The Realtors Stage a $418 Million Tactical Retreat
The NAR’s ballyhooed legal settlement is less than meets the hype.
By The Editorial Board
March 19, 2024 4:57 pm ET
The press is heralding the settlement announced Friday by the National Association of Realtors (NAR) as a revolution in what brokers charge to sell homes. Don’t be so sure. On closer inspection, the settlement appears to help the Realtors get out of a legal jam more than it helps home buyers.
The jam is the jury verdict last autumn in a class action by Missouri home sellers (Burnett v. NAR) that resulted in a $1.8 billion judgment against the Realtors for price-fixing. The plaintiffs alleged that the NAR violated the Sherman Act in part by requiring seller agents to provide a blanket offer of compensation to a buyer’s broker in order to list a home on NAR’s affiliated multiple-listing services (MLS).
This rule is one reason Realtor commissions have averaged between 5.5% and 6% for decades, split evenly between buyer and seller agents. Overall commissions are substantially lower in most developed countries, including the U.K. (1.3% average fee), Norway (1.8%), Netherlands (2%) and Australia (2.5%). Few buyers outside the U.S. even use brokers.
Many buyers these days search for homes online. Yet buyer agents earn a 2.5% to 3% commission no matter how little or how much they help their client. They also have no incentive to obtain the best deal for their client because they pocket larger commissions on higher-priced homes.
Empirical evidence also shows that buyer brokers steer clients away from homes whose sellers paid them less than 2.5% to 3%. Ninety percent of transactions on the Missouri MLSs offered buyer agents exactly 3%. The NAR claimed its policies benefit consumers, but the jury disagreed.
After the Missouri verdict, dozens of other class-action suits hit NAR across the country. Plaintiff attorneys and the NAR appear to have settled the suits on a nationwide basis for practical reasons. Plaintiffs knew they couldn’t squeeze more money out of the NAR, which had only $1 billion in assets as of 2022. The NAR wanted to live to fight another day, and it smells victory in this tactical retreat.
“Two critical achievements of this resolution are the release of most NAR members and many industry stakeholders from liability in these matters and the fact that cooperative compensation remains a choice for consumers when buying or selling a home,” the NAR said in a statement. “Cooperative compensation” is the cartel’s code for the seller paying the buyer broker.
Under the settlement, the NAR will pay $418 million over roughly four years. It has also agreed to bar seller agents from advertising a blanket offer of compensation to buyer agents on an MLS. But the settlement notably doesn’t bar seller agents from advertising buyer broker commissions on other home-selling platforms, including those operated by its members. Nor does it forbid buyer brokers from steering clients away from homes whose sellers pay lower or no commissions.
This may not be the end of the legal challenges to the NAR business model, and it shouldn’t be. The Justice Department last month objected to a similar rule change in a different settlement between home sellers and a regional MLS. Justice said that settlement “makes cosmetic changes” that will perpetuate “stubbornly high broker fees” because it “still gives sellers and their listing brokers a role in setting compensation for buyers’ brokers.”
Justice could still intervene to stop last week's ballyhooed settlement. since collusion may be less obvious but still exist in many markets. The savings for consumers may be far less than meets the media hype. There’s a reason the NAR boasted in a statement that Friday’s settlement will “protect our members to the greatest extent possible.”
The Realtors have prospered for decades from a rigged game that pads their pockets at the expense of consumers. They have then parlayed those profits into lobbying to preserve and expand government subsidies for housing. Whenever these columns pointed out the truth, the Realtors reacted with outrage, as if their commissions are a birthright.
The jury verdict and settlement prove the critics were right. Legal scrutiny should continue until there is a genuine free market in the buying and selling of homes.
