December 2023 Business Litigation Update

Have federal anti-trust laws put an end to the six percent realtor commission rate?

A recent jury verdict in a Missouri federal courtroom might bring an end to the long-term practice of sellers paying a six percent commission to their agent as well as the practice of brokers for the seller and buyer then splitting the commission. In late October, the jury found the National Association of Realtors (NAR) and several major real estate brokerages liable for $1.8 billion in damages for conspiring to keep commissions artificially high in violation of federal anti-trust law.

Prior to the verdict, Re/Max and Anywhere Real Estate (the parent company and franchiser of Caldwell Banker, Century 21, Sotheby’s International Realty and Corcoran Group) had reached an out of court settlement for a total of $140 million. As part of the settlement, these firms announced that they would make certain changes to their business practices, including ending the requirement that their brokerages and agents belong to NAR or follow its Code of Ethics.

In the Missouri case, the plaintiffs argued that NAR forced sellers to pay what they called an inflated commission. That commission is then split between the seller’s realtor and the buyer’s agent – something that almost anyone who has sold a home has experienced. The seller pays the commission in full to both agents. In the Missouri case, the plaintiffs argued that this practice was unfair as a requirement to access MLS listing services and kept commissions artificially high.

The jury agreed.

While a judgment has yet to be entered and there will, of course, be appeals, other lawsuits have been filed against NAR, and the organization is facing Department of Justice (DOJ) scrutiny. For now, there might be some changes as indicated by the agencies involved in the settlement; however, most observers believe it is unlikely that the commission structure will dramatically change in the short-term.

Long term, however, many observers and industry experts think we will see sellers’ agents set their own commission rates (not necessarily fixed at six percent) and the end of sellers paying the buyer’s agent’s fee. A lower commission on the seller side could lead to home prices dropping, but it is unclear what the overall impact to home sales will be if buyers are required to take on full responsibility for paying their “buyer’s agent.”

Not surprisingly, an internal NAR memo issued after the verdict and obtained by the New York Times stated that the NAR believes it will prevail on appeal, and that the verdict does not require any changes to its rules or practices. But many observers believe these events signal the beginning of a shift in how homes in the U.S. will be bought and sold. This will no doubt have a substantial impact on the residential real estate space and all of the different stakeholders involved.

We will be watching for more developments as this litigation and the appeals generated by it move forward, and the DOJ weighs in.