Are Big Changes Coming to the Way Americans Buy Homes?
In a recent verdict, a federal jury in Kansas City, Missouri, found that the National Association of Realtors (NAR) and others conspired to inflate agent commissions. This unanimous ruling has significant implications for the real estate industry and how it affects everyday consumers. At the heart of the Burnett v. NAR case is the allegation that a mandatory rule, where sellers must pay a non-negotiable commission to both the listing and buyer agents for their home to be listed, is viewed as collusion and violation of antitrust laws. This practice has been criticized for inflating the seller’s cost, and some argue that buyers should pay their own commissions.
Impact on Consumers and Real Estate
The jury’s decision in favor of the plaintiffs may have a significant outcome for consumers in the real estate market. The verdict awarded $1.8 billion in damages to about 500,000 home sellers in Missouri. This could lead to changes in how listing and buyer agent commissions work.
For consumers, they may potentially pay less in commissions. The current 5-6 percent commission rate on home prices could potentially decrease to 3-4 percent, which would align with commission practices in other countries like the United Kingdom, Singapore, the Netherlands, Australia, and Belgium, where commissions average 1-3 percent. This change could result in substantial savings of up to $30 billion a year.
Furthermore, a study by Keefe, Bruyette & Woods suggests that the real estate industry might see a shift. Potentially, one million or more real estate agents may no longer be needed as consumers, especially buyers, seek alternative services. Agents specializing in listing and selling homes might be more resilient, while buyer agents may face more challenges.
Americans collectively could save $30 billion a year if the current commission practice is changed due to the lawsuits.
What’s Next?
NAR and the other defendants plan to appeal the ruling and seek lower damages. The appeals process may take years, and they may also consider settling out of court. Meanwhile, the larger Moehrl v. NAR lawsuit, which was granted class action status in March 2023, is scheduled to go to trial in Illinois next year, making similar allegations to Burnett v. NAR. The larger case is seeking around $40 billion in damages.
The Department of Justice (DOJ) is closely watching real estate commission practices and may even bring its own antitrust lawsuit. They are likely to support any injunction issued by the judge in the Burnett v NAR case. Any injunction to stop the current real estate commission rule, could make buying and selling homes more affordable for everyone sooner than later.
This case is the first major challenge to the NAR and real estate brokerage industry, putting them under intense scrutiny to reform. As the case continues to unfold, it’s essential for both buyers and sellers to stay informed about these changes in the real estate industry. The landscape is evolving, and these legal battles could ultimately lead to a fairer and more transparent market for all parties involved. We’ll keep you updated as the story unfolds.
