$418M NAR settlement

The National Association of Realtors agreed to settle multiple real estate commission lawsuits. (Brief summary at the bottom)

What happened?

• It started in March of 2019 with Christopher Moehrl.
  Moehrl filed a class-action lawsuit against the NAR, Realogy Holdings Corp., Homeservices of America Inc., Re/Max Holdings Inc. and Keller Williams Realty Inc. The plaintiffs, in this case the home sellers, claimed that these large broker franchisors were conspiring to require home sellers to pay the broker representing the buyer of their homes, and to pay at an inflated amount, in violation of federal antitrust law. They claimed they collectively possessed market power in the local markets for real estate broker services through control of the local MLS (Multiple Listing Service). Mr. Moehrl was going after the blanket, non-negotiable, Buyer Broker Commission Rule. This led buyers to not show homes to their clients where sellers were offering a lower buyer commission, only showing homes with higher ones. Typically, total broker compensation in the U.S. is 5-6% of home sales price, with around half going to the buying broker (2.5-3% on average). These commissions were similar regardless of the price of the home, be it a million dollar house or a $200,000 one. This inflated buyer broker commissions, thus inflating total commissions paid by home sellers. In competitive international markets, like the UK, Germany, Israel, Australia and New Zealand, buyer brokers are paid directly by home buyers, rather than by sellers.

• Then again, the following month, in April of 2019, Joshua Sitzer and Amy Winger filed a similar class action lawsuit. This lawsuit went after the NAR’s Adversary Commission Rule (I am not entirely sure the difference between the Buyer Broker Commission rule and the Adversary Commission Rule, they seem to be the same). The Adversary Commission Rule restrained price competition among buyer brokers, since the home buyers did not negotiate or pay the commissions. What I found funny while reading this class action complaint was,
  “Indeed, a 2015 report, commissioned by NAR to study negative emerging trends in the real estate industry, highlighted concerns that total commissions in the US are inflated compared to international markets, such as the United Kingdom, Singapore, the Netherlands, Australia and Belgium. According to the report commissioned by NAR, in those countries the average total commissions ranges between 1% and 3%.”
  Meaning, they knew these trends weren’t on par with other competitive markets but they were “dead set on not letting 6% commissions go away”. This conspiracy had kept buyer broker commissions elevated despite their diminishing role.

• Gary Bauman, Mary Jane Bauman and Jennifer Nosalek filed a class action lawsuit in December of 2020 against MLS PIN (Multiple Listing Service Property Information Network), and brokerages like Keller Williams and RE/MAX. Similarly, they claimed that as a condition of listing their home on Pinergy (another MLS in Massachusetts), they had to include a single, set offer of compensation to any broker who found a buyer for their home (back to the Buyer-Broke Commission Rule). They claim that it is anticompetitive and causes sellers to pay artificially inflated, supra-competitive commission rates (yup).

From 2021, and even now, there were/are multiple subsequent suits, all aimed at the NAR, MLS agencies and other national brokerages. The NAR, on March 15, 2024, agreed to pay $418 million to settle all litigation claims brought by home sellers, but not by the homebuyer (there are a couple other cases, Batton I and Batton II, that are ongoing).
This will also ban the NAR from establishing any rules requiring seller’s agents to set compensation for a buyer’s agent. It also eliminates the need for brokers to be subscribed to MLSs. These changes will go into effect in mid July of 2024.

While some brokerages were able to settle (Anywhere for $55m and RE/MAX for $83.5m), this agreement does not release other brokerages from the case. Meaning, some brokers will still most likely be paying millions of dollars sooner rather than later.

What does this mean for us?

After reading many upon many of complaints on the subreddit r/realtors on Reddit, it seems like a lot of realtors might not understand it. Or they don’t want to. Either way, this is going to flip the realtor market upside down. With the emergence of AI, it seems like many “fly by night” agents will be pushed out. Many home buyers now know what homes they want to look at prior to calling an agent, with the help of online resources like Redfin and Zillow. As stated in many of the plaintiffs’ cases, a buyer’s brokers role is already diminished as it is. Instead of a 2.5-3% automatic compensation, fixed rates will start to be more of the norm (agents will probably discuss this on the side between themselves, anyway). Expect to see many companies sprout up that offer flat buyer broker fees, many utilizing AI to handle paperwork. What would normally take a team of people to get done will be done by one person with a program, or even just the program. Home prices could also take a hit considering the seller/buyer fee will not have to be priced in (or will it?). About $100 billion are paid in real-estate commission fees annually. The effects might not be immediate, but things like this rarely make a splash overnight.

Will technology do away with real estate agents like it did with travel agents? Real estate is the biggest investment that most people will make in their lifetime. Will it be humans or AI helping us along the way? Only time will tell…