But NAR, as well as Keller Williams and HomeServices, headed to trial. And on Tuesday morning (Wednesday NZT), after deliberating for less than three hours, an eight-person jury delivered the verdict: yes, there had been a conspiracy, and not only would the defendants be required to pay damages, but those damages could triple.
The Chicago-based NAR is the largest professional organisation in the United States. It has more than US$1b in assets and owns the trademark to the word “Realtor”, making a real estate agent’s ability to buy and sell homes contingent upon the payment of membership dues in much of the country.
The headquarters of the National Association of Realtors in Chicago. Photo / Jamie Kelter Davis, The New York Times
NAR said it plans to appeal the verdict, and in an internal memo sent to some members on Tuesday and obtained by The New York Times, current NAR President Tracy Kasper wrote, “We remain confident we will ultimately prevail.”
“This verdict does not require a change in our rules,” she continued.
How the ruling plays out remains to be seen, but it’s clear that the verdict — and the size of the damages — point to a shift in the way agent commissions are now paid. Redfin, which in October exited the National Association of Realtors, said that the decision will prompt homebuyers and home sellers to now question the standard practice of setting commissions between 5 per cent and 6 per cent.
“Traditional brokers will undoubtedly now train their agents to welcome conversations about fees,” said Glenn Kelman, Redfin’s CEO, in a statement following the verdict. “But it’s also possible that buyers will become the ones who decide how much to pay a buyer’s agent.”
‘This is an earthquake’
More than 1.5 million real estate agents across the United States pay dues to the organisation in order to call themselves Realtors and assure home sellers and homebuyers that they are aligned with the organisation’s strict policies on ethics and home transactions. But after a series of sexual harassment allegations led to the resignation of the organisation’s president this summer, Tuesday’s ruling threatens to further diminish their influence and could, according to some real estate agents, prompt many to abandon them entirely.
“This is an earthquake,” said Jason Haber, a real estate agent with Compass who has been one of the most outspoken critics of NAR in recent months. “I’m disappointed in today’s verdict and I’m even more disappointed in NAR. This was their Super Bowl and World Series rolled up into one and not even Taylor Swift could have saved them.”
Haber, who created a grassroots organisation demanding the resignation of NAR’s top leadership after the sexual harassment allegations came to light this summer, said he believed that there was no conspiracy when it comes to agent commissions, and that NAR had let down its members by failing to present a stronger defence in court.
“As a dues-paying agent, they failed me, they failed all of my colleagues. Had they spent more time focusing on the trial and less time silencing women, maybe the outcome would have been different,” he said.
In an emailed statement, Mantill Williams, a spokesperson for NAR, said the case will likely not be settled for a long time.
“We will continue to focus on our mission to advocate for homeownership and always put consumer interests first. It will likely be several years before this case is finally resolved,” he said.
More lawsuits imminent
Makenzy Mohrman, a financial services analyst at Capstone LLC, said the verdict was just the beginning of changes in the industry, noting the US Department of Justice is likely to pursue a more thorough investigation of how real estate transactions are handled in the United States.
“Antitrust has been a top issue for the administration. This is something that will affect a lot of consumers,” she said.
“We believe this is a significant hit for real estate brokers, but we don’t think this is over yet at all. There are more battles to be had. This is the first domino to fall, but the National Association of Realtors is still on the hook.”
Brokerages who chose to settle ahead of the trial said they were pleased with their decision.
“The settlement releases our company, affiliated agents, and franchisees from liability related to these claims. The jury verdict, while disappointing, does not alter our settlement,” said Trey Sarten, a spokesperson for Anywhere Real Estate, in an emailed statement.
Those who had lost previous court battles with NAR were celebrating.
Jack Ryan, the CEO of REX Real Estate, which in August lost an antitrust lawsuit against NAR, Zillow and Trulia, has been outspoken about setting commissions lower. In a text message on Tuesday, he hailed the verdict as “extremely good news for Americans”.
If commissions can be lowered, “the price of every home will come down, jobs and wages will go up, tax revenues will increase, people can easily move to better and more fulfilling jobs”, he wrote.
Other lawsuits are now imminent. Within minutes of receiving the verdict on Tuesday, the lawyers for the defendants entered another class-action suit into US District Court in Missouri. That case, filed on behalf of three new home sellers, also claims the practice of having home sellers pay sales commissions to buyers’ agents is a violation of the Sherman Antitrust Act. It names NAR as a defendant, as well as several major brokerages including Compass, eXp World Holdings, Redfin and Douglas Elliman.
