House Of Cards: National Association Of Realtors Faces $1.8 Billion Blow in 'Conspiracy' Over Commission Fees

The housing industry recently came under fire as the National Association of Realtors (NAR) was charged with collusion to artificially boost real estate agents' commissions. NAR, which manages over $1 billion in assets and has a trademark on the word "Realtor," is required to pay damages of about $1.78 billion to homesellers. 

Berkshire Hathaway Inc.'s HomeServices of America and Keller Williams were also charged with conspiracy and found guilty by a federal jury. Damages could be tripled to over $5.3 billion, according to U.S. antitrust law. 

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What Happened 

NAR previously mandated the "cooperative compensation rule," requiring homesellers to pay commissions to the buyer’s agent, a practice contested by sellers who argued it resulted in excessive fees. 

Typically, commissions charged on home sales amount to 5% to 6% of the total sale price, which means sellers usually pay up to $60,000 in commissions if their home is valued at $1 million. Of the total commissions charged, approximately half is paid to the buyer's agent, which allegedly creates "severe anticompetitive effects" and has "no economic sense, except for the buyer broker," according to the lawsuit. 

However, the recent verdict eliminates the obligation for sellers to pay buyers’ agents, granting agents the freedom to establish their own commission rates, potentially reducing them further. 

The landmark decision has the potential to overhaul the entire structure of the U.S. real estate industry, leading to a reduction in homeselling costs through commission adjustments. 

Redfin, an online brokerage platform that withdrew from NAR in October, asserts that this ruling will lead both homebuyers and sellers to scrutinize the traditional practice of establishing commissions.

"Traditional brokers will undoubtedly now train their agents to welcome conversations about fees," Redfin CEO Glenn Kelman said in a statement following the verdict. "But it's also possible that buyers will become the ones who decide how much to pay a buyer's agent."

NAR Engulfed In Controversy 

This is not the first time NAR has grappled with controversy. The association's executives have been accused of sexual harassment. The market lawsuit defeat, coupled with the increasing controversy, has caused NAR CEO Bob Goldberg to resign on Nov. 20. Goldberg was initially set to resign when his contract expired on Dec. 31. 

Before this, NAR President Kenny Parcell resigned after an incriminating article detailing sexual harassment was published in The New York Times. 

Will Commissions Go Down?

The National Association of Realtors, which has over 1.5 million members operating in residential and commercial real estate, has an exclusive trademark over the word "Realtor." This means that every real estate professional is required to pay membership fees to the association. NAR has dominated the U.S. real estate industry, setting rules that determine the commissions charged on home sales. 

While NAR and other defendants plan to appeal the verdict, the ruling could change how houses are bought and sold in the U.S. and significantly lower commissions. 

Several homesellers across the country have filed class-action lawsuits weeks after the landmark ruling. Stifel-backed investment banking firm Keefe, Bruyette & Woods Inc. (KBW) predicts commissions to fall by as much as 2% if this takes effect. The total damages from such lawsuits could climb as high as $400 billion, according to Ryan Tomasello, managing director of KBW. 

"Obviously, it's a big blow to them and a reminder that these organizations can be viewed as facilitating collusion," said Matthew DeFrancesco, a partner with the FisherBroyles law firm and an antitrust law professor at New York Law School. "The real estate market is something everyone is attuned to, and I'm sure that's part of the reason it was a target. And there's a lot of money there."

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