The historic $1.78 billion National Association of Realtors verdict in Kansas City, Missouri, this week could trigger a major disruption in the housing market, but it’s unclear when millions of people will know how the decision will affect residential real estate costs.
The case hinged on the commissions, usually of 6%, that sellers pay their agents, who then split them with the buyers’ agents. It has been a cornerstone of how the NAR — a powerful trade group of 1.5 million members — does business. But after just hours of deliberation, a jury found that this standard industry practice amounts to collusion to inflate real estate fees.
When Jerod Breit, a police officer, was selling his Missouri home a few years ago, he said, it was understandable that he’d need to pay a commission to his broker. But the buyer’s broker, too?
“It’s one of the things the system doesn’t tell you to think about — that’s just how it is,” he said. “It wasn’t until after I sold my house in 2017 that it really made me think about that other 3% I was paying to someone that I had never met, I will never meet and did nothing for me.”
Breit joined the class-action lawsuit led by attorney Michael Ketchmark, who called the traditional commission-sharing between agents who should be competitors an “unconscionable” conspiracy.
“It’s the only system, the only industry, in the United States where two competitors get together, they set the compensation and they split it,” he said, adding, “They’re running it like a cartel.”
“I’m from Kansas City, the home of the Kansas City Chiefs — we love Chiefs football here,” Ketchmark said. “When the Denver Broncos come to town, I don’t pay the coach’s salary. Why should you pay?”
Ketchmark vowed more suits to come, and the NAR still faces other scrutiny from authorities. In June, the Justice Department asked a federal judge’s permission to resume an antitrust probe into the association.
The NAR — whose chief executive, Bob Goldberg, stepped down Thursday — has already promised to appeal Tuesday’s decision. Two brokerages were also found liable alongside the trade group, while several other defendants had already settled the claims.
“NAR rules prioritize consumers, support market-driven pricing and promote business competition,” the group said in a statement Wednesday. “This matter is not close to being final.”
The ongoing legal wrangling leaves consumers in a holding pattern.
A long-held industry standard has been seriously challenged, and the ultimate damages awarded could even be tripled, to over $5 billion, under antitrust law. But for now, the practice remains intact at a time of historically challenging conditions for buyers and sellers alike.
“Nothing changes today,” Bess Freedman, the CEO of the luxury brokerage Brown Harris Stevens, said of the ruling. Her firm, a member of the NAR, wasn’t involved in the litigation — whose outcome she said won’t tackle the real pain point for consumers, which comes from historically pricey mortgages.
Popular 30-year fixed mortgage rates are hovering at decadeslong highs of around 8%, and the supply of homes remains far below normal, not enough to meet demand. A U.S. homebuyer’s dollar now goes about half as far as it did in late 2020.
The legal uncertainty is just another reason homeowners may be inclined to wait to list their homes.
For years, millions of homebuyers locked in rates below 5%, amounting to golden handcuffs that are now keeping many of them in properties they’d otherwise sell. And for new buyers, the low supply of homes for sale is pushing prices too high for their budgets. With Wall Street largely expecting the Federal Reserve to keep interest rates elevated for some time to come, there’s little sign that mortgage rates are falling any time soon.
For homebuyers, paying 6% commissions on what are most likely the largest purchases they’ll ever make is significant.
“I kind of freaked out,” Tali Strom said about realizing the extra fees she’d have to pay for selling her home. Strom, who works at a Jewish American nonprofit group, is in contract to sell her house in Chappaqua, New York, for nearly $1.2 million, with a closing date set for Dec. 7.
She acknowledged she has a great relationship with her broker and said she was happy with the services she’d received.
“I want to give her every dollar,” Strom said, but she voiced frustration that her agent would have to hand chunks of it over to her brokerage and, subsequently, to the buyer’s agent. “I am critical over the fees I pay her company. I don’t feel the amount of time and energy the company put in was worth that.”
A generation ago, the buyer’s agent had all the information — comparable neighborhood sales prices, tax histories, school district placement and particulars of the home — and was supposed to act as a comprehensive counselor.
Strom said she was familiar with that model firsthand. “My mom was a Realtor growing up. She would get a phone call, the Realtor would do that work,” she said.
But she pointed out it’s so much easier now for house hunters to scroll listings online and go through the buying process largely by themselves.
“It’s a text message now,” she said. “The technology has changed.”
