The National Association of Realtors (NAR) is facing a lawsuit that could have sweeping consequences on the real estate industry. The case is named Sitzer v. NAR and is being brought by a class of home sellers. The suit alleges that NAR’s rules violate the Sherman Act by inflating seller costs by requiring listing brokers to offer buyer agents a commission. This is known as the Buyer Broker Commission Rule.
The Impact on Cooperative Commissions
In the face of a recent lawsuit, many real estate agents question whether joint commissions are beneficial. They are also concerned about the impact of the case on their industry. One of the primary challenges in the NAR Lawsuit is that it attacks the fundamentals of cooperation and compensation, practices that have been the foundation of residential real estate, Realtor associations, and MLSs for years. A vital issue is NAR’s Commission-Filter Rules and Practices, which permit MLSs to filter out homes that will be shown to buyers based on the level of buyer broker commissions offered. This incentivizes brokers to steer clients toward listings with the highest commissions. A 2002 study found that this anti-competitive system suppresses homeownership rates and reduces household wealth. As a result, NAR and other brokers face a series of lawsuits challenging their commission practices.
The Impact on Sellers
A lawsuit filed against the National Association of Realtors (NAR), 20 of the largest MLSs across the country, and four large real estate broker franchises has the potential to change how real estate is done radically. Will realtors become extinct? If successful, the lawsuit could END the 3% buyer agent commission and open the door to a new, more affordable way of selling a home. The NAR and its affiliated MLSs have issued and enforced rules, policies, and practices that reflect concerted action between horizontal competitors to artificially fix and inflate their listing broker and buyer broker commissions in violation of the Sherman Antitrust Act. This has caused home sellers to pay an artificially inflated commission for services they don’t receive, resulting in higher prices and lower quality service for American buyers and sellers.
The Impact on Buyers
Home sellers’ lawsuit against the NAR is set to upend the real estate industry. It could allow home sellers to stop paying buyer’s agents and radically change how homes are bought and sold. The plaintiffs claim that the NAR and four major national real estate broker franchisors conspired to violate federal antitrust law by requiring home sellers to pay the broker representing the buyer of their homes at an inflated rate. The plaintiffs’ claims center on NAR’s adoption and implementation of a mandatory rule that requires all brokers to make a blanket, non-negotiable offer of buyer-broker compensation (“Buyer Broker Commission Rule”) when listing a property on a multiple listing service (“MLS”). Defendants’ anticompetitive conspiracy is facilitated by NAR Rules that prohibit MLSs from disclosing to potential home buyers the total commission offered to buyer brokers for a particular property. This enables the commission-filtering practice of steering buyers away from properties that offer lower buyer broker commissions, which reduces the quality of buyer broker services and raises prices for buyer broker services at the expense of home buyers.
The Impact on Agents
If successful, the lawsuit could overhaul how real estate is bought and sold. It would also open the door for discount and tech companies to compete with traditional agents in offering a full range of services at lower prices. The NAR Lawsuit targets a wide array of practices, policies, and rules that govern residential real estate brokerage. These include regulations outlined in NAR’s Handbook on Multiple Listing Policy (the “Handbook”), NAR’s Code of Ethics, and a series of rules and policies implemented by local NAR associations and multiple listing services that regulate broker access to MLSs. The Antitrust Division simultaneously filed a proposed settlement in this case that requires NAR to repeal and modify its rules to provide greater transparency to home buyers about the commissions of brokers representing home buyers (buyer brokers), cease misrepresenting that buyer broker services are free, eliminate rules that prohibit filtering multiple listing services (“MLS”) listings based on the level of buyer broker commissions, and change its regulations and policy which limit access to lockboxes to only NAR-affiliated real estate brokers.