This piece originally appeared in the April 2024 edition of MortgagePoint magazine, online now.
After battles in federal district courts across the country, the National Association of Realtors (NAR) entered into a settlement with homebuyers and sellers who challenged the NAR’s “anticompetitive” buyer broker commission fee rule. The NAR’s rules control multiple listing sites (MLSs), which are local/regional databases of for-sale properties that feed into sites like Zillow. The challenged rule created a standard buyer’s broker commission fee of 5-6% as part of sellers’ property listings, and buyer brokers would steer buyers away from listings that offered a commission fee lower than the customary rate.
The U.S. Department of Justice, Antitrust Division estimated that the inflated broker commission fee cost home sellers and buyers $100 billion annually.
The National Association of Realtors faced numerous federal court lawsuits alleging violation of Section 1 of the Sherman Anti-Trust Act, which prohibits any agreement among competitors that unreasonably limits competition. The lawsuits claimed that by participating in MLSs that implement the customary buyer broker commission fee, realty companies are conspiring in restraint of trade. Companies such as Realogy, HomeServices, RE/MAX, and Keller Williams were all implicated in this conspiracy in restraint of trade by way of the rules governing centralized property listing databases.
In Nosalek v. MLS Prop. Info. Network, Inc., the Department of Justice Antitrust Division filed a Statement of Interest opposing a proposed settlement agreement that would drop the minimum allowable buyer broker commission fee.
The DOJ found the change to be merely cosmetic as sellers have always been permitted to list a lower buyer broker commission fee than the customary 5-6%, but buyer brokers are permitted to steer buyers away from any listing that offers less than the customary rate.
The challenged settlement agreement proposed a $3 million settlement fund, none of which was specifically allocated to injured class members, and fully and forever waived all claims.
By contrast, the jury in a similar case awarded damages of $1.785 billion to a class of home sellers in Missouri against the National Association of Realtors.
The DOJ felt the challenged settlement was “not fair, reasonable, or adequate, because it provides no meaningful benefit to class members. It makes insignificant and largely cosmetic changes to the Rule, while perpetuating the existing structure that drives supra-competitive commissions. There is no reason to believe that the settlement will reduce broker commissions for the class.”
The DOJ posited the superior alternative was to prohibit buyer broker compensation offers from MLS participants. Instead, buyers and sellers would negotiate the commission percentage directly with their brokers as part of their representation contract. The DOJ’s desired result in Nosalek was realized when NAR announced a new settlement on March 15, 2024. The settlement paid out $418 million in damages and eliminated the buyer broker commission rule. The settlement also set forth a new rule requiring buyer brokers to enter into written agreements with their buyers.
While the paradigm shift will benefit buyers’ and sellers’ bottom lines, the industry repercussions could be less desirable. The new rule may cause an exodus of buyer brokers from the industry, and the resultant scarcity in buyer brokers could turn into a freeze on the real estate market altogether, which benefits no one. Further, the real estate brokerages that opt into NAR’s settlement could be wiped out by the cost of the settlement.
The real estate landscape will shift in the wake of the NAR settlement, and while some changes will benefit industry participants, there are currently plenty of unknown consequences which introduce chaos and uncertainty into the real estate industry.
