The U.S. housing market faces a significant challenge as class-action lawsuits mount against the National Association of Realtors (NAR) and influential real estate brokerages. These lawsuits, accusing the NAR and brokers of maintaining unfairly high commissions, could reshape the industry and potentially result in damages amounting to tens or even hundreds of billions of dollars.
The primary allegation is that the existing commission model discourages market competition between agents, with incentives misaligned. The traditional commission structure involves a percentage of the final sale price paid to both the seller’s and buyer’s agents, often ranging from 5% to 6%.
A landmark case, Sitzer/Burnett v. NAR, concluded with a jury finding the defendants liable and ordering $5.3 billion in damages. This has set the stage for potential changes to the commission model. The plaintiffs argue for “decoupling,” a shift towards buyers and sellers paying their agents separately.
The judge’s official ruling in the Sitzer/Burnett case is expected in the spring, determining the actions the NAR and brokerages must take. The NAR has announced plans to appeal, with proceedings expected in 2024.
Another significant case, Moehrl v. NAR, involving sellers from various U.S. cities, is set for trial in late 2024, with potential damages exceeding $40 billion.
Additional lawsuits, such as Batton 2, filed on behalf of buyers against brokerages like Douglas Elliman, Compass, and Redfin, further escalate pressure on the industry to address commission structures and avoid prolonged legal battles.
Real estate agents and brokerages are already contemplating changes in anticipation of potential rulings. Some are considering alternative fee structures, including tiered systems based on the level of service provided. Decoupling commissions could lead to a more flexible negotiation process between agents and clients.
Despite uncertainties, industry experts believe these legal challenges could prompt positive changes, driving down excess costs and fostering innovation in real estate arrangements. The outcomes of these lawsuits will likely shape the future of the U.S. real estate market, impacting agents, buyers, and sellers alike. The evolution of commission structures in 2024 may usher in a new era of experimentation and flexibility in the industry.
