Not long ago, acquiring basic necessities or services was a task that involved substantial human interaction and the use of tangible items like paper. To book a flight, one would typically engage the services of a travel agent. Stock purchases were often made through a phone call to a broker. Contrastingly, the process of purchasing a home has remained largely untouched by the innovative disruptions of technology, maintaining a status quo that is both archaic and costly.
Recently, a Missouri court delivered a judgment that could signal the beginning of significant changes in the real estate industry. Anna Bahney, a fellow journalist, reports on the case where the National Association of Realtors (NAR), along with Homeservices of America and Keller Williams Realty, faced a hefty penalty. They were mandated to compensate a collective of half a million home sellers with $1.8 billion. The sellers had accused these entities of colluding to maintain elevated commission rates.
Following the court’s decision, Bob Goldberg, the CEO of NAR, announced his resignation. The core of the dispute centered around an NAR policy that mandates sellers to consent to compensate both the buyer’s and seller’s agents through a commission. This agreement is a prerequisite for listing a property on the Multiple Listing Service (MLS), which is crucial for ensuring a property’s visibility to potential buyers.
Traditionally, a home seller agrees with their broker on a commission rate, typically between 5% to 6% of the home’s selling price, which is then divided between the seller’s and buyer’s agents. The plaintiffs contended that in a market driven by competition, buyers should independently bear the cost of their agent’s commission and negotiate this fee on their own.
The defense maintained that commission rates are subject to negotiation and that the current system alleviates financial burdens from buyers who are already facing significant expenses. Despite this, the verdict was met with applause from consumer advocates, who argue that the industry’s standardization of commission rates has discouraged negotiation.
The Influence of the National Association of Realtors
The NAR’s influence in the real estate sector is formidable. The organization has trademarked the term “Realtor,” distinguishing its members from other real estate agents. With a membership of approximately 1.5 million, it stands as the largest trade association in the United States. This influence is reflected in the commission rates, which are notably higher in the U.S. compared to countries like the UK and Australia.
For those looking to sell their homes, the traditional commission rates remain the norm for now. However, the Missouri case is part of a broader challenge against the NAR’s commission rules. Other legal actions are underway, and the Department of Justice is examining the system for potential antitrust violations. The consequences of these investigations and legal challenges could be profound, potentially leading to a prohibition of commission-sharing agreements.
A change in the commission structure could also have the effect of cooling down home prices, as these fees are often integrated into the listing prices. In response to the Missouri ruling, the NAR has expressed its intention to appeal, indicating that the battle over real estate commissions is far from over.
