Settling for less: Plenty of questions remain over local, national impact of realtor settlement
The NAR settlement may change the way homes are bought and sold in the United States, but not much.
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A recent multimillion-dollar court settlement involving realtor commissions has left many unanswered questions in the real estate industry, especially when it comes to who will benefit and who will be disadvantaged. Those answers will indeed come in time, but for now, at least one thing is clear — and those who say the settlement is key to ending the affordable housing crisis in the United States aren’t going to be happy.
“I think that’s an urban myth,” said Anne Marie DeCatsye, CEO of Canopy Realtors Association. “I can’t believe people are actually saying that.”
The National Association of Realtors has been embroiled in a number of lawsuits over broker compensation; however, the most recent action has its roots in a 2019 anti-trust lawsuit, Moehrl v. The National Association of Realtors, alleging an anticompetitive agreement had resulted in home sellers paying inflated commissions. But last fall, a jury decided in another case, Burnett et al v. National Association of Realtors et al., that the National Association of Realtors had conspired and colluded with several large real estate brokerages to raise, inflate or stabilize commissions. The NAR is one of the largest trade associations in the country, with more than 1 million members.
Plaintiffs, all home sellers in the Kansas City area, signed listing agreements with realtors, agreed to pay a commission on their sales and acknowledged part of the commission could be shared with a buyer’s agent due to cooperative compensation rules on how buyers agents would be paid.
These rules are usually established by a local or regional Multiple Listing Service, a comprehensive database of real estate listings; the rules MLS users, called subscribers, adhere to are meant to emphasize collaboration between real estate professionals in facilitating successful sales and to outline compensation paid by the seller to the listing agent as well as to the buyer’s agent.
The listing agent, in addition to earning their own commission, usually includes the commission rate for buyer’s agents in the MLS system. All commissions are negotiable; however, if a homeowner or a listing agent were to offer a lower-than-average commission to a buyer’s agent, the thought is that buyer’s agents would steer buyers away from those properties, because the buyer’s agent would earn less on that sale. Absent these rules, plaintiffs argued, sellers would have paid less in commissions; however, sellers actually figure those commissions into the sale price, passing them onto buyers so that sellers can net what they need to make the deal happen.
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The NAR contended that the existing commission structure made the market more competitive and provided value to both buyers and sellers. The U.S. District Court for the Western District of Missouri rejected those arguments, noting that commission rates of 5% to 6% had remained unusually steady for a long period of time, suggesting a lack of competition.
The jury found that the NAR, along with HomeServices of America, Keller Williams Realty, RE/MAX and Anywhere Real Estate (parent company of Century 21, Coldwell Banker Real Estate and Sotheby’s International Realty) had violated the Sherman Anti-Trust Act and owed the class-action defendants nearly $1.8 billion in damages.
Anywhere Real Estate and RE/MAX settled, but HomeServices of America and the NAR vowed to appeal. HomeServices continues to fight on, but the NAR came to a $418 million settlement agreement with plaintiffs on March 15 rather than potentially face a much higher judgment.
DeCatsye has been CEO of the Canopy Realtor Association since 2001. Canopy is the 17th largest Multiple Listing Service in the country with more than 22,000 subscribers. In 2023, transaction volume for the entire 26-county Canopy MLS service area was $24.9 billion, including $4.95 billion in the 13-county Asheville region. She also has prior experience on the National Association of Realtors' board of directors, currently serves on the legal action committee and feels the NAR was right on the facts — and right on the law — but that the cost of defending the suit was becoming too much to bear.
“The lawsuits were kind of frustrating, because I think we all feel that the way the MLS system works has been to the benefit of the consumer,” she said. “The rules that the plaintiffs’ attorneys were alleging were somehow a violation of antitrust law are actually very pro-consumer, and it was completely being distorted.”
Her opinion on who the settlement actually benefits is clear.
“I keep thinking the winners are going to be the plaintiffs’ attorneys,” DeCatsye said.
The NAR did not admit wrongdoing as a condition of the settlement, which is still subject to court approval and will release the NAR and its members, along with most realtor associations and their MLS systems, from liability.
But the settlement is about more than the millions in damages the NAR will likely pay over the next four years.
New rules will change how business is transacted and also could affect everything from home prices to the number of realtors working in the industry. For one, buyer’s agents' commissions can no longer be listed on the MLS. Buyer’s agents and listing agents could work something out, but absent that, home buyers will have to be very clear with their agents as to what they can expect to be paid, and by whom.
DeCatsye has further concerns over unintended consequences for an industry that is currently responsible for as much as 18% of GDP — the total value of all goods and services produced in the country.
