Powerful Realtor Group Agrees to Slash Commissions to Settle Lawsuits

On March 15, 2024, a landmark settlement agreement in a real estate lawsuit was reached by the National Association of Realtors (NAR) worth $418 million. It is being termed a 'landmark' as it is expected that the housing costs in the country will witness a significant drop. The approved copy of the settlement lawsuit by the legal counsel of NAR was circulated to the media after it was signed on Friday morning.

The realtor class action lawsuit had accused the NAR of inflating commission rates. Thus, besides the phenomenal Real Estate Commission lawsuit settlement amount, the agreement is a significant step in the industry market dynamics because it can democratize the buying and selling processes of homes in the US. This follows the real estate trade group's agreement to eliminate the 6% sales commission, which is considered a bedrock in the industry.

A Brief About NAR's Role in the Real Estate Industry

The NAR has allegedly established unfair policies and rules for decades. Since its inception, the National Association of Realtors has become influential. It has been responsible for creating guidelines for selling homes in the country. 

One such guideline was the non-negotiable commission payable to the buyer's agents. There have been allegations that the Association's commission structures were unethical and not transparent. Due to these commission guidelines, house sales commissions were high, discouraging fair competition among real estate agents. The practice removed any scope for the buyer's agent to negotiate on behalf of their clients for a lower commission. 

There has been widespread criticism of these practices, contending that they were against antitrust laws. The practices invariably increased the selling costs for sellers, the brunt of most of which had to be borne by buyers as it would be a part of the purchase price.

What's Next?

• Though NAR's legal counsel has agreed to and approved the settlement lawsuit, it must be filed within the next few weeks and approved by a federal court.

• Once the court agrees, it would close hundreds of real estate lawsuits filed by home sellers against realtors accusing them of charging excessive fees to sell their homes.

• The NAR will pay $418 million in damages and amend its rules.

• One such rule that is expected to be redrafted is one that will offer sellers more scope to negotiate commission rates with the buyer's agent. This, in turn, is expected to create a fair ground for all players and reduce overall costs.

• More transparency is expected when deciding commission rates. Agents must divulge the commission rates at the onset so sellers can compare rates and make informed decisions when selecting an agent.

Statement from the National Association of Realtors

Nykia Wright, NAR's interim Chief Executive, mentioned in a March 15, 2024 statement that "It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals."

A Brief Preview of The Stage that Set the Ball Rolling for This Historic Agreement in the Realtor Class Action Lawsuit

In October 2023, a jury at the Kansas City courtroom found Keller Williams guilty of conspiring over commission rates with HomeServices of America in a lawsuit against realtors. The famous Sitzer/Burnett trial witnessed two weeks of testimony pointing out NAR's flawed Clear Cooperation Policy. Consequently, the jury advocated a payment of $1.78 billion as damages. 

Following the jury's verdict, the National Association of Realtors picked up momentum and reiterated that it would appeal. For a couple of months, the trade group was adamant about appealing. The former president of NAR, Tracy Kasper, said, "We're not done" during the annual conference. As per her, it was far from over.

However, there was a U-turn at the beginning of March, and the Association returned with a proposed settlement amount for the Realtors Association lawsuits. The National Association of Realtors has now agreed to pay a total sum of $418 million spread across the next four years and make changes to the commission-sharing rule.

Industry Reactions and Future Projections

NAR's proposed settlement of lawsuits against realtors has created a buzz in the industry. Insiders have hailed the decision, seeing it as the beginning of a transparent real estate market in the country. However, quite a few have expressed concerns about how the decision to change the commission structure will result in less earnings for real estate agents, especially those who are completely dependent on commissions as their income.

As NAR revises its rules, the industry is expected to take some time to adapt to the new rules. More innovative services and solutions are expected as agents and brokers develop newer strategies and models to create trust. The shift to service quality and value-added services might happen sooner than expected, eventually forming a consumer-friendly real estate marketplace that will benefit both sellers and buyers.

There is a flip side to the narrative, too. Some believe that reduced commissions can mean reduced service quality. They also believe that larger firms will gain as they have the resources to adapt to the changes faster, while smaller firms and independent agents might lose out.

Consumers are expected to have better negotiation opportunities and can shop around for agents. However, these changes will take some time to settle down, but overall, experts believe that the market will become more competitive and result in lowering home buying and selling costs. Of course, all players in the industry, including agents, brokers, buyers, and sellers, need to come together to navigate the potential challenges and create a win-win situation for all.