Introduction
In a groundbreaking turn of events, two class action lawsuits have been filed against the National Association of Realtors (NAR) and four major real estate broker franchisors. The lawsuits allege a conspiracy involving commission-sharing practices that result in sellers paying commissions to both the selling and buying brokers. The implications of these lawsuits are far-reaching, potentially leading to lower commission rates and more affordable homes for buyers.
Unveiling the Alleged Conspiracy
The lawsuits claim that the NAR and the four real estate brokerage firms conspired to inflate the buyer's broker commission rates, violating federal and state antitrust laws. The alleged conspiracy centers around an NAR rule that requires selling brokers to offer a non-negotiable buyer broker commission rate when listing a property on a Multiple Listing Service (MLS). This rule ties access to the MLS, thereby stifling competition and artificially inflating commission rates.
The current commission model burdens home sellers with a cost that should ideally be borne by the home buyer in a competitive market. If the NAR rule is untied from MLS access, it would pave the way for a market where home buyers can directly negotiate commission rates. This, in turn, would exert downward pressure on commission rates and potentially lead to savings for sellers.
Antitrust Claims and the Power Dynamic
The two class action lawsuits, Sitzer/Burnett et al. v. NAR et al. and Moehrl et al. v. NAR et al., allege that NAR and the major brokerage firms conspired to require sellers to pay inflated commissions to the buying broker. This arrangement, if proven true, would violate federal antitrust laws. NAR's rule, known as the Buyer Broker Commission Rule, requires selling brokers to offer commission rates upfront without considering the complexities of the deal or the buyer's agent's involvement.
The relationship between NAR and the brokerage firms allows them to impose an unfair charge on home sellers and restrict competition by disallowing lower-priced alternatives. This power dynamic, combined with their control over MLS, gives NAR and the brokerage firms market power over local real estate broker services.
Effects of Stifling Competition
The alleged conspiracy not only artificially inflates commission rates but also creates a situation where buying brokers are incentivized to steer home buyers towards homes with higher commission rates. This two-fold effect perpetuates the cycle of inflated rates and limits competition.
The lack of transparency between buying agents and home buyers exacerbates this problem. Only brokers using MLS can see the commission rate offered to the buying broker, while the home buyer remains unaware of this information. Consequently, buying brokers can steer buyers towards higher commission homes and away from lower commission ones, further reinforcing the inflated rates that have persisted for decades.
Opening the Market to Competition
A study conducted by Delcoure and Miller analyzed residential commission rates across several countries and found that the average rate in the United States is significantly higher than in other nations. The United Kingdom, for example, has a commission rate of 1-2 percent. Based on their findings, the competitive commission rate for residential brokers in the United States should be closer to 3 percent.
If a competitive market for commission rates were to be established, the potential savings for sellers in terms of reduced commission fees would be significant. In fact, it is estimated that a commission fee of 3 percent, as opposed to the current 5-6 percent, could have saved sellers approximately $72 billion in 2022.
Advancements in technology and innovative platforms such as Zillow and Redfin have already disrupted the traditional role of buying agents. However, the current commission model inhibits the full potential of these market forces to drive down prices. Untethering commission rates from home prices and allowing buyers to negotiate directly with their agents could introduce new payment structures and ultimately lead to more affordable homes.
Conclusion: A Turning Point for Real Estate Commissions
The allegations of anticompetitive behavior by NAR and the four real estate brokerage firms highlight the excessive commission rates home sellers have been burdened with. If these lawsuits result in a win, it could herald a new era in real estate commissions. Buyers may be required to pay their own broker, and alternative payment structures could emerge, such as flat fees or hourly rates.
With the Department of Justice closely examining the situation, the outcome of these lawsuits could shape the future of real estate transactions. Lower commission rates would not only benefit sellers but also potentially lead to more affordable homes for buyers. So, let's keep an eye on this pivotal moment in the real estate industry and see how it unfolds.
Author's Note: This article is an adaptation of the original content but has been enriched with additional insights and a fresh perspective while retaining the core message.