The National Association of Realtors (NAR) and four major real estate broker franchisors have been accused of conspiring to rig the commission structure in a lawsuit. This could have serious consequences for the real estate industry and home sellers. The lawsuit alleges that NAR created and implemented anticompetitive rules which require home sellers to pay commission to the broker representing the home buyer, effectively driving up consumer costs. It alleges NAR’s Commission-Filter Rules and Practices violate federal antitrust laws. These rules and policies limit access to lockboxes that provide licensed brokers physical access to homes for sale. A new class action lawsuit aims to overturn an industry-accepted compensation structure. If successful, this could significantly affect the US real estate market.
What Will Happen if NAR Wins?
A class-action antitrust lawsuit against the National Association of Realtors and others could disrupt the broker commission model nationwide. If this lawsuit is successful, it could shake up the real estate industry in a big way. The case could also bring down commissions paid to list brokers by sellers and buyers, affecting the entire industry. The NAR Lawsuit may lead to reforms that ban buyer agents from representing their services as accessible to their clients. According to NAR spokesperson Alex Hahn, that change may make it more profitable for buyers to use other services instead of working with a buyer’s agent.
What Do the Charges Mean for the Real Estate Industry?
The lawsuit against NAR and a few primary multiple listing services (MLS) could completely change the real estate industry. If successful, the case will sever NAR’s longstanding commission structure and require sellers to pay less or no buyer-agent compensation. The lawsuit alleges that NAR has conspired with four sizeable real estate franchisors to inflate seller costs through its MLS policy. The plaintiffs allege this has led to unfair and deceptive business practices. In particular, NAR’s Clear Cooperation Policy requires brokers to disclose that they will pay a broker commission to their buyer broker when they list a property on an MLS. It also requires that brokers offer a buyer broker commission to their seller broker when they submit a property for sale.
What Will Happen if NAR Loses?
If NAR loses the lawsuit, it would be a big deal for the real estate industry. Many agents could leave the business, and real estate sales might drop precipitously. Will realtors become extinct? A recent analysis shows that if a court were to award damages based on an average home sale price, a 3% buyer agent commission, and 2 million transactions per year, the total potential damage to the real estate industry could be 18 billion dollars!
What Will Happen if NAR Settles?
The real estate industry’s leading trade association, NAR, has faced many antitrust lawsuits. Specifically, NAR’s Participation Rule and Clear Cooperation Policy have been at the heart of many of these lawsuits. The Department of Justice filed a complaint and proposed settlement in November 2020, alleging that NAR’s rules restrain competition among realtors. If NAR settles the lawsuit, it will change its regulations to enhance competition. NAR’s Board of Directors must approve these rules, and the Court overseeing the settlement must support them. The exact wording of these changes will be worked out within 45 days. Once the final rule changes are approved, they will become official and take effect. NAR will inform all its members and associations about these rules as they are implemented.
While this lawsuit doesn’t sound like much on the surface, it could radically change the structure of commissions in the industry. If successful, this would upend the commission structure that has been in place for decades. One of the key arguments in the PLS case is that NAR rules have a perverse incentive for brokers to steer buyers and sellers toward MLS-listed properties with guaranteed buyer-broker commissions. This violates antitrust law and creates perverse incentives that harm consumers. It’s also been argued that the NAR rule violates the Americans With Disabilities Act (ADA). This means brokers who fail to provide services that are “readily achievable with reasonable effort and expense” may be liable for discrimination against customers with disabilities.