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Realtors found guilty of keeping commission rates artificially high, ordered to pay MASSIVE fine

November 2, 2023 | | Print Article

On Thursday, a federal jury found the National Association of Realtors (NAR) and several firms liable for keeping home-sale commissions artificially high and ordered them to pay $1.78 billion in damages.

“We spent 4½ years uncovering the evidence of this conspiracy. When the jury saw the evidence and heard the testimony … they agreed this is wrong and illegal,” lead plaintiff attorney Michael Ketchmark told The Washington Post after the ruling.

According to the Post, the case started in 2019 when a group of home sellers now totaling 500,000+ alleged in a lawsuit that NAR, in addition to the real estate firms Keller Williams Realty and HomeServices of America, had conspired to keep commissions artificially high.

“The plaintiffs pointed to an NAR rule that required sellers to make a nonnegotiable commission offer before listing homes on the property database, the Multiple Listing Service, or MLS, which feeds widely used real estate sites including Zillow,” according to the Post.

“That commission hovers around 5 to 6 percent of the sale price and is paid by the home seller to the sellers’ agent and the buyers’ agent. If sellers do not agree to the commission terms, they go virtually unseen in the market,” the Post notes.

The 500,000+ plaintiffs argued in court that this rule essentially stifled competition and resulted in higher prices. They also noted that if the rule didn’t exist, “buyers would pay commissions to their own agents while buyers’ agents would have to compete by offering lower rates.”

Such is what happens in countries like the U.K. and Australia, where real estate commissions hover around one to three percent — a far cry from the exorbitant five to six percent rates seen in the United States.

Analysts who spoke with the paper reportedly said the verdict in this case could permanently alter the way commissions are handled, especially if the judge overseeing the case issues an injunction “barring predetermined commission rates, as well as shared commissions between buyer and seller agents,” the Post reported.

According to the paper, these “changes could come if regulators such as the Justice Department intervene.”

“We believe it is possible that the DOJ would proactively weigh in during the injunction determination in order to make the changes that it believes is necessary to promote a fair and competitive market,” the analysts said.

The analysts reportedly previously predicted that a change of rules could reduce the amount consumers pay in commissions by up to 30 percent.

“From a catalyst perspective, a court-ordered injunction could ‘unbundle’ commissions nationally by early 2024, eliminating the longstanding practice of listing agents and sellers setting and paying buyer agent commissions,” the analysts wrote.

That said, the verdict led to real estate stocks tanking like gangbusters:

A NAR spokesperson has said that the agency plans to appeal the verdict and that “this matter is not close to being final.”

“We stand by the fact that NAR’s guidance for local MLS broker marketplaces ensures consumers get comprehensive, equitable, transparent and reliable home information and that brokerages of any size, service or pricing model get a fair shot at competing,” spokesperson Mantill Williams said.

HomeServices reportedly also plans to appeal.

“Today’s decision means that buyers will face even more obstacles in an already challenging real estate market and sellers will have a harder time realizing the value of their homes,” the company said in a statement.

Meanwhile, Keller Williams spokesperson Darryl Frost said the company is “disappointed that before the jury decided this case, the court did not allow them to hear crucial evidence that cooperative compensation is permitted under Missouri law.”

CoStar, a website with real estate information, previously reported in September that “the decades-old way homes are sold could change dramatically” based on the results of both Tuesday’s case and another one pending in Illinois.

“With potential damages in the tens of billions of dollars, the cases could have devastating effects on the NAR as well as every multiple listing service, Realtor association, brokerage and franchise, according to Rob Hahn, a longtime MLS consultant,” the site reported.

“Depending on the size of damages, every one of them could go bankrupt. It’s huge, and most people simply aren’t talking about it. Few people are sounding the alarm, I think, because they don’t want to freak people out,” longtime MLS consultant Rob Hahn told CoStar.

Vivek Saxena
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