The National Association of Realtors’ (NAR) antitrust verdict had a profound effect on how homes are bought, sold, and commissions are paid. The trial, formally known as the Sitzer/Burnett Commission lawsuit, saw the NAR and major real estate companies unsuccessfully defend themselves in an antitrust case. The judge ruled they conspired to drive real estate commissions higher and levied a fine just north of $1.7 billion, which could be tripled under antitrust legislation.
Then, on March 15, the National Association of Realtors agreed to a nationwide settlement of the commission lawsuits for $418 million, rocking the industry and leading to much conversation about how this latest development would affect consumers and brokers.
In addition to the $418 million settlement amount, which will be paid into a court-controlled trust over a four-year period, NAR has also agreed to abolish all rules allowing seller’s agents to set compensation for buyer’s agents. It also agreed to prohibit broker compensation appearing in the MLS fields. The settlement agreement also notes that MLS participants working with buyers must enter into a written buyer broker agreement.
Under the antitrust verdict, the sellers would no longer be required to pay their buyers’ agents, and agents would be free to set their own commission rates, which could be slashed in half or less.
This ruling clears the way for buyers to negotiate this percentage and to decide how they want to use their own agent throughout the sales process.
Livabl spoke to Mike Lyon, president of Do You Convert, for additional insight. Lyon has accumulated a wealth of real world knowledge and firsthand experience in the realm of online marketing and sales for home builders.
What is the Sitzer/Burnett Commission lawsuit?
On Oct. 31, the NAR and several brokerages were ordered to pay damages to home sellers who said they were forced to pay excessive fees to real estate agents.
The NAR, Keller Williams, and HomeServices of America were found to have conspired to fraudulently inflate the commissions given to real estate agents. The trial took place in Kansas City and was an antitrust suit brought by nearly half a million Missouri home sellers. The ruling may significantly change the home-buying process in the United States.
Re/Max and Anywhere Real Estate were also named in the suit, but both chose to settle prior to the trial. Re/Max paid $55 million, and Anywhere Real Estate, whose subsidiaries include Coldwell Banker, Century 21 Real Estate, and Sotheby’s International Realty, paid $83.5 million in damages. On March 22, Compass agreed to pay $57.5 million into the settlement fund, bringing the total to $626.5 million (including the NAR’s settlement from earlier in the month).
A judgment ordering the realtors’ organization and brokerages to pay damages approaching $1.8 billion was issued. The jury’s decision permits the court to award triple damages, which may total more than $5 billion.
This decision may alter the composition of the American real estate market by cutting commissions. A seller must pay commissions to the buyer’s agent under an NAR rule, which sellers alleged compelled them to pay the agents exorbitant rates. The home sellers said the brokerages worked with NAR to implement the “cooperative compensation rule.”
The cooperative compensation rule states that a seller’s agent must make a compensation offer to a buyer’s agent to use prominent residential real estate databases (multiple listings services, or MLSs) owned by local chapters of the association. These services provide critical data to the buyer, such as neighbourhood prices and selling trends.
It was argued that being forced to pay a predetermined rate to access this information by selling agents ultimately drove up costs for buyers. The door is now open to negotiate this rate on a case-by-case basis.
What does a world without a buyer’s agency look like, and who would benefit?
“Buyer representation will be important for many people,” Lyon said. “I think the role of a professional agent is extremely valuable. What is up for debate is how they are compensated for the work. I also believe that increased competition will remove a lot of part-time agents who aren’t fully committed to the industry.”
“Yes, you could remove the buyer’s agency – many buyers already work directly with the seller. In the long run, both the buyer and seller will benefit. If the price of the home can be more attractive, or you can use part of what used to be a commission toward closing costs or pre-paids, then both sides win.”
What’s being said by those involved or close to the case?
Ron Phipps is a real estate agent in Rhode Island and an NAR former president. Phipps appeared on National Public Radio’s All Things Considered on November 5. “On the macro level, the disparity of wealth between homeowners and nonhomeowners is going to grow even more,” Phipps said.
“The fact of the matter is, if a buyer doesn’t have representation in the transaction, their risk is significant. The impact of decoupling the fee means some buyers will be eliminated from the market. A lot of buyers don’t have additional cash. They don’t have the extra money to go ahead and proceed.”
Steve Joyce, the CEO of Re/Max, touched on the company’s settlement during its Q3 earnings call on November 3. “While it came as a significant financial cost, we believe it was absolutely the best decision for all of our stakeholders, affiliates, employees, shareholders, and debt holders alike.”
