An antitrust lawsuit against the National Association of Realtors (NAR) is underway. I expect the NAR to lose.
Antitrust Lawsuit Against the NAR
The case, filed in Missouri is Burnett et al v. National Association of Realtors et al
This class action involves allegations that Defendant National Association of Realtors have anticompetitive rules that require home sellers to pay commission to the home buyer’s broker. Plaintiffs also allege that Defendants Home Services of America, Inc.; BHH Affiliates, LLC; HSF Affiliates, LLC; Keller Williams Realty, Inc.; Realogy Holdings Corp.; and RE/MAX, LLC enforce those rules through anticompetitive practices.
Plaintiffs challenge rules in both the National Association of Realtors Handbook and Code of Ethics that allegedly require home sellers to make a blanket offer of compensation to any potential buyer’s broker as a condition of listing their home on the following multiple listing services: Heartland Multiple Listing Service, Columbia Board of Realtors, Mid America Regional Information System, and Southern Missouri Regional Multiple Listing Service.
Expect a Decision by November 10
On October 11, Realtor Magazine reported Burnett Trial Opening Arguments Start Tuesday
The trial is expected to go three weeks with a verdict expected by Nov. 10. Plaintiffs in the case allege commission rates are too high, buyer brokers are being paid too much, and NAR’s Code of Ethics and MLS Handbook, along with the corporate defendants’ practices, lead to set pricing. The case covers the Kansas City, Mo.; St. Louis; Springfield, Mo.; and Columbia, Mo., markets.
“NAR fundamentally disagrees with how class action attorneys are characterizing our rules,” says Katie Johnson, the association’s chief legal officer and chief member experience officer. “NAR’s rules and local MLS broker marketplaces very much benefit consumers and allow business competition to thrive.”
Realtors Face an Antitrust Reckoning
The Wal Street Journal comments Realtors Face an Antitrust Reckoning
The National Association of Realtors requires its 1.5 million or so members to comply with numerous rules that inflate their pay. Missouri home sellers are arguing in the lawsuit that a rule requiring them to make a blanket offer of compensation to any potential buyer’s broker violates the Sherman Antitrust Act.
While innovation and competition have slashed stockbroker commissions, the commission on home sales has stayed basically flat for decades at 6%, split evenly between the buyer and seller agents.
In other developed countries, buyer brokers are far less common and get paid by their clients, on average about 1.5%. This makes sense since the buyer broker is supposed to negotiate for his client against the seller. Having the seller pay the buyer broker creates a conflict of interest. It also prevents a buyer from paying his broker based on performance.
That means there’s little incentive for buyer brokers to negotiate better deals for clients, especially since they earn bigger commissions on higher-priced homes.
It’s clear from the evidence presented by the plaintiffs that the Realtors’ primary interest is ensuring buyer brokers make a 3% commission no matter what. Brokerage firms train agents to set overall commission rates at 6%, split evenly between the buyer and seller agents. “Once you start cutting commissions, you can never stop,” one firm’s training document said. “Charge everyone the same and let them know it.” Ninety percent of transactions offer buyer agent commissions of exactly 3%.
A Ninth Circuit Court of Appeals panel last year overruled a lower court’s dismissal of PLS.com’s lawsuit against the Realtors. Its policy “shares all the hallmarks of a group boycott” and impaired PLS.com’s ability to compete “on almost any dimension” by requiring seller brokers to supply MLSs “even if PLS’s product is better on the merits,” wrote Judge Milan Smith.
We’re no fans of most antitrust suits, but the evidence is strong that Realtors’ practices are classic antitrust violations that harm consumers. The Realtors may own the U.S. Congress, but perhaps independent courts won’t be so intimidated.
No NAR Competition, None
If ever there was a need to invoke the Sherman Antitrust Act, this is the one.
Home prices have skyrocketed but commissions remain a forced 6 percent.
Q: Are Realtors providing any more service for the money they get?
A: Of course not.
Q: Is the NAR an artificial monopoly?
A: Obviously
The NAR is about to get its ass kicked and it’s long overdue.
Technology Competition is AliveI
There is no competition to the NAR. If the Biden administration wanted to strike at monopolies this would be a clear case.
Instead, Biden, Warren, AOC etc. are after the usual boogeymen like Amazon, Google, Facebook, Apple, and Microsoft who are all in competition with each other in various ways.
For discussion, please see Competition is Alive, Microsoft and Google Wage a Search Engine Battle Over AI
Extreme Absurdity from Team Biden
The most ridiculous act yet, the National Labor Relations Board, NRLB, sues X (Twitter) for firing an employee who refused to come to work.
There is now a new mandate from the Biden Administration: The Right to Work From Home.
For discussion, please see New Corporate Ultimatum: Come to the Office in 3 Days, Quit, or Be Fired
There is no end to the insanity from this administration. Unfortunately, there is nothing the administrations has done right.
Sellers do have a viable option: FSBO. We did, saved $18k.
