Court Finds Realtors Guilty of Inflating Commissions. Here's What It Means for Consumers

If you have ever bought or sold a home, you know that the process generally involves paying a commission.

The seller covers the cost of around a 6% fee, and this money is split between the buyer's agent and the seller's agent. Even people who sell their homes themselves typically must offer a commission to a buyer's agent in order to be eligible to list their property on the Multiple Listing Service (MLS).

This could be changing though, thanks to the verdict in a class-action lawsuit brought by more than 250,000 home sellers in Missouri, Kansas, and Illinois. The suit was against the National Association of Realtors, HomeServices of America, and Keller Williams. Plaintiffs alleged these groups and brokerages colluded to unlawfully maintain high commission rates.

A jury in Kansas City agreed, and the implications could be far reaching for anyone who is selling a home or who is getting a mortgage loan and to buy one.

A court ruling against real estate agents could shake up the housing industry

The plaintiffs who filed suit were a group of individuals who alleged they had to pay substantial commissions just to sell their homes during the period of time when property values rose rapidly between 2015 and 2022. They claimed that the problem lies with a rule called the "cooperative compensation rule." This rule was made by the National Association of Realtors. It requires all home sellers to make a non-negotiable commission offer prior to listing their home on the MLS.

The MLS is used by online real estate websites, real estate agents, and buyers to find properties. Homes not listed on the MLS are not seen by many potential buyers, so they can be much harder to sell. So as a result of the cooperative compensation rule, sellers basically had to offer to pay an industry-standard commission or around 5% to 6% of the sale price split between buyers' and sellers' agents.

The plaintiffs argued that the NAR's rule elevated prices. They also argued that if it wasn't in place, buyers' agents would instead be paid by home buyers themselves (alongside all the the fees and costs they pay to a mortgage lender to buy a home) and would have to compete to offer lower rates. They pointed to other countries with much lower real estate commissions where this requirement isn't in place.

A jury unanimously agreed and awarded $1.78 billion to home sellers who filed suit. Under antitrust laws requiring treble damages, this could actually be around a $5.36 billion verdict. It could also result in copycat lawsuits being filed by home sellers elsewhere. And it could result in the judge who is overseeing the lawsuit issuing an injunction and banning the cooperative compensation rule nationwide.

What does this mean for consumers?

Some home sellers in Missouri, Kansas, and Illinois will receive a cut of the damages that NAR and the other defendants have been ordered to pay. And sellers in other areas of the country could find themselves part of a class action lawsuit to recover some commission fees of their own.

The broader implications beyond that will depend on whether the judge does ban the cooperative compensation rule. The judge could potentially prohibit the following actions:

• Sellers' agents and home sellers setting commission rates in advance for the buyer's agent.
• Sellers' agents sharing their commission fees with buyer's agents.
• The publication of commission rates paid to buyers agents in the MLS.

The judge could also leave the rule in place but require sellers to offer just a penny in commission to buyer's agents. Or the Department of Justice could weigh in and implement new regulations designed to protect consumers from anti-competitive behavior.

The National Association of Realtors has, however, indicated it will appeal. The NAR claims the current structure is in the best interests of consumers. And another defendant, HomeServices, indicates that it believes the court's ruling will introduce additional obstacles for buyers and sellers.

However, it's difficult to see why forcing sellers to agree to a set commission for a buyer's agent just to be able to get their home in front of buyers is truly in the best interest of consumers.

The appeal could be tied up for several years and, in the meantime, buyers and sellers may find themselves paying lower prices if an injunction or DOJ regulation does limit the ability of real estate groups to collude to keep commissions high. If you're listing a home for sale soon, it may be worth seeing how this plays out, as you may be able to pay a lower commission on your future sale.