The $1.8 billion 'conspiracy' verdict that rocked the real-estate industry has turned into a groundbreaking $418 million settlement
Americans pay roughly $100 billion in real estate commissions each year, but that burden is about to be lightened considerably. The National Association of Realtors, one of the country’s largest industry associations, reached a settlement Friday morning over an alleged “conspiracy” to inflate realtors’ commissions. The settlement could slash real estate agents’ commissions by up to 30% over time and reduce the total number of real estate agents considerably, according to some industry analysts.
NAR, which boasts 1.5 million members, has agreed to pay $418 million in damages to settle a wide range of lawsuits in courts across the nation, including the shocking $1.8 billion verdict awarded by a Missouri jury last October, which found that NAR and two other real-estate brokerages were conspiring to inflate home-sales commissions. That verdict gave rise to a dozen other antitrust lawsuits against NAR.
The suits have alleged that the organization inflated commissions by forcing sellers’ agents to make an upfront payment offer to buyers’ agents, and implementing rules that led to standard commissions across the industry.
As a part of Friday’s settlement, NAR said it will eliminate key commission rules, prohibit offers of broker compensation on the Multiple Listing Service (MLS), the private database where real estate professionals list homes, and require MLS participants working with buyers to enter into written contracts. The changes will go into effect mid-July 2024, pending court approval, and will fix what many consumer advocates have long argued is a major problem for the real estate industry.
For decades, it’s been standard practice for real estate sellers to set buyers’ agents fees—sellers typically give their own agent a commission of about 6%; if the buyer of the property has an agent, the two agents split the commission. But economists note that this prevents buyers from negotiating and shopping around for lower-cost agents, which keeps commissions elevated and reduces the incentive for buyers’ agents to negotiate lower prices for their clients.
This arrangement is one of several costly features of U.S. real-estate sales that Richmond Federal Reserve Bank economists Borys Grochulski and Zhu Wang described as “puzzling” and an “anomaly” in a recent paper. The pair put forward a potential “a la carte” model for real estate commissions that could hand roughly $30 billion back to Americans each year. Now, at least part of their suggestion is likely to become reality.
NAR’s Interim CEO, Nykia Wright, said that the decision to settle and pay damages in regards to these lawsuits came down to avoiding further damage to realtors’ businesses. “Ultimately, continuing to litigate would have hurt members and their small businesses,” she said in a statement. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”
NAR highlighted a few wins from the settlement, including the release of most of its members from liability “in these matters,” and the fact that the old “cooperative compensation” model for real estate agents still remains a choice for consumers, although it’s no longer mandatory. NAR also said that it “continues to deny any wrongdoing” in connection with its MLS “cooperative compensation model.”
The organization’s president, Kevin Sears, followed up those comments by admitting that “the settlement comes at a significant cost,” but he noted he believes the benefits are worth it.
“This will be a time of adjustment, but the fundamentals will remain: buyers and sellers will continue to have many choices when deciding to buy or sell a home, and NAR members will continue to use their skill, care, and diligence to protect the interests of their clients,” he said.
NAR representatives did not immediately respond to Fortune’s calls to request comment.
