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Realtors, residential brokerages found guilty in commission scheme

National Association of Realtors | Wikimedia Commons

The National Association of Realtors was ordered to pay $1.8 billion to over 260,000 home sellers in Missouri, Kansas and Illinois on Oct. 31 for exaggerating commissions on sales spanning from April 2015 to June 2022.

The “cooperative compensation” rule served as the focal point of the case, where a home seller is obligated to pay a commission to the agent working on behalf of the buyer. The rule is enforced by the NAR, leaving consumers to wonder how agent fees get calculated.

Nonetheless, sellers claimed that these fees were excessive. The jury agreed.

The decision, handed by a Missouri jury, ended a two-week trial in which the plaintiffs’ legal team argued that the NAR and other residential brokerages placed artificially high broker commissions for home sales, despite Americans increasingly utilizing online sources to sell their homes independently.

This newfound independence, coupled with a decades-old tactic used by realtors to raise home prices for prospective buyers while taking larger cuts of the sale from the seller, has drawn families away from relying upon brokers, raising concerns about why broker commissions exist anymore.

In 2022, the average real estate agent commission in the United States ranged from 5%-6%, with half of the percentage allocated towards brokers. These percentages, as well as the decades-high mortgage rates topping 7% across the country, have made home sales an increasingly difficult endeavor for buyers and sellers alike.

Michael Ketchmark, head attorney for the plaintiffs, commented after the decision that real estate has finally seen its day of accountability.

In addition to accountability, plaintiffs may see their compensation triple if Ketchmark’s new class-action lawsuit finds that real estate companies violated U.S. antitrust laws by conspiring to keep commission rates unnecessarily high.

These companies include the likes of Douglas Elliman, Compass and Redfin. Redfin CEO Glenn Kelman called the subsequent lawsuit a “copycat lawsuit.”

What home sellers and other consumers may not expect, however, is the end of buyer commissions as they know it. 

Jaret Seiberg, a housing policy analyst at TD Cowen, says that the judge presiding over the case may only make minor adjustments to the existing commission process, which would allow real estate companies and brokers to continue imposing similar rates to those seen previously. These rates, despite the inconvenience for consumers, boost interest in properties, says Seiberg.

While Ketchmark and Co. are still on the offensive, the NAR denies any wrongdoing and claims that the initial lawsuit is far from over. 

“This matter is not close to being final,” NAR President Tracy Kasper said. “We will appeal the liability finding, because we… serve the best interests of the consumers, support market-driven pricing and advance business competition. We remain optimistic we will ultimately prevail.” 

Co-defendants include Warren Buffett’s Berkshire Hathaway and Berkshire-owned HomeServices of America, the latter of which planned to appeal as well.

Regardless of the outcome, it is expected that the loser of the appeal — which may take up to three years to conclude — will try its luck in the U.S. Supreme Court.

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