On October 31, 2023, a Missouri jury handed down a nearly $1.8 million verdict against the National Association of Realtors (“NAR”), Homeservices of America, and Keller Williams Realty. Initially, Re/Max and Anywhere Real Estate were also named in the lawsuit that resulted in the verdict rocking the real estate industry. However, they settled prior to the case going to trial.

The Plaintiffs, 500,000 home sellers in Missouri and some bordering towns, alleged that NAR and select brokerage firms conspired to keep broker commissions artificially high through NAR policies. NAR is the largest professional trade organization in America and a significant lobbying group for the real estate industry. At the center of the case was NAR’s “Mandatory Offer Compensation Rule.” The rule required sellers of residential real estate who wished to list homes on the Multiple Listing Service, where the majority of homes are listed for sale, to offer compensation to the buyer’s agent. Further, NAR’s rules also prohibit a buyer’s agent from making a home purchase offer contingent on the reduction of their commission. On average, real estate commissions typically total about 6% of the sale price split between the buyer’s broker and the seller’s broker. Customarily, the seller would pay both the buyer’s and seller’s broker commission. However, what most consumers thought was simply an industry custom through NAR’s “Mandatory Offer Compensation Rule,” became a requirement to utilize an MLS.

An MLS is a database that shows real estate listings for sale in a particular region. It shows information such as address, price, square footage, and the number of bedrooms and bathrooms. MLSs are run by cooperative associations of real estate brokers and agents who agree to share information about their listings. MLSs are not open to the public and only real estate agents and brokers who are members of the MLS cooperative association can access the database. Both buyers and sellers rely on MLSs to list and search for homes and ensure accurate and up-to-date information.

Plaintiffs argued that the conduct of NAR and the brokerage firms effectively keeps commissions for a homebuyer’s agent artificially high. Moreover, it also disincentives real estate brokers from finding the best price for buyers and instead incentives brokers to keep sale prices high. However, NAR argues that the practice of listing brokers making offers of compensation to buyer brokers is best for consumers. In any event, the jury sided with the Plaintiffs in finding that the defendants conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.

NAR has vowed to appeal the decision and it is likely that a final resolution is years away. However, it appears that this is just the beginning of the litigation surrounding this issue. Since the October 31, 2023 decision, the same lawyers representing the Plaintiffs filed a new class-action lawsuit in the U.S. District Court for the Western District of Missouri that seeks class-action status covering anyone in the U.S. who sold a home in the last five years. In the new lawsuit NAR is named along with seven brokerage firms including Redfin Corp. and Howard Hanna. Another lawsuit was filed against the Real Estate Board of New York (REBNY) and more than two dozen brokerages and companies of conspiring to artificially inflate commissions paid to agents who help sell residential real estate in Manhattan.

Real estate broker commissions are not yet a thing of the past, but industry changes are likely coming as a result of this litigation. It is likely more cases will be popping up that challenge industry rules in the context of anti-trust regulations. Additionally, as technology changes, home buyers have greater access to available properties and home sellers have a greater ability to advertise their listings outside of an MLS. As home prices rise, we are seeing an uptick in the number of residential sales that do not involve a broker. Many home buyers are looking to purchase homes that have not yet hit the market from connections in their own circle to avoid the ultra-competitive market. I personally handled more residential transactions this year than ever before between buyers and sellers that decided to forgo the traditional real estate market and opt for a friendlier transaction.

The experienced lawyers of the Mansour Gavin real estate practice group are here to help meet your needs. Should you have any questions or would like further clarification on this or other real estate matters, reach out to Mansour Gavin’s Real Estate Group.