The Ramifications of the Realtor Commission Verdict

Guilty Of Conspiracy To Inflate Agent Commission.

Is the $1.785 Billion dollar verdict the beginning of an avalanche of change in the Real Estate Industry?

Sitzer/Burnett v. NAR Case Summary: 

The central issue at the heart of this case is broker fees, specifically the payment from the seller to the buyer's agent. According to NAR rules, sellers pay the fee, which is then divided between the seller's real estate agent and the buyer's agent. The plaintiffs, representing the sellers of over 260,000 homes in Missouri, Kansas, and Illinois, argue that this system effectively constitutes a conspiracy that artificially inflates home prices.

In 2020, Americans paid over $85 billion in residential real estate commissions, with research showing that fees tend to remain mostly uniform. Critics have long claimed that the NAR and this system inflate home prices and misalign the goals of the buyer and their agent.

While the Internet has disrupted many industries, making things more affordable, the fees in the real estate market have remained largely the same, averaging around 5%. The NAR defends its rules and system, stating that "compensation is always negotiable," and changing the structure of fees could make it harder for cash-strapped buyers to afford homes.

The findings today were $1.785 Billion in damages against some 500,000 defendants between 2015 and 2020. 

The Jury only took 2.5 hours to come to a verdict – which was an incredibly quick deliberation. But, it was only 1.5 hours into the deliberation when the Jury asked for clarification on how to calculate damages. The Jury found that all the defendants participated in a conspiracy that helped keep agents' commissions inflated. 

Now obviously the current suit, even with a unanimous verdict, will go to appeal, and we’ve yet to see the conclusion here. On top of that, as an article in Axios pointed out:  “The NAR's dominance has proved incredibly difficult to shake. Even if it loses… it's not clear that meaningful structural change will follow.”

But the same Lawyer, just minutes after the verdict, filed another suit against 6 additional large brokerages. 

Regardless of the outcome of the appeals or that additional suit, we’ve had several top brokerages already settle and agree to conformity. It is already causing large sweeping changes; one example just two weeks ago, the Real Estate Board of New York modified their rules starting in 2024. The rule change will prohibit listing brokers from paying buyer’s agents and will instead require sellers to pay them directly if they choose to pay them at all.

What does all of this mean for the industry…

Some buyer's agents may find ways to get buyers to pay them directly. Others may begin listing themselves as simply real estate agents and working on listings primarily. 

You do have other countries where sellers' agent contracts aren’t necessarily exclusive, where the seller works with several agents to list allowing those agents to bring buyers to them, competing for the entire transaction, not just one side or the other side. 

Or as Housingwire forecasts: It does seem like maybe we are headed toward a future where each agent will be paid by their own client, compensation for the buyer's agent becoming negotiable by the buyer and that agent, and perhaps even included as part of the financing costs on the transaction. 

This is incredibly new; it’s likely to take time before this all settles out. 

And we don’t want to pick sides on whether this is good or bad for the consumer. Regardless of the realities, this is shaking the industry as we know it. But we do see some clear trends that are being impacted

• We are already seeing lenders hire Agents as LOs or partners or marketing liaisons… There is obvious value in hiring a close agent relationship because it can be a tighter relationship partnership, with more collaboration between parties. This was a change early on in Jan 23, but we see it picking up steam. 
• Obviously, Agents representing the buyer have been providing value, and they are especially important on the Mortgage side of the transaction as they are often the source of the mortgage business. They have an asset: a database of engaged people and contacts, and they have a brand and reputation. You are bringing them and their asset into your branch, and You can give the MB to better capitalize on that asset can be mutually beneficial. 
• This protects your buyer-side referral source from as abrupt of a disruption.
• What is going to happen to 2 million relators? While it could very well expedite this process of dual employment, we probably see a reduction in number of agents in the industry. 
• We’re expecting a total of 5 Million transactions in 2023, and we’re likely expecting slightly fewer than that in 2024. 
• We’re already seeing new lawsuits being filed with the same claims, indicating that this class action suit is likely to set case law for decades to come. 
• These agents have spent decades, they have built businesses and assets and they aren’t going to just walk away from it. 

It’s obvious the buyer's agent has been providing a service in the industry. That service is valuable to the consumer, to the listing agents, and to the real estate industry. This value doesn’t fundamentally change with the lawsuit, and the value they bring to the transaction hasn’t been reduced by the lawsuit at all… 

This is a structural change that impacts how that agent can get compensated, and that’s about it. The agent provides a value and while they may not continue to collect their 2-3% commissions, the value they have been delivering is still of equal value, it’s just a matter of figuring out how they can go about being paid in the transaction process now.