We saw r/e agents for what they really were: liars, bullies and crooks. The buyers we encountered were stupid pitiful tyrants who thought they controlled the process.
I hope this suit is a win for the little guy.
This has been litigated before. I expect NAR to prevail. The plaintiff does not have a leg to stand on.
Good luck as you will need it.
How do you know you got full price?
i read the headline as the HOUSE WAS GONNA BE TRASHED. i spent a lifetime buying trashed 100 plus year old houses and restoring them. hammer sees nails……ha ha ha. too bad. i always paid silver(like the romans to judas) to smart realtors to feed me the pocket listings………..before they went on market…………
If Mish is correct transactions will be frozen for a long time, until the dust is
settled, probably at around 2%.
No they wont.
Great post, could not agree more. While I was able to negotiate my fee to 5%, any problem required a lawyer. Of course! Most brokers I know live well. They are not hurting and I would like to have more choice. Rather sell myself and hire lawyer if needed.
Then sell it yourself. What is stopping you? With zillow and all the other like websites it is possible. And yes discount brokers are everywhere. You get what you pay for.
Flat fee ($400 – $600) discount brokers have been around for at least 15 years in northern IL. MLS listing, sign, photos, showing appointments, line up title and legal, if desired. If you want to some vig to a buyers broker, that’s up to you. Helped me escape like the nuns at the end of The Sound Of Music.
Buyer broker fees have not come down like in other industries due to technology because technology does not materially ease the buying process. (For the broker).
Anyone who thinks 2.5-3%(of any size transaction) is egregious for a 30-45 day transaction negotiating and preparing contracts (with risk to the broker), negotiating inspections, and following title and loan status has never actually learned what a broker/Realtor does.
I am waiting for “Ive bot and sold 1000 houses all buymyself, you fucking realtors are vipers” to come out now. Cause i know youre out there.
I believe in capitalism, and when I sit with a buyer, and prove my worth, and get a signature on a buyer broker agreement, I know the client is getting a good deal for my services.
Mish i love your stuff and agree with 95% of it, and yea fuk NAR; I agree with that. I dont choose to pay them a fee every month to lobby for me). But my opinion is different.
Would be happy to debate.
Mike Gebhardt.
You are FULL of it. Just like anything else related to legalities, ALL of that paperwork has been digitized and boiler-plated. I have a Law degree and still use the Digitized agreements and execute my own seller’s Contracts and pay NO commission to agents.
That is because Lawyers are not required to have a real estate license to sell real estate. You failed to mention that is the reason you pay no commissions. I would be willing to bet you would pay a commission to an agent who brought a buyer if you want to sell bad enough.
Lawyers are snakes and always will be.
I was told a family story recently of my Grandfather who had a farm house. He wanted a home in the suburbs. He ended up trading it straight up to someone. No agents involved.They traded properties and that was that. No agents involved. The values were so close they swapped.
Realtors are overrated. They serve a purpose for home buyers because they know the market and perhaps specific areas. But selling a house yourself is not hard. Realtors push the idea that selling is too complicated for the average person to take on themselves. In fact, you can hire an attorney to ensure all the legal boxes are checked and set up the closing. Their fees are usually cheaper than a realtor’s.
But this is a subjective subject. Plenty of buyers and sellers want someone else to do the footwork in a house transaction. The markets should be set up to streamline the process and allow anyone to either use an agent or do it themselves. For instance, the biggest hindrance in selling a house without a broker is getting into the MLS. That definitely is a monopoly since the realtors control who gets in, that needs to change.
Yes, we used Help-U-Sell one time and paid NO commission, only fees.
Exactly. There are options for those that choose.
During the last 5 plus years it has not been hard. Go back a bit further and you will see it is hard to sell a house. Again talking without first thinking or have knowledge is just wasted air.
For sale by owner is always an option. Cutting out the real estate agent(s) helps both buyer and seller.
I’ve used a company called ‘ForSaleByOwner.Com” twice. They charged a flat fee of $500 to put my properties on Realtor.com where buyers will be able to find them just like broker listed properties. The hitch is that the seller is responsible for taking all of the photos and writing up the commentary. They help you by providing a template that lists all of the necessary details for that you must fill in…Taxes, HOA fees, Beds, Baths, etc. You also get to chose the fee percentage you’re willing to pay the buyers agent. Both times they sold fast enough and saved me thousands of dollars and it forced the buyers agent to do all the work and actually earn his commission.
I nominate this as the “feel good” story of 2023.
I agree. A across the board 6% is akin to price fixing. Let the rate float & competent agents will win the opportunity to buy or sella home.
Make it similar to Servers. An average % suggested, and based on the amount and level of service, adjust accordingly up or down based upon your personal experience.
If you don’t offer competitive compensation to those bringing a buyer how many buyers do you think you will get?
That’s great, and I do agree with your points, Mish. But it ain’t going to make houses and more affordable. That’s what recessions are for.
