Court Challenges Seek to Disrupt Real Estate Commission Practices

A series of court challenges is targeting long-standing practices in the real estate industry related to the determination of commissions that agents receive on the sale of homes, as well as who is responsible for paying these commissions.

In a recent development, a federal jury ordered the National Association of Realtors (NAR) and several major real estate brokerages to pay nearly $1.8 billion in damages, finding that they artificially inflated commissions paid to real estate agents. This class-action lawsuit, filed in 2019, was brought on behalf of 500,000 home sellers in Missouri and border towns, alleging that the defendants conspired to require home sellers to pay the broker representing the buyer of their homes, thereby violating federal antitrust laws.

If treble damages are awarded, the defendants may have to pay more than $5 billion. The NAR has announced its intention to appeal the verdict, and the case may take several years to reach a resolution.

Additionally, a new class-action lawsuit has been filed in the U.S. District Court for the Western District of Missouri, following the successful outcome of the 2019 case. This new lawsuit seeks class-action status, potentially covering anyone in the U.S. who has sold a home in the last five years. It targets the NAR and seven brokerage companies, including Redfin Corp., Weichert Realtors, and Compass Inc.

The focus of these lawsuits centers on an NAR rule that requires home sellers to offer to pay the commission for the agent representing the homebuyer when advertising their property on a local Multiple Listings Service (MLS). This rule adds to the commission for the listing agent or broker. Plaintiffs argue that this rule artificially keeps commissions for homebuyer’s agents high and limits competition among agents.

The real estate industry faces questions about how these legal challenges will reshape commission practices. The NAR contends that its rules benefit consumers by providing the greatest number of buyers with access to professional representation while also giving sellers access to a larger pool of potential buyers.

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The outcome of these cases may have far-reaching implications for the real estate industry and potentially lead to changes in how commissions are structured. However, it is expected that any significant changes may take time to materialize as legal battles, appeals, and regulatory considerations continue.

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