The housing industry has recently come under fire after the National Association of Realtors (NAR) was accused of conspiring to artificially inflate real estate agents' fees. NAR, which manages more than $1 billion in assets and trademarks the word “Realtor,” is being asked to pay approximately $1.78 billion in damages to the home seller.
Berkshire Hathaway's HomeServices of America and Keller Williams were also charged with conspiracy and convicted by a federal jury. Under U.S. antitrust laws, damages could triple to more than $5.3 billion.
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what happened
NAR previously mandated a “cooperation compensation rule” that required home sellers to pay commissions to buyers' agents, a practice challenged by sellers who argued it resulted in excessive commissions. .
Commissions charged on home sales typically amount to 5% to 6% of the total sales price. That means if the home is worth his $1 million, the seller will typically pay up to $60,000 in fees. According to the complaint, about half of the total fees charged go to buyer agents, which creates a “significant anti-competitive effect” and “has no economic significance except for buyer intermediaries.” It is said that there is no such thing.
However, a recent ruling removes the obligation for sellers to pay buyers' agents and gives agents the freedom to set their own commission rates, potentially lowering commissions even further.
This landmark decision could fundamentally overhaul the entire structure of the U.S. real estate industry, potentially leading to lower home selling costs through commission adjustments.
Redfin, the online brokerage platform that withdrew from NAR in October, argues that the ruling will force both home buyers and sellers to scrutinize the traditional practice of setting fees.
“Traditional brokers will undoubtedly train their agents to welcome conversations about commissions,” Redfin CEO Glenn Kelman said in a statement after the ruling. “But it is also possible that the buyer will now decide how much to pay the buyer agent.”
NAR embroiled in controversy
This is not the first time NAR has addressed controversy. The association's executives have been accused of sexual harassment. NAR CEO Bob Goldberg will resign on November 20th due to market litigation losses and mounting controversy. Goldberg was originally scheduled to step down when his contract expires on December 31st.
Earlier, NAR Chairman Kenny Purcell resigned after an incriminating article was published in the New York Times detailing sexual harassment.
Will fees go down?
The National Association of Realtors, which has more than 1.5 million members in residential and commercial real estate, holds the exclusive trademark for the word “Realtor.” This means that all real estate professionals must pay dues to the association. The NAR has ruled the U.S. real estate industry by setting the rules that determine fees charged on home sales.
NAR and the other defendants plan to appeal the ruling, which could change the way homes are bought and sold in the U.S. and could significantly lower fees.
Weeks after this landmark ruling, several home sellers across the country filed a class action lawsuit. Stifel-backed investment banking firm Keefe, Bruyette & Woods (KBW) expects fees to fall by as much as 2% once it takes effect. Total damages from these lawsuits could reach $400 billion, said Ryan Tomasello, managing director of KBW.
“Obviously, this was a big blow to them and a reminder that these organizations could be seen as facilitating collusion,” said Fisher Broyles, a partner at the New York law firm. said Matthew DeFrancesco, an antitrust professor at the school. “The real estate market is something that everyone is interested in and I'm sure that's part of why it was targeted. And there's a lot of money out there.”
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This article, “House of Cards: National Association of Realtors faces $1.8 billion hit over 'conspiracy' over commissions” was originally published on benzinga.com.
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