The residential real estate world is still spinning a week after the National Association of Realtors (NAR) and two brokerage firms, HomeServices of America and Keller Williams Realty, were held liable for nearly $1.8 billion in damages. What they were charged with was artificially inflating commissions paid to real estate agents. But while the NAR has appealed the decision, industry brokers, real estate experts, and consumer associations say it’s not just the number that the NAR is going to have to pay that should worry the organization and its 1.5 million members.
“Here’s the real problem–a glut of agents,” Steve Brobeck, former president of the Consumer Federation of America and now senior fellow, told The Epoch Times. “This was recognized by the industry in 2015 when they sponsored a report with interviews with agents which criticized the lousy service so many agents give and so many are incompetent. I’ve never criticized the real estate industry as much as that report did. Now, in 2023, we have 1.5 million agents and five million home sales. These agents can’t sustain themselves. The problem is that it’s too easy to get a license.”
Sustaining will be a more significant issue now with commission levels on the table. More than 90 percent of homes in the United States are bought and sold by NAR Realtors. As the nation’s largest trade association, the NAR requires home sellers to offer a non-negotiable commission before listing homes on its Multiple Listing Service (MLS) property database. Commissions are paid by the home seller to their agent as well as the buyer’s agent, around 5–6 percent of the total home sales price. With the NAR losing the class-action lawsuit, agents’ fees would be more negotiable and potentially come down.
“The lawsuit could really tip over the apple cart. The fees are wrapped into the transaction and the agents don’t discuss it enough with their clients. Commissions need to be out in the public and it will now in the future,” said Jim Haisler, chief executive officer of the Heartland Realtor Organization in Illinois. “If we do see a drop off of real estate agents, it will be a result of economics, not the lawsuit. When 75 percent of agents in the country do zero to one transaction a year, they’re not agents; they’re hobbyists,” he said to The Epoch Times.
After the 11-day trial in the case of Burnett v. NAR et al., the eight-person jury in a Kansas City, Mo., federal courtroom found the National Association of Realtors and other corporate defendants liable in the case. The NAR, in turn, has issued a statement, saying, “This matter is not close to being final. We will appeal the liability finding because we stand by the fact that NAR rules serve the best interests of consumers, support market-driven pricing, and advance business competition. We remain optimistic we will ultimately prevail. In the interim, we will ask the court to reduce the damages awarded by the jury.”
Rob Hahn, a managing partner of 7DS Associates, a Las Vegas-based real estate strategy and consulting firm, told The Epoch Times that the initial ruling is just the beginning and that he’s waiting for the upcoming injunction to determine the result fully. But one thing he says you can count on is that the future of the NAR is tenuous at best. “Everyone is gonna be shocked at the speed of how everyone is going to turn against them [NAR]. Brokers, local associations, etc. They’re going to be shocked at the speed at which this happens.” Members of the NAR are the only ones who can call themselves realtors. Mr. Hahn says this ruling could change that aspect of real estate agent identity as well. “What happens if some local association says we don’t need to be realtors anymore? We’re out.”
As a result of the ruling, consumers should soon have more leverage in negotiation fees, but it could be years before all of this is settled. However, according to Mr. Brobeck, homebuyers and sellers should always feel they have the right to negotiate fees. “As a home seller, you should always try and negotiate down the commission. Some agents collect 2.5 percent and some 3 percent. Right now, we’re in a seller’s market and you should be able to negotiate and at least have that conversation. If you’re a buyer—a few are actually asking about rebates, which, though illegal in eight states, is at least worth asking the question.”
Two other firms were initially named in the lawsuit—Re/Max and Anywhere Real Estate (formerly known as Realogy, the parent company of Coldwell Banker, Century 21, Sotheby’s International Realty, and Corcoran). The two were not part of the billion-dollar settlement and settled out of court for a combined $140 million. As a term of the settlement, they each announced a commitment to make changes in their business practices, including ending the requirement that its agents be members of the NAR.
“Re/Max and Anywhere were super smart and they were the big winners here. Right now, Ryan Schneider [Anywhere CEO] and Nick Bailey [Re/Max CEO] look like the executives of the year,” Mr. Hahn said.