Good luck. If it happens, it won’t be in my lifetime, though.
no I agree with MISH this is NAR losing cause
but ramifications are going to be huge
and losers will be around 1/2 buyers
which group will you be in
Good: an econ post I haven’t seen before that makes sense.
Bad: you close with the same Trumpy Trash Talk that demonizes the other party and continues to threaten democracy.
Ugly: “there is nothing this administration has done right”.
He’s not wrong, even if it hurts your feelings.
CzarChasm Reigns
Please enlighten us to what this current administration as done right.
Real Estate agent fees are one of the last areas that hasn’t seen price decreases due to technology. That’s almost assuredly because of the NAR.
Now that home prices have skyrocketed in the last decade or so people are seriously questioning that 6%. Especially in the years 2020-2022 when homes were literally selling themselves in bidding wars meaning you didn’t the need agents for anything at all.
Plus a million dollar home isn’t that much these days and giving 60K of that to realtors is a lot of money. Even if it’s split 30K to each realtor, the average realtor would only need to sell 2 homes a year to reach median household income.
Fees probably need to come down to the 1-2% range.
With all due respect, anyone that thinks agents pull 6% out of a transaction anymore, don’t know what they are talking about, including Mish.
In Los Angeles, it’s much more often 5% rather than 6%. Of course, that gets split so 2-1/2 goes to the buyer’s side, and 2-1/2 to the seller’s side. On each side the real estate agent also splits the fee with the brokerage office where they work. So the actual agent only gets 1-1/4%. So on a million dollar house the agent is probably getting $12,500 for selling a house. Not chump change, but there is no way you could live on selling two houses a year.
$12,500 for selling a house in a competitive market…. for how many actual hours invested into the sale? 10? So $1,250/hour? So $2.6M/annual (pretend I know) Literal brain surgeons don’t make that much..
When I bought my place I hired every inspector, septic, well, house, etc. I could buy and the realtor STILL “missed” the fact the septic holding tanks were only licensed for 2 bedrooms but the place and price was listed and sold on 3 bed / 2 bath. And then the drain field failed a year after purchase ($15K) When I called the realtor and complained he simply stated they have no liability and only marry a buyer and a seller together…that’s it. For %6 commission with zero liability they can FOAD.
Anyone that thinks an agent on either side of a successful home transaction is working 10 hours and then out the door does not have a clue about the real estate business.
It takes four hours to do a CMA properly.
So many errors here.
So a year later youre chasing an agent for something you, and every inspector you could buy missed?
Do you feel any twinge of personal responsibility?
I was able to negotiate down to 5%, but it is still a rip-off. As to their actual expenses, not much. As soon as a problem arose, the lawyers were called in, so any saving on my reduced fee lost. Sorry in my experience this lawsuit is way overdue.
Xactly.
Do your research
And i see no mention of the expenses a broker incurs, both hard and soft costs.
Million dollars isn’t that much? Ok, Mr Big Stuff.
proper pay for proper PROFESSIONAL SERVICES RENDERED
but caveat emptor to all yea buyers
gonna be brutal and we’ll all be laughing hoping we can sit on jury and deny your frivolous claims
Healthcare and education have not seen any improvements in outcomes and yet their prices have far outpaced inflation for decades and technology has improved. Throw in childcare while your at it.
but this will make it illegal for sellers to pay a buyers commission
why I play in commercial were the smart people are
No it wont make it illegal for a seller to pay a buyers commission.
Not even close joedidee.
It might make it prohibited to pay a co op fee (commission) to a buyers brokerage.
But there’s no way on earth that the courts have jurisdiction over individual agents. Or the actual selller of the home.
So a seller will always be allowed to pay a co op fee to the agent bringing a buyer.
And smart listing agents will know how to explain that. And dumb agents wont.
And sellers represented by dumb agents will only pay a 2% fee or so to list, in a race to the bottom. And their sellers wont get their home shown or sold. And you guys can all say again how much the professional agents, that actually know what they are doing by getting top dollar for their sellers or negotiating a great deal for their buyers are gauging the public.
Except people that actually know the business will reinforce an age old idea: that consumers of services get what they pay for.
At least in my state, our agreement with the buyer is already set. If an agent can’t figure out how to write a contract to cover their fee, they should not be licensed. My agreement clearly states, if the seller doesn’t pay it, you do. Having agents represent one party or the other, should actually make the job easier, not harder.
this is going to cause massive upheaval of market place
ONLY realtor is going to be LISTING REALTOR
who’ll make his commission
buyers agent says – I need to be paid, sign here buyers going to go bye bye
great UNTIL it comes time for
home inspection and buyer response(many going to get denied)
then buyer will capitulate and buy without help of professionals
then AFTER THEY take ownership they find
a, b and c which would have been caught, but see REALTOR contract is pretty good as it is written by LAWYERS
good luck with your over priced home you CHOSE to buy without proper representation
“You guys will never make it without the ESS-PURTS!”
If you can’t even write in intelligible English, how do you expect anyone to believe your drivel?
Uhhh. No.