Commission Concerns

Larry Wall sagely advised “Don’t wear roller skates to a tug of war.” Apparently, the United States Department of Justice and the National Association of REALTORS® did not listen. For decades, these two behemoths have played tug-of-war with the DOJ, asserting that the NAR’s commission-splitting agreements between its 1.4 million real estate agents, despite the wink and nod of “negotiable fees,” constitutes price-fixing in violation of antitrust laws. This past year the battle moved, in a big way, to the government’s side. Not to be outdone, plaintiffs’ attorneys quickly jumped into the ring with massive civil lawsuits that may or may not change the way REALTORS® are paid. 

Rarely has a group of professionals so successfully obfuscated its fees for so long. When asked today, most consumers believe buyers don’t pay real estate agent fees, only sellers do. Insiders, however, note that the buyer pays for everything in the purchase of real property, even if it is the seller’s proceeds that are reduced by the agents’ fees. Since the dawn of real estate sales, sellers have generally dictated the commission rate to be paid to real estate agents. Historically, both the “listing” agent, who represents the seller and, confusingly, the “selling agent,” who represents the buyer, were sub-agents of the seller who paid them both. Years of court cases later, agents became primarily obligated to their principal, no matter who paid them, or how. In the 1980s there was a movement toward some brokers exclusively representing buyers, but consumer psychology bristled at that new paradigm and it largely faded. 

Added to this mix of confusing payment structures – with sellers setting, and technically paying, agents’ fees that increase the buyer’s purchase price – is the concept of “dual agency”, where one agent represents both the seller and buyer in the same transaction, much like a coach on both sides of the football in the same game, but that is beyond the pale of this article. 

So, after decades of a cat and mouse chase, the Department of Justice caught the National Association of REALTORS® in 2020, and subpoenaed records to show that NAR’s rules mandating sellers’ agents to offer compensation to buyers’ agents are illegal. In November 2020, NAR blinked and entered a consent judgment in exchange for the DOJ agreeing to no longer investigate REALTORS®. But, in July 2021, the DOJ withdrew that consent order so NAR pushed to hold the DOJ to its agreement of no more investigations. In January 2023, a federal judge ruled the consent order should hold and the investigations should end. However, the DOJ appealed and just a few months ago, in April 2024, the Federal Court of Appeals for the D.C. Circuit ruled that the investigations can continue, and so they will, for the time being, until and unless the United States Supreme Court is asked to step in. Hence, the problem with the aforementioned roller skates. 

Back now to the plaintiffs’ attorneys, who smelled blood in the water and brought a multi-gazillion-dollar lawsuit against NAR and some huge real estate agencies on behalf of buyers all around the country. RE/MAX and Keller Williams tapped out quickly and settled for $208 million combined, but NAR chose to fight, and to lose, severely. In November 2023, a Missouri jury found NAR and the remaining real estate agencies in the case liable for $1.8 billion. That case was quickly appealed. In April 2024, NAR settled its part on behalf of over one million agents (not including HomeServices of America who fight on with dozens of brands like Berkshire Hathaway California) for $418 million to be paid over four years, and adopted new rules starting in August 2024 that prohibit listing agents from advertising cooperating commissions to buyers’ agents; require buyers’ agents to sign buyer-broker agreements with their buyers to clearly explain what commission they will be paid; and, among other rules, NAR must educate agents and not allow real estate agents to “steer” buyers to listings that include payment of the agent by the seller or to create other workarounds. Sounds simple, right? Not so fast – the rope has moved again. 

Just days ago, the California Association of REALTORS® informed its more than 150,000 members that while it had drafted 67 new forms to be released on June 25, 2024, including 21 forms specific to the new rules per the civil settlement, it has now decided to delay releasing those 21 forms in light of competing feedback from the DOJ and members of NAR. Meanwhile, across the country, thousands of members of Multiple Listing Service (NAR’s virtual “book” of properties available for purchase offers) have now opted out of their local Associations of REALTORS® in order to continue to offer cooperating commissions from sellers’ agents to buyers’ agents. 

Per the civil settlement, the new rules are scheduled to take effect on August 17, 2024, and the final settlement approval is scheduled for November 26, 2024, but it seems there may be plenty of tugging, followed by rolling back and forth on both sides of the rope, between now and then.