Tom Mallette shares those concerns.
“One thing that this proposed settlement is going to do is, it's discriminating against first-time homebuyers, it's discriminating against minority buyers and it's discriminating against veteran buyers,” he said.
Mallette has been in the real estate industry for 20 years, the last 17 as owner of Better Homes and Gardens Real Estate in Maggie Valley. Around 20 agents work across Western North Carolina as independent contractors out of his BHGRE office, which in 2023 did 265 transactions with a combined volume of about $71 million.
According to Mallette, since first-time homebuyers sometimes have to save for years to come up with a down payment and the funds to close on their loan, complete inspections and pay all the other fees associated with buying a home, adding another fee to pay their buyer’s agent isn’t helpful.
Military veterans who qualify for home loans through the VA are not permitted to roll their buyer’s agent payments into their loans, so they too will have to pay out-of-pocket for the service, if they want it.
“We already have an affordability issue in housing,” he said. “And if you take another 2% to 3% on top of that, it's going to shut a lot of buyers out of the marketplace. There's a lot of things that are coming out of this that [suggest] there was not a lot of thought on a very high governmental level.”
Nationally, buyers will need to sign agency agreements with their buyer’s agents, but as one of only 13 states that already uses them, North Carolina is ahead of the game.
“We're going to be doing business the way we've probably pretty much always done it,” Mallette said. “A couple of things will change. We won't necessarily know what our compensation is so we'll have to research that and figure out what that's going to be in those buyer agency agreements.”
That said, sensational headlines speculating on a mass exodus of agents from the industry are probably just that — sensational.
While listing agent commissions remain negotiable and aren’t in jeopardy from the settlement, buyer’s agent commissions aren’t likely to change much either. It’s a service for which those who utilize it must pay. Those agents, in turn, bear the overhead of remaining licensed and subscribing to an MLS, among other things. Plus, listing agents value the buyers those buyer’s agents bring. However, like in any other industry, those agents hovering on the fringes of profitability will likely find some other way to put food on their table.
“Realtors will get much better at their craft, as far as explaining the especially buyer's agency, and the value that we provide to the transaction,” Mallette said. “Those who don't adapt will get out. Nobody likes change, and those who really don't like it will just avoid it, and they'll just get out of the business.”
There’s also been a series of mainstream media stories with more sensational headlines suggesting a windfall for buyers and sellers, including a CNN story that proclaimed the 6% “standard” commission is “no more” — doubly wrong, likely based on the hope that the NAR settlement will have a massive, instant and positive effect on the national affordable housing crisis.
“I would argue commissions have nothing to do with affordability,” Mallette said. “It's all supply and demand. We're 7 million homes short in the United States right now. Seven million. When you have a good house come on the market and you have a ton of buyers just waiting for the right house to come, we have multiple offers. That's what's driving up home prices, not the commission. It's a cost of doing business, but not a driver for home prices.”
DeCatsye agrees with the supply-side causes of soaring home prices.
“Bottom line, just because this is happening, it’s not going to produce more inventory,” she said. “We're still in an inventory shortage, and we still have high interest rates, relatively speaking. So this change in how the commission is paid is not going to affect that.”
Affordable housing advocates aren’t exactly celebrating either. Brooke Smith, assistant executive director at local social service agency Mountain Projects said that although they primarily focus on the rental end of the industry, ultimately, housing cost ends up influencing rents directly.
“When the owner of a home has to pay more for a house, their mortgage is higher, so they have to pass that cost along to somewhere, so if they're renting their homes and the cost is passed along to the family who's renting the home, that looks like higher rents,” Smith said. “We do see that a lot with landlords that want to come on our [section 8] program. They say, ‘Well, I have to have this amount of money, because that's how much my mortgage is.’”
Smith said she couldn’t forecast what, if any, effect the settlement would have on affordability.
Patsy Davis, longtime executive director of Mountain Projects, didn’t seem overly enthusiastic that the settlement alone would have an impact on housing cost in Western North Carolina.
“I've been following the realtor settlement,” Davis told The Smoky Mountain News. “While I'm sure this will help many when selling or purchasing a home, it's also been my experience that realtors give back. An example is the Canopy [Housing] Foundation. They have funded multiple grant requests for our organization and I'm hopeful that their support and generosity will continue.”
Instead, Davis and other affordable housing advocates are adopting a wait-and-see attitude.
“I think it’s too early to make that determination. I guess we’re going to have to see,” she said. “Our home prices are so incredibly inflated because of our beautiful area, only time is going to tell if that’s going to help us.”
