- The National Association of Realtors settled its lawsuit that it had previous lost as a result of its alleged collusion.
- After this settlement, it is likely that buyers and sellers will be much more likely to negotiate broker’s rates going forward.
- And while this has a huge effect in residential real estate, it should also impact commercial.
A while back, I wrote a blog article about some big news in the real estate world – specifically that some plaintiffs had secured a massive judgment against the National Association of Realtors and some brokerages for collusion on brokerage fees. If you recall, according to the judgment, the Court found that real estate brokers colluded to make it standard that they charge a 6% fee that is paid by the sellers. And at the time, we knew the defendants would appeal the verdict. But we did not know how it would be resolved.
Well now we do – the parties have settled the lawsuit. And with that settlement will come some pretty significant changes in the real estate industry.
Collusion and Commission Concerns
To recap, last fall, a jury in Burnett v. National Association of Realtors et al. found that the NAR and some major brokerages guilty of collusion. Basically they were all working together to keep fees high. The jury initially slapped the NAR with a whopping $1.78 billion fine. It was at that point, of course, that the Defendants filed an appeal of the verdict. And that likely set the settlement discussions in motion.
Parties Settle the Lawsuit
Two weeks ago, then, it was announced that the parties had reached an agreement and settled the lawsuit for $418 million. But even though the amount has been reduced, the lawsuit is very likely to change the landscape of the real estate industry – especially the residential real estate industry.
The big change? Say goodbye to the good ol’ days of the “standard” 6% commission. Under the settlement, those rates become a thing of the past. Instead, buckle up for a new era of negotiation. Sellers and buyers will have the freedom to wrangle with their agents over fees. And not only what that fee will be – but who should pay them. I reckon it won’t just be automatically assumed that the seller is going to pay for both the seller’s and buyer’s commission. This could lead to lower commissions for some, but remember, negotiation is a two-way street.
Impact on Real Estate Prices: A Cloudy Crystal Ball
So what will all of this do to real estate prices going forward? I have heard some folks try to argue that lower commissions could lead to higher home prices. Their logic? With potentially less income, agents might pressure sellers to inflate asking prices. Now, that’s a possibility, but I do not think that is what will happen. Here’s why: Competition is a powerful force. With agents needing to hustle for business, they will likely lower commission rates to attract clients. This could, in turn, lead to more buyers in the market, potentially driving down prices. And if buyers are paying for their own broker fees, then they are more likely to offer a lower purchase price to make up for that amount. Plus, if you have read Freakonomics, you know that an increase in the sale price of real estate often makes a negligible difference in a broker’s commission. Its more important for them, therefore, that the deal closes.
What This Means for Real Estate Investors
So, what does this settlement mean for you, my Texas real estate partners?
- Sellers: Get ready to negotiate. Educate yourself on commission rates in your area and be prepared to discuss your expectations with potential agents. Don’t be afraid to shop around for the best deal.
- Buyers: This might be your chance to snag a lower commission rate. Having said that, it is likely that buyers will have to pay for their own brokers going forward. Which, again, could affect sale prices.
Having said all of this, remember, a good agent with a proven track record can be worth their weight in gold. It may not be worth prioritizing saving a few bucks over getting the best representation. Ultimately what you will likely see is a lot of brokers exiting the industry. With lower commission rates, it may not make sense for them to continue.
Conclusion
The NAR settlement is a big change for Texas real estate. It’s a chance for a more open broker market. But it also comes with new challenges – and likely fewer brokers.
