The drawn-out legal battle over the high commissions that realtors have charged for their work in closing sales finally came to a head on March 15, as the National Association of Realtors (NAR) reached a $418 million settlement with sellers.
The association will pay the amount due over four years. Terms of the settlement also include abolishing the practice, which has been common going all the way back to the 1940s, of charging 5–6 percent commissions.
“The NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible,” interim CEO Nykia Wright said in a statement on Friday.
The original lawsuit targeted NAR practices in the Missouri cities of St. Louis, Kansas City, Columbia, and Springfield, and named Keller Williams Realty and HomeServices of America, in addition to the NAR.
Disputed Claims
The NAR has been the target of fierce criticism in Sizter/Burnett v. NAR Commission litigation. Plaintiffs believe that the association and a number of brokerages had colluded to inflate real estate brokers’ commissions far beyond what was fair. They charged the brokers with shameless price-gouging while taking advantage of a relative lack of sophistication about real estate market dynamics on the part of some of their clients.
While some welcomed Friday’s news and took the settlement to be a rebuke to long-running price inflation on the part of brokers, the NAR in its Friday statement went to some lengths to paint Friday’s development not as a defeat, but as a victory for the association and its members.
It announced that it had come to an agreement that would settle claims against the organization and more than one million of its members. The association also emphasized that the NAR has never admitted wrongdoing and that court approval of the settlement is still pending.
At the heart of the litigation is the use of the Multiple Listing Service (MLS) database, which has required agents listing properties for sale to split their fees with buyers’ agents. No agent wants to take on a prospective sale, and all the work that it involves, with the prospect of making a tiny fee. From the agents’ point of view, splitting their fee and then giving half of what they take from a deal to their brokerage would make it all but pointless to enter into a deal if they do not require a high commission from the seller. Hence, the longstanding practice of closing fees in the range of 5–6 percent.
The plaintiffs have been furious at what they see a pattern of long-running deception whereby brokers told clients that a 5–6 percent commission was an industry standard, and that anyone who did not accept such valuations uncritically lacked a basic understanding of how the market works.
At the same time, many brokers insist that the nature of their work places demands on them that people who do not work in real estate may not grasp. They have to be on call for their clients day and night, have to spot new listings as soon as they pop up online, have to take lengthy road trips on a regular basis to conduct showings, oversee inspections, and receive or hand over keys, and have to act as intermediaries among buyers, sellers, inspectors, appraisers, insurers, renters and prospective renters.
In the view of Cara Ameer, a broker at Coldwell Banker in Ponte Vedra, Florida, there is no other vocation that places quite the same demands on professionals or require them to wear the same number of hats at the same time. Hence it is only right and fair that they receive a commission fully commensurate with their investments of time and effort.
The Epoch Times has reached out to the NAR for comment.
