A series of antitrust lawsuits have taken aim at the National Association of Realtors (NAR), along with leading U.S. real estate brokerages, alleging that they’ve engaged in illegal collusion to artificially inflate agent commissions.
In the most high-profile case, NAR was ordered to pay $1.8 billion in damages in late October. Although the defendants are appealing the verdict, it seems likely that some major changes are coming to the way real estate agents are paid.
This would come as a relief to most Americans. According to a 2023 study, the top regret for recent home sellers was that real estate commissions are too high. This antipathy toward the present commission system runs deep. Another survey found that 31% of sellers would take a less-than-market-rate offer — just to avoid paying commission.
Still, few Americans understand the ins and outs of how commissions work, and even fewer understand the full scope of the antitrust proceedings against NAR and the commission system it enforces.
Understanding the Antitrust Allegations Against NAR
At the heart of the main lawsuit was an NAR rule called the participation rule, or the buyer-broker commission rule. This rule requires home sellers listing their home on the MLS (the main directory for home listings) to pay the buyer’s agent’s commission, in addition to the commission for their own listing agent. Also at issue is a rule forbidding buyer’s agents from negotiating deals that lower their own commission.
The rule intends to offer a financial incentive to buyer’s agents to bring their clients to the listing. Since the home sale more immediately benefits the seller, the logic goes, the seller should be the one to pay the buyer’s agent commission. However, some considered the rule fundamentally anticompetitive, since it essentially compelled sellers to pay the buyer’s agent to get their listing onto the MLS.
The plaintiffs’ attorneys argued that, in the absence of these rules, buyers would pay their own agent. In theory, this would lead to lower buyer’s agent commission, since these buyer agents would compete to represent buyers. The jury agreed, deliberating for less than three hours before returning a verdict against NAR.
Other Influential NAR Cases
Immediately after the Oct. 31 verdict, the same lawyers filed another class-action suit in Missouri, this time on behalf of any U.S. citizen who sold a home in the past five years. The suit was filed against NAR, as well as seven brokerages including Compass and Redfin. Similar to the last suit, this one claims that the rule requiring sellers to pay the buyer’s agent’s commission violates antitrust law.
Lawyers in Georgia filed a suit on Nov. 22 that’s explicitly modeled on the Missouri case. There was also a case filed in Illinois in 2019, Moehrl v. NAR, which is similar to the recent Missouri case and is currently working its way through the judicial system.
There were other signs that NAR might be in trouble. In 2020, the U.S. Department of Justice filed a complaint against NAR, accusing the organization of illegally restraining competition in the real estate industry. Although the two sides put together a preliminary settlement in 2021, the DOJ withheld approval at the last minute, opting instead for a broader investigation of NAR.
Federal justice officials have long cast a critical eye on NAR. Back in 2005, the DOJ filed an antitrust lawsuit against NAR for trying to limit access to listing data for internet-based brokers. That lawsuit was settled in 2008, with NAR agreeing to give online agents full access to the MLS, while admitting no wrongdoing or paying any damages.
Some Brokerages May Have Sensed Trouble
Likely anticipating an unfavorable verdict, RE/MAX and Anywhere Real Estate (which controls Coldwell Banker, Sotheby’s International Realty, and Century 21) opted to avoid trial in the Missouri case by paying settlements of $55 million and $83.5 million, respectively. The settlement also stipulated that the two brokerages can no longer require their real estate agents to be NAR members. This is a significant blow to NAR, as RE/MAX has around 140,000 agents, while Anywhere has nearly 200,000 agents.
Nearly a month before the verdict, Redfin — either the 5th or 6th largest brokerage in the U.S., depending on how you measure — withdrew from NAR, resigning from the NAR board and requiring their agents and brokers to end their NAR membership. In a scathing statement from Redfin CEO Glenn Kelman, Kelman said that “NAR isn’t the future.”
Expert Testimony Has Been Highly Critical
Witnesses testifying against brokerages have made strong criticisms in these cases. In the Missouri trial, Notre Dame law professor Roger Alford said the buyer-broker commission rule “is not designed to benefit home sellers.” On the contrary, he said it was designed to protect NAR from the competition.
Craig Schulman, an associate professor of economics from Texas A&M, described the buyer-broker rule as "one of the clearest cases of price-fixing and collusion," he'd seen.
In the Moehrl case, Harvard law professor Einer Elhauge testified that without the buyer-broker commission rule, home buyers would rarely use buyer agents, if ever. He said that, thanks to technological advances, buyers could find home listings on websites like Zillow, and could often purchase their home without the assistance of an agent at all.
Commission Could Change Dramatically — or Very Little
If the Missouri verdict is upheld, substantial regulatory changes could mean big reductions in commission. One analyst predicted that government regulations aimed at “unbundling” commission (separating the seller and buyer commission) would result in a 30% reduction of the commission pool.
On the other hand, many agents think the commission system will remain largely unchanged, though the terminology might evolve.
“I feel that commissions will effectively remain the same,” said Cindi Hagley, an agent in the San Francisco Bay Area. “They may just be renamed or approached from a different angle.”
Some agents believe commissions will simply be renamed to something like a “referral fee” that the listing agent will pay the buyer’s agent, essentially preserving the system we have now.
But even in the event of major changes, sellers and buyers may not see much savings. During the 2005 DOJ case against NAR, some observers predicted that if internet-based agents were given full access to MLS listings (which happened after the 2008 settlement), the uptick in competition would lead to a 25-50% reduction in commission. But that did not happen.
Ultimately, the market may bring down the cost of commission without any government intervention. Discount brokerages, such as Clever Real Estate, have already built national networks of agents who provide the traditional agent experience at a steeply discounted price, and more competitors are entering the field every year.
Even if the Missouri verdict is overturned on appeal, buyers and sellers can likely look forward to paying less real estate commission in the future, one way or another.