National Association of Realtors Settles to Shut the Door on more claims of Collusion and Anti Trust Violations
One of the most powerful lobby groups in America agreed last week to settle a series of lawsuits by paying $418 million in damages. The lawyers that put the deal together will likely divvy up far more than the settlement amount amongst themselves as they file the agreement over the coming days. Once approved by the federal courts , the door will be shut on the an avalanche of legal claims from home sellers claiming that they too were ripped off by being forced to pay excessive fees under the National Association of Realtor rules.
In a statement released on Friday morning, Nykia Wright, the interim chief executive of N.A.R., said “It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.”
This will change the real estate game and finally force a much needed new business model.
Americans pay roughly $100 billion in real estate commissions annually, and real estate agents in the United States have some of the highest standard commissions in the world. In many other countries, commission rates hover between 1 and 3 percent. In the United States, most agents specify a commission of 5 or 6 percent, paid by the seller. If the buyer has an agent, the seller’s agent agrees to share a portion of the commission with that agent when listing the home on the market.
An American homeowner currently looking to sell a $1 million home should expect to spend up to $60,000 on real estate commissions alone, with $30,000 going to his agent and $30,000 going to the agent who brings a buyer. Even for a home that costs $400,000 — close to the current median for homes across the United States — sellers are still paying around $24,000 in commissions, a cost that is baked into the final sales price of the home.
The lawsuits argued that N.A.R., and brokerages who required their agents to be members of N.A.R., had violated antitrust laws by mandating that the seller’s agent make an offer of payment to the buyer’s agent, and setting rules that led to an industrywide standard commission. Without that rate essentially guaranteed, agents will now most likely have to lower their commissions as they compete for business.
Economists estimate that commissions could now be reduced by 30 percent, driving down home prices across the board.
The original lawsuit, filed in April 2019 by a group of Missouri home sellers, ended in a verdict of $1.8 billion in October. Because the suit included accusations of antitrust violations, plaintiffs could have been eligible for triple damages of up to $5.4 billion. In exchange for the reduction in damages, the association gave up its right to appeal. The verdict sent shock waves through the real estate industry and has since catalyzed into more than a dozen copycat suits across the country, including a nationwide class-action case that ensnares the country’s largest brokerage and its owner, Warren E. Buffett. That brokerage, Berkshire Hathaway, has not settled, but others, including Keller Williams and Re/Max, have settled in separate cases. N.A.R. now joins them.
Under the settlement, tens of millions of home sellers will likely be eligible to receive a tiny small piece of a consolidated class-action payout.
The legal loss struck a blow to the power wielded by the organization, which has long been considered untouchable, insulated by its influence. Founded in 1908, N.A.R. has more than $1 billion in assets, 1.3 million members and a political action committee that pours millions into the coffers of candidates across the political spectrum.
The antitrust division of the Department of Justice is continuing its investigation of N.A.R.’s practices, including the organization’s oversight of databases for home listings, called multiple listing sites or the M.L.S. The sites are owned and operated by N.A.R.’s local affiliates. For decades, the Justice Department has questioned whether these databases stifle competition and whether some N.A.R. rules foster price-fixing on commissions.
With Friday’s settlement, the process of buying and selling a home is now in for a historical change. Every other term in a real estate transaction the consumer has a choice in the fee they pay for that service. People should always decide how much they pay their Realtors just like any other service.
“This will be a really fundamental shift in how Americans buy, search for, and purchase and sell their homes. It will absolutely transform the real estate industry,” said Max Besbris, an associate professor of sociology at the University of Wisconsin-Madison and the author of “Upsold,” a book exploring the link between housing prices and the real estate business.did constantly insist that the lawsuits were flawed and they intended to appeal. With Friday’s settlement agreement, N.A.R. gave up the fight.
The settlement includes many significant rule changes. It bans N.A.R. from establishing any sort of rules that would allow a seller’s agent to set compensation for a buyer’s agent, a practice that critics say has long led to “steering,” in which buyers’ agents direct their clients to pricier homes in a bid to collect a bigger commission check.
And on the online databases used to buy and sell homes, the M.L.S., the settlement requires that any fields displaying broker compensation be eliminated entirely. It also places a blanket ban on the longtime requirement that agents subscribe to multiple listing services in the first place in order to offer or accept compensation for their work.
N.A.R. has repeatedly insisted that it does not own multiple listing sites, but the majority of them are owned and operated by the local Realtor associations that operate as N.A.R. subsidiaries. Now, with the settlement effectively severing the link between agent compensation and M.L.S. access, many agents are likely to rethink their membership in the association.
Technology will now work for consumers instead of against them.
