How Real Estate Commissions Could Change After Landmark Judgement Against National Association Of Realtors

The National Association of Realtors (NAR) recently suffered a major loss when a federal jury in Kansas City, Missouri, found it guilty of conspiring to fix prices for real estate commissions. 

The plaintiffs accused NAR of using its control over multiple listing services (MLSs) to inflate commissions while simultaneously fixing commission rates at a certain amount.

The jury agreed, and the verdict comes against the backdrop of a Department of Justice investigation into NAR's practices. To say the ruling sent shockwaves through the residential real estate industry would be an understatement. Benzinga looks at how this ruling could reshape the real estate market for both homebuyers and sellers as well as the agents who represent them.

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Where Do The Price-Fixing Allegations Come From?

For almost as long as anyone can remember, the standard real estate commission a homeowner pays an agent for helping to sell their home has been between 5% and 6%. Yet, no one is sure how agents arrived at that figure or why it has remained fixed for so long. The commissions sellers pay in other countries such as the U.K., Spain and Australia are in the 2% range.

As far as anyone can tell, the biggest difference between the American home market and foreign markets is the dominance of MLS, which NAR controls. Before the internet, the MLS was the only place selling agents listed properties and, by extension, the only place buyers' agents looked for them. In exchange for MLS access, the selling broker must agree to split their commission with the buyer's agent. 

NAR's manual doesn't include a written policy or legal requirement that commissions must be 6%. Yet somehow, there remained an off-the-books "gentleman's agreement" between brokers nationwide to charge a 6% commission, or 5% at the lowest. At first glance, it looks like price fixing, and that's where the cases in question come from.

The Smoking Gun On Commission Price Fixing

The proverbial smoking gun in the price-fixing case comes from two places. First, the MLS is only open to brokers who are affiliated with NAR or a local Realtors' association that has agreed to operate by NAR's rules concerning the MLS. Second, the MLS won't list any property where a selling agent won't agree to a commission split that is set in the listing information.

If that weren't enough, there is evidence that agents who represent buyers are much less likely to show their clients an MLS-listed property with a commission split below the standard 2.5% to 3%. The jury found this to be sufficient evidence to find NAR guilty of price-fixing.

The verdict could result in NAR and other defendants being forced to pay $1.8 billion to the Missouri plaintiffs in the case, and the amount could rise to $5 billion. NAR has vowed to appeal, but considering there is also a Department of Justice investigation into its practices, it's almost a guarantee that homebuying commissions will take a different shape in the years to come.

Potential Changes To Look For

First, it's important to note that NAR has been in business for a long time. It is appealing the verdict and spent over $30 million on lobbying in 2023. At a minimum, that's going to buy it a lot of ears to bend on Capitol Hill.

It also has the potential leverage that comes with being able to argue that buyers who have to pay their own agent fees will be even more disadvantaged in today's high-priced, high-interest-rate housing market. NAR still may be able to get legislation in place that maintains the current structure.

With that said, there seems to be a begrudging acceptance in the industry that commission fees are about to go down, especially for buyers' agents. A few potential new commission arrangements include:

• De-coupling of buyer and seller Commissions: Instead of evenly splitting a 6% commission between the buyer's agent and the seller's agent, each party in the transaction may negotiate compensation with their respective agents.
• Expanded access to MLS: For-sale-by-owner and other listings that do not include a commission split for the buyer's agent by be viewable on the MLS to both member and nonmember agents.
• A la carte buyer services: Homebuyers may be able to negotiate flat-rate service packages from a buyer's agent in which they agree to take the buyer to write a fixed number of offers and negotiate sales for properties the buyer has seen through the MLS or other platforms.
• Lower commissions: The 6% commission, which has been standard for decades, may be reduced if sellers are no longer responsible for paying buyers' agents in transactions.

It's also possible that the future of real estate is a combination of some — or all — of the potential options listed above. Other methods of calculating commissions not covered here may also be available. No matter how it shakes out, it's likely that real estate agent commissions will be smaller.

The only other questions are: how much less, and who's going to pay? Either way, it looks like the real estate market is in for a shakeup.

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