Real Estate Commission Shake-Up After $1.8 Billion Verdict
A federal jury ruling just changed the game for real estate brokers and the commissions they are permitted to collect. In Sitzer v. the National Association of Realtors, the defendants (which included the National Association of Realtors (“N.A.R.”), Keller Williams, and HomeServices of America) were found guilty of conspiring to artificially inflate real estate broker commission rates. The verdict, which was issued on October 31, 2023, provided the defendants be ordered to pay $1.78 billion in damages (while other realtor groups and brokerages settled out of court for amounts ranging from $55 million to $83.5 million in damages). The defendants’ damages have the potential to increase to more than $5 billion if the court elects to grant treble damages.
What exactly are these realtor groups and brokerages guilty of? In exchange for annual membership fees, realtors rely on access to N.A.R.’s “Multiple Listing Services” (also known as the MLS) to list their properties for sale, while buyers’ agents use the MLS to find properties for potential buyers. Following a closing, the buyer’s agent receives a commission for their work (however, the seller is typically responsible for paying commissions to both agents involved in the sale). These commissions traditionally equal 5-6% of the total purchase price. The plaintiffs alleged that, as a condition of having sellers’ properties listed on the MLS, sellers are required to pay substantial commissions. The plaintiffs argued that this system reduces competition, therefore ensuring that realtors continue to receive bulkier commissions with little input from those paying the commissions.
The impact of the N.A.R. lawsuit has the potential to reshape the brokerage market, and thereby by extension, the real estate market. By placing the power into the hands of those paying the commissions, it is possible that the current commission-sharing model could be altered, and perhaps even end, indefinitely.
Similar suits have already been commenced in other federal courts, including a complaint filed against The Real Estate Board of New York (also known as REBNY) in the United States District Court, Southern District of New York. REBNY has pledged to staunchly defend itself in the suit. Nevertheless, the industry’s focus remains on the N.A.R. as it intends to appeal the decision.
We will publish further blog posts on this topic as events unfold.
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