Landmark Verdict: Real Estate Industry Practices Challenged in $1.8 Billion Lawsuit

Kansas City, Missouri – A federal jury has ordered the National Association of Realtors (NAR) and several major real estate brokerages to pay nearly $1.8 billion in damages after finding that they artificially inflated commissions paid to real estate agents. The verdict stems from a class-action lawsuit filed in 2019 on behalf of 500,000 home sellers in Missouri and border towns, alleging the defendants violated federal antitrust law by requiring sellers to pay the broker representing the buyer of their homes.

The NAR, which plans to appeal the verdict, could potentially face over $5 billion in damages if treble damages are awarded. While immediate changes to agent commissions on homes listed on the Multiple Listing Service (MLS) are unlikely, the industry is closely monitoring the court’s next steps.

Under current industry practices, home sellers pay their listing agent, who then splits the commission with the buyer’s agent according to NAR rules. Typically, this results in a 5% to 6% commission split between the two agents. Critics argue that this system artificially inflates the sale price of homes and limits competition.

Stephen Brobeck, a senior fellow at the Consumer Federation of America, explained that if sellers were no longer required to pay buyer agents, it could lead to lower commissions and ultimately save buyers money. However, regulatory barriers currently prevent buyers from financing buyer-agent commissions as part of their mortgages.

In addition to the recent verdict, the NAR and several real estate brokerages are also facing another lawsuit over agent commission rules. Attorneys representing the plaintiffs in these cases claim that the NAR’s rule, which requires sellers to offer to pay the buyer’s agent commission on the MLS, costs Americans roughly $60 billion in extra real estate commissions.

The lawsuits challenge the NAR’s rules that prohibit buyer’s agents from making home purchase offers contingent on reducing their commission. While structural changes resulting from the jury’s verdict may take time to determine, the initial size of the damages alone is expected to bring about significant change in the industry.

This is not the first time the real estate industry has faced scrutiny for its practices. In 2020, the Justice Department filed a complaint against the NAR, alleging that its rules and policies unlawfully restricted competition in residential real estate services. The government later withdrew a proposed settlement agreement, allowing for a broader investigation of the NAR’s conduct.

In conclusion, a federal jury has ordered the NAR and major real estate brokerages to pay almost $1.8 billion in damages for inflating commissions paid to agents. While the industry plans to appeal the verdict, if treble damages are awarded, the total amount could exceed $5 billion. These court challenges are part of an ongoing effort to reshape the real estate industry’s practices and reduce costs for buyers and sellers.