A series of lawsuits seeks to challenge the practice in which commission agents receive a commission from the sale of a home, with the bill being footed by the seller. In other words, when you sell a home, you end up giving a slice to both the buyer commission agent and the seller commission agent.
In one such lawsuit, a Federal Jury has directed the National Association of Realtors, which includes some of the nation’s biggest real estate brokerages, to pay almost $1.8 billion in damages after it was revealed that they had artificially inflated real estate commissions paid to agents.
The lawsuit was filed in 2019 and represented 500,000 home sellers in Missouri and some border towns. The verdict said that the defendants had unlawfully asked the home sellers to pay the brokers representing the buyer, which contravened federal antitrust law.
The matter is still not final, and if the damages amount to thrice the damages, then the plaintiffs could be receiving more than $5 billion.
Meanwhile, the NAR spokesman Mantill Williams said that it will appeal against the jury’s verdict and request a reduction in the damages awarded by the jury.
NAR, along with several real estate brokerages, has already been slapped with several lawsuits over the real estate commission rules.
Post the positive verdict in the 2019 case, a slew of lawsuits were instituted in the U.S. District Court for the Western District of Missouri.
The lawsuit seeks to represent any person in the U.S. who has sold a home in the last five years. The lawsuit has named several brokerage companies, including Redfin Corp., Weichert Realtors, and Compass Inc., and trade associations.
One of the attorneys who represent the plaintiff, Michael Ketchmark, said that the issue has nationwide significance since it had cost American citizens a whopping $60 billion in extra real estate commissions.
The lawsuit has highlighted an NAR rule that stipulates that home sellers must pay the agent who represents the homebuyer whenever an advertisement is made on a local Multiple Listings Service where most of the U.S. homes are listed for sale.
The above fees are in addition to the commission for their listing agent or broker. The complaint also underlines the NAR rules which forbid the buyer’s agent from effecting a home purchase which offers contingent on the reduction of their commission.
The plaintiffs contended that the NAR rules force the home sellers to pay a cost that in a competitive market scenario would be borne by the buyer. Also, the NAR rules manipulate and keep the commissions for a homebuyer’s agent artificially high.
In the absence of NAR’s “Mandatory Offer of Compensation Rule”, the buyer will foot the bill for their agent’s real estate commission and this will increase competition and lower commissions among the agents, ultimately benefiting the consumer. However, the NAR does not accrue to this view and says that listing brokers making offers of compensation to buyer brokers is the best for consumers. It argues that the present system will open doors for more buyers a chance to own a home and also give sellers greater access to more buyers. The NAR also pointed out that as per trade association policies offer of agent compensation be made without specifying an amount and it could be as trivial as $1.
However, some associations are making amends, and in July 2023, the independent Bright MLS, which covers some states in the eastern part of the country, altered rules and negated the need to include an offer of agent compensation at all. That still falls within NAR’s guidelines.
As reported by the Economic Times, With soaring home prices, with the average national median sales price to $394,300 as of September 2023, agent’s real estate commissions have also soared.
Buyer agent’s commissions when added increase the sale price of the house. If sellers don’t have to pay buyer agents, there will be less inflation and the buyers on their part can negotiate to reduce the commission and thus end up paying less.
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