If you’re immersed in real estate, the recent antitrust jury verdict of $1.8 billion against the National Association of Realtors (NAR) and two real estate brokerage firms could be a topic of concern, potentially impacting your property dealings. A client recently sought clarity on how this legal development could affect him, prompting a deeper exploration into the potential ramifications.
Short Answer: The decision is a jury verdict in a Missouri trial court. The NAR said it intends to appeal to a higher court. Until there is a decision by a court of appeal, the verdict will directly affect only the parties to the lawsuit. At the same time, it raises the specter of wider implications if other courts follow suit. For example, two other defendants settled the claims against them by paying $140,000,000 and promising to change their commission practices.
In a traditional setting, sellers pay a commission to their brokers for marketing their property and finding a buyer. Brokers representing sellers usually split their commissions with brokers who represent the buyers. This arrangement is common, with some multiple listing services enforcing such splits. The plaintiffs in the NAR case argued that this commission-sharing violates antitrust laws. They predict the decision will lower commissions overall, making it less expensive to sell a property. We disagree.
CA Real Estate Attorney, Richard Hamlin’s Insight:
In Richard’s opinion… The plaintiff’s view is shortsighted. If it violates antitrust law for a seller’s broker to split a commission with a buyer’s broker, brokers representing buyers will insist on being paid by the buyer. At best, it will shift some of the cost of selling property from sellers to buyers. It might not reduce the commissions charged to sellers. The total commission paid by sellers and buyers may exceed the commission paid under the current approach.
In California, real estate commissions are not fixed by law. No organization mandates the size of a commission. Some brokers already compete on price. That is, they offer a lower commission. I have seen offers to accept a commission as low as 2.5% of the sale price.The larger the transaction, the more flexibility most brokers will have (especially in commercial transactions). At the same time, some sellers are willing to pay a higher commission to receive more service.
Sellers’ brokers do most of the work involved in marketing a property and letting people know a property is for sale. Buyers’ brokers keep track of properties that are available for sale and help their clients to find suitable properties and to negotiate terms. In the middle, listing services concentrate knowledge about available properties in one place.
While multiple listing services often require sellers’ brokers to identify the commission split with buyers’ brokers, these services have plenty of competition. A Google search for “real estate listing websites” will turn up about a dozen sites where buyers and sellers can exchange offers without using a broker or a broker-associated multiple listing service.”
Navigating the NAR Verdict:
If the NAR verdict holds through appeals and spreads beyond Missouri, buyers’ brokers may shift to direct compensation, potentially leading to fewer brokers and offers. It may reduce competition among brokers. This will affect California real estate commissions. The flexibility in services for both buyers and sellers may diminish, and overall transaction costs could rise—a classic case of unintended consequences.
At Hamlin | Cody, we understand that staying informed about legal developments is crucial for our clients. For years, we have helped clients in California with sale and lease transactions, deeds, loans, easements, regulations, eminent domain proceedings, specific performance, boundary disputes, land use, hillside slippage, construction problems, mediation, arbitration, and litigation. Whatever you’re trying to accomplish with real estate, we can help. Give us a call: 310-216-2165.