Overhaul Looms for Home Sellers’ Agent Commissions
The established tradition of home sellers covering commissions for buyers’ real estate agents is facing potential upheaval following a recent multibillion-dollar class-action verdict in Missouri. Alleging antitrust violations, the National Association of Realtors (NAR) and major brokerage firms confront a wave of lawsuits, signaling a potential transformation in a system criticized for maintaining broker commission rates between 5% and 6% of a home’s sale price.
Legal actions have prompted modifications to seller-agent agreements, potentially challenging NAR’s enduring dominance over the real estate market. A unanimous jury ruling in Missouri held NAR and co-defendants liable for $1.79 billion in damages, a figure that could rise to $5 billion with the possibility of triple damages.
Despite NAR’s intent to appeal, a series of similar class-action suits have emerged across different states, adding to the ongoing legal saga. At the core of these lawsuits are contentions that NAR’s regulations compelled sellers to pay commissions to buyers’ agents, purportedly inflating home prices and disadvantaging sellers.
The Missouri case highlights the impact these legal battles have had on the real estate landscape. Ahead of the trial, NAR revised its participation agreement, eliminating the rule requiring seller brokers to share commissions. While this revision might forestall future antitrust lawsuits arising from the new agreement, it may not halt efforts to reclaim previously paid broker fees.
Local real estate associations are also responding to these legal developments. For instance, the Real Estate Board of New York (REBNY) announced changes effective next year, preventing seller’s agents from directly compensating a buyer’s agent. Instead, any compensation must be negotiated and paid directly by the seller. Similar revisions in California’s Realtors association aim to redefine how buyer’s agents are compensated, reflecting the industry’s evolution.
These legal actions are anticipated to enhance transparency in commission rate negotiations between sellers and listing agents, transforming how these rates are incorporated into listing agreements. The implications could extend to the potential prohibition of NAR’s fee-sharing arrangements, although the timeline for such changes remains uncertain amidst potential appeals and legal complexities.
While theoretically reducing home prices, the impact of these changes on the housing market may be nuanced, given the current housing shortage. Factors like increased mortgage rates have failed to stifle soaring home values. The affordability challenge might prompt lenders to consider financing real estate commissions within borrowers’ mortgages, potentially inflating overall purchase costs and leading to fewer home transactions in the United States.