The real estate industry is facing a seismic shift due to a wave of class action lawsuits challenging the structure of real estate commissions. These lawsuits, which have captured the attention of brokers, agents, homebuyers, and sellers alike, center around the longstanding practice of how commissions are set and paid.
With billions of dollars at stake and the potential to fundamentally reshape the industry, these legal battles are worth watching. Here’s a breakdown of what’s happening and what it could mean for the future of real estate commissions.
The Class Action Lawsuits
At the heart of the current class action litigation is the allegation that the real estate industry, particularly the National Association of Realtors (NAR) and large brokerages, has engaged in anti-competitive practices that inflate commissions. The lawsuits argue that sellers are forced to pay the buyer’s agent commission, leading to unnecessarily high costs for sellers and distorting competition.
Key lawsuits include:
- Moehrl v. National Association of Realtors: This class action lawsuit, filed in 2019, claims that NAR’s rules, which require sellers to offer a commission to the buyer’s agent, violate antitrust laws. The plaintiffs argue that this practice limits negotiation over the buyer’s agent’s commission and forces sellers to pay inflated rates.
- Sitzer v. National Association of Realtors: Filed in Missouri, this lawsuit makes similar claims to Moehrl, asserting that NAR’s commission structure is anti-competitive and artificially inflates the cost of real estate transactions.
In both cases, the plaintiffs seek damages in the billions, arguing that if not for the anti-competitive practices, real estate commissions would be significantly lower.
Alleged Anti-Competitive Practices
The central issue in these lawsuits is the Multiple Listing Service (MLS), a platform where brokers and agents list homes for sale. According to the plaintiffs, MLS rules—particularly those mandated by NAR—require sellers to offer a commission to the buyer’s agent as a condition of listing their home on the MLS. They argue that this arrangement restricts competition because it prevents direct negotiation between buyers and their agents over commission fees.
The lawsuits claim that this practice inflates commissions by:
- Reducing transparency: Buyers are often unaware of how much their agent is being paid, which makes it difficult to negotiate a lower commission.
- Artificially maintaining commission rates: By forcing sellers to pay for both sides of the transaction, the market doesn’t allow for natural competition that could lead to lower commissions.
- Inhibiting fee competition: In a truly competitive market, buyer agents would compete on price, potentially reducing commission rates.
Industry Response
The real estate industry, led by NAR and major brokerages, has pushed back strongly against these lawsuits. They argue that the current commission structure benefits both buyers and sellers by ensuring that buyers have professional representation throughout the home-buying process. Without this structure, they claim, fewer buyers would be able to afford representation, leading to less informed transactions.
NAR also points out that commission rates are fully negotiable and that there is no requirement for sellers to offer any specific commission to the buyer’s agent.
However, critics argue that in practice, these negotiations rarely happen, and that the traditional commission structure creates an environment where the seller bears a disproportionate financial burden.
Settlements
Several large real estate companies have agreed to pay into a settlement fund including Compass, Realty ONE, Redfin, Engel & Volkers, and United Real Estate. The total value of all proposed settlements is over $700 million.
Conclusion
The recent class action lawsuits challenging real estate commissions could have far-reaching implications for the U.S. housing market. As the legal battles continue to unfold, brokers, agents, and consumers alike are watching closely. The outcome could reshape how commissions are structured, how agents are compensated, and how competitive the real estate industry becomes in the future.For more insights on legal trends and more, subscribe to RapidFunds on LinkedIn. RapidFunds has been providing settlement funding for almost 20 years. We’ve completed over 4,000 transactions and have helped thousands of firms with funding. Stop waiting for your legal fees and contact RapidFunds today.