Real Estate Brokerage Commission: Big NAR Decision

Many buyers and sellers are aware of the often large real estate commissions that are paid to brokers when marketing real estate.  Recently a major decision, the Case of Sitzer/Burnett v NAR (herein sometimes referred to as S/B), and I mean MAJOR decision, was issued out of the District Court in Missouri, holding that the commissions that were charged sellers were in violation of antitrust law, resulting in a huge dollar judgment against the National Association of Realtors and a few major real estate brokerage firms.  How much are the damages?   

“Only” $5.4 Billion!  (Yes, with a “B,” Billion.) 

The Court concluded that the National Association of Realtors (NAR) and several firms violated antitrust law, damaging sellers by overcharging commissions to the seller. 

The sellers claimed in a class action (that is, the action by the Plaintiffs/sellers was undertaken on behalf of the Sellers as Plaintiffs AND on behalf of other potential plaintiffs under similar circumstances [as sellers]).  Thus, not only was the decision important for the named Plaintiffs in the action, but it was also important for other parties that might have similar potential claims against the Defendants in question. 

The essence of the case was a claim by the Plaintiffs that because the NAR had an Agreement between NAR and other Realtor companies that effectively forced such real estate brokerage companies to agree to the NAR Agreement (referred to as the Adversary Commission Rule) that required, to gain the benefit of the Multiple Listing Service (MLS) and other benefits of being in NAR, to follow the Agreement.  This document required cooperation between the listing broker acting for the seller and the buyer’s broker, to share commissions.  Because of the mandatory position under the Agreement, such arrangement (with other contractual provisions), amounted to colluding by the Defendants to keep the commission rates higher as charged to the seller.  The Court found that these commission rates were higher than would have been the case if free competition was present to allow, without the NAR Agreement, the parties to agree on a lower, negotiated commission arrangement that would be paid by the Seller. 

The Sellers in the Case, the Plaintiffs, argued that because of this arrangement, they, the Sellers, were forced, to allow the Sellers to have their listing in the MLS, to pay their broker, the listing broker, a higher commission than would have been the result if the Sellers could have negotiated with the broker for a lower charge for the commission.  The commission that was charged by the listing broker representing the seller is often shared in part between the listing broker and the cooperating buyer’s broker.  Because of this sharing arrangement, this structure often induces the buyer’s broker to be more likely to try and sell the MLS listed home, since the buyer’s broker would be gaining part of the commission. 

The Sellers argued that this collusion among NAR and the big firm (Defendants) resulted in a commission that cost the Sellers, unfairly, a commission that was much higher than would have been the result, if NAR and the others did not execute the Agreement to force the nature of the cooperative position, which Agreement limited access to the MLS, unless the firms agreed to the NAR Agreement. 

Some cases have raised this issue in past disputes.  However, it was the recent S/B Case that brought the collusion Case forward to focus on antitrust with NAR and the major Defendants in that Case. 

Because the Court concluded in favor of the Plaintiffs, the entire residential brokerage business is now in a state of uncertainty as to how to handle cooperating commissions within the law and to also meet their agreement with the NAR Agreement contract signed by most residential real estate brokers in the US. 

More lawsuits along the line S/B have recently been filed; more are coming. 

NAR and others are appealing the Case. 

Look for more activity in this area, especially when the amount in controversy is in the Billions.  Some sellers may be entitled to a share of the damages assessed, if they fall within the S/B decision as damaged plaintiffs. 

By

Mark Lee Levine, Professor, University of Denver