National Association of Realtors’ Decision to Settle may change the Real Estate Industry Forever

National Association of Realtors’ Decision to Settle may change the Real Estate Industry Forever

In a landmark move, on March 15, 2024, the National Association of Realtors (NAR) has opted to settle their antitrust lawsuit filed by the homebuyers. NAR has agreed to pay $418 million in damages and eliminate rules on commissions in lieu of the settlement. The original lawsuit was filed by a group of Missouri home sellers in April 2019 in which they were awarded $1.8 billion in October 2023.[1] The Missouri home sellers alleged NAR of keeping the commissions inflated through unethical practices by taking advantage of Multiple Listing Service (MLS) cooperative compensation model rule (MLS Model Rule).[2]

An MLS is a database of properties listed for sale within a defined geographic region accessible to real estate brokers, their realtors, and agents. In a standard real estate transaction, the home seller retains a seller-broker and a home buyer separately retains a buyer-broker. Both brokers utilize a regional MLS listing to sell or locate a given property for their client. Generally, real estate brokers receive compensation in the form of a commission calculated as a percentage of a home’s sale price. A seller-broker’s compensation is set forth in a listing agreement, a contract between the home seller and broker containing the terms of the listing. A home buyer enters a similar contract with a buyer-broker, which typically states the buyer-broker’s compensation will be paid out of the seller-broker’s total commission.

As the direct result of the Burnett v. Nat’l Ass’n of Realtors [75 F.4th 975 (8th Cir. 2023)], the Realtors are forced to amend their practices and move the commission deciding process off the MLS. This step would bring about an enormous change in the homebuying market as the buyers and sellers will be able to deal with their own agents and negotiate the, now fixed 5%-6% commission to probably 1%-2%.

As the home buyers and sellers see it as a positive step forward since now it will decrease the burden on buyers of paying huge commissions and might as well increase their budgets, the sellers will also be benefitted as previously a large amount of their earnings were going to the property agents.

While there might be a boom in buying and selling of properties, there might also be instances of real estate agents leaving the profession as now they will not be compensated as handsomely as they had been until now. The two settlements will also have an effect on the overall real estate business, forcing big real estate firms to change their practices and introduce new internal regulations to bring more transparency into the dealings.

[1] Jury Verdict, Sitzer v. National Association of Realtors, 4:19-cv-00332, (W.D. Mo.) DKT. 1294 (settlement of $1,785,310,872)

[2] Second Amended Complaint, Sitzer v. National Association of Realtors, 4:19-cv-00332, (W.D. Mo. Jun 30, 2021) DKT 477