the business of brokering

What Does This Big Settlement About Broker Commissions Mean for New York?

Overhead Drone Shot of Residential Streets
Photo: halbergman/Getty

It’s been a tough spring for the National Association of Realtors. In March, the powerful trade group reached a $418 million settlement over agent commissions, agreeing to eliminate its rules on sales commissions, practices that plaintiffs claimed artificially inflated sales commissions. Industry types all seem to agree that this will likely have far-reaching implications for people who work in the real-estate industry and homeowners — the New York Times wrote that housing experts expect it “could trigger one of the most significant jolts in the U.S. housing market in 100 years.” Then, in early April, a federal appeals court ruled that the Department of Justice’s previously settled antitrust probe into the trade group’s policies could be reopened. Per Reuters, the court ruled that the government hadn’t made a commitment “to refrain from either opening a new investigation or reopening its closed investigation” in its previous settlement.

So what’s this lawsuit about Realtor commissions all about?

In October, a federal jury ruled that the National Association of Realtors had conspired to artificially inflate commissions and ordered the powerful trade group to pay damages of $1.8 billion. The ruling was the result of an anti-trust suit brought by a group of Missouri home sellers in 2019, which argued that the industrywide practice of requiring the seller to pay both the seller’s and buyer’s agent commissions, and other practices that resulted in a nationwide standard of 5 to 6 percent, which is much higher than in many other countries, violated anti-trust laws.

While NAR initially vowed to appeal the ruling, the group has undergone internal tumult with a sexual-harassment scandal and a series of leaders departing in quick succession. There were other compelling reasons to settle: Because the case involved anti-trust violations, the plaintiffs could have been eligible for triple damages of $5.4 billion, the Times reported. And separate litigation in Chicago expected to go to trial this year could have threatened a damages award of more than $40 billion, according to The Wall Street Journal.

In addition to the suit against NAR, there are more than a dozen copycat class-action suits against the country’s largest brokerages. Some have settled their suits — Anywhere Real Estate, which includes the Corcoran Group, Sotheby’s International Real Estate, Coldwell Banker, and Century 21, paid $83.5 million in September. Others, notably Warren Buffett’s HomeServices of America, have not.

What does the NAR settlement mean for sellers and buyers?

The most immediate impact is expected to be a drop in commissions — economists who spoke with the Times estimated that they could fall by 30 percent — as a result of home sellers being able to more easily negotiate fees with their agents. And buyers, who must now pay their own agents, may elect to forgo one altogether, or opt for pared-down services, like having an agent prepare an offer and a contract, while conducting home searches, inspections, and other parts of the sales process alone. Whether that’s a good thing or a bad thing is debatable: While sites like Zillow and Redfin have made it easier to find homes, brokers argue that buyers benefit from representation, and if they must pay agents out of their own pockets, many will opt not to use one — to their detriment.

There is a widespread hope that a reduction in commissions, which are baked into sales prices, may cause home prices to fall, but that remains to be seen.

What does the NAR settlement mean for real-estate agents?

Besides less money, at least for some, it’s widely believed that it will lead to a winnowing of the industry — The Wall Street Journal reports that the shake-up could drive out hundreds of thousands of agents.

The settlement will also have implications for Multiple Listings Services across the country, the dominant way that agents outside New York City list their properties. (In New York, the Real Estate Board of New York, REBNY, which is not affiliated with NAR, has its own real-estate listings service.) Previously, getting a listing in the MLS — a necessity of selling in many markets — required joining NAR and following its rules. If that’s no longer necessary, “you’re going to see innovation,” says Jason Haber, a Compass agent who recently launched an alternative broker-trade group, the American Real Estate Association.

Like what?

It’s hard to say this early on. Some have likened the fallout to the demise of travel agents and the rise of online booking sites like Expedia and Kayak. One thing is certain, though: Expect more tech start-ups to try to get a piece of the action. We’ve already had emails from several. What remains to be seen is whether the increased competition will actually lead to lower prices or improve buyers’ and sellers’ experiences.

What does this mean for New Yorkers?

New York agents aren’t part of NAR, so while the settlement doesn’t directly impact things here, the consequences are expected to reverberate throughout the industry. Many of the brokerages operating in the city have already reached separate settlements over agent commissions, and in January REBNY implemented new rules prohibiting listing brokers from paying buyers’ agents.

Does this mean renters don’t have to pay brokers anymore?

No, the changes only apply to seller and buyer commissions. Renters still have to pay commissions, which once averaged 12 percent but have increasingly crept up to 15 percent and, in some cases, much more. Last year, City Councilmember Chi Ossé introduced a bill that would require whoever hires the rental broker — in most cases, the landlord — to pay the fee. It didn’t pass, but a few weeks ago, Ossé reintroduced it.

And what’s the deal with the DOJ investigation that was reopened in April?

While it seemed like the $418 settlement might help NAR close the book on anti-trust litigation, on April 5 a Federal Appeals Court ruled that the DOJ could re-open an investigation into the trade group that had been closed three years earlier, after the DOJ and NAR reached a settlement. In 2021, however, the DOJ moved to reopen, according to Reuters, citing a “continuing threat of anticompetitive effects of NAR’s rules.” With the latest ruling, the DOJ can re-open its investigation. NAR is not pleased — in a statement Friday, the group said that, “the government should be held to the terms of its contracts.” 

What the Settlement About Broker Commissions Means for N.Y.