Residential real estate commissions can be as high as six percent – three percent paid to the seller’s agent and three percent being paid to the buyer’s agent, typically paid by the seller. In theory, the current commission fee structure is in place to protect both buyers and sellers since each agent comes to the table representing their client’s best interests.
However, during the COVID-19 pandemic, many home buyers began to rely more on online resources to find a home to purchase. In response, an argument is repeatedly taking place in federal courtrooms: Since home buyers are doing more of the legwork in their home searches, shouldn’t broker commissions be cut?
A federal lawsuit challenging rules that require home sellers to pay commissions to brokers representing home buyers was recently certified as a class action in Missouri, effectively providing representation to any seller who paid a broker commission for a residential real estate deal across four Multiple Listing Services (MSDs) in Missouri. The case has the potential to enable hundreds of thousands of home sellers to seek reimbursement on more than $1 billion in commissions paid to buyer agents over the past eight years.
The lawsuit charges that real estate brokerages and the National Association of Realtors (NAR) have conspired to force sellers to shell out excessive commissions to brokers representing buyers, a violation of federal antitrust law, Missouri antitrust law, and the Missouri Merchandising Tactics Act. The legal fallout could potentially impact how real estate agents are compensated and set a precedent that might challenge the broker commissions model across the nation.
As a condition of listing their homes on an MLS, a centralized database listing homes for sale, sellers must agree that the listing agent will split the commission with the agent representing the buyer. The complaint alleges that absent that requirement, “seller brokers would set a commission to pay themselves alone and would likely begin to engage in more vigorous competition with one another to lower their rates and/or provide additional services to justify their newly transparent rates.”
The defendants in the Missouri lawsuit own some of the largest real estate brokerages in the country, including Prudential Real Estate, Century 21, and Coldwell Banker. One of the defendants, the NAR, represents more than 1.3 million real estate agents across the U.S. It argues that the MLS system is beneficial to consumers because it allows many first-time, low-income people to avoid paying brokers directly and purchase homes they couldn’t otherwise afford.
In April 2019, the U.S. Justice Department began to investigate whether brokers were directing their buyers to homes that offered larger commissions and avoiding brokers who may have been willing to collect less. In November 2020, the Justice Department settled an antitrust case alleging the NAR “established and enforced illegal restraints on competition” and requested that the association provide greater transparency around commissions to buyers and sellers.
However, in July 2021, after determining that the settlement would not “adequately protect the department’s rights to investigate other conduct by NAR that could impact competition in the real estate market and may harm home sellers and home buyers,” the Justice Department withdrew from the settlement.
Acting Assistant Attorney General Richard A. Powers said this about the JD’s decision to withdraw from the settlement: “The proposed settlement will not sufficiently protect the Antitrust Division’s ability to pursue future claims against NAR,” said. “Real estate is central to the American economy, and consumers pay billions of dollars in real estate commissions every year. We cannot be bound by a settlement that prevents our ability to protect competition in a market that profoundly affects Americans’ financial well-being.”
In September 2021, the NAR filed suit against the DOJ for backing out of the agreement. Two months later, the organization released a statement vowing to move ahead with changes to “make the process more positive, more transparent, and more efficient for our clients.” However, the NAR made no mention about making it more affordable.
