Far-Reaching Changes Likely in Wake of $1.8 Billion Verdict in Real Estate Commissions Lawsuit

On October 31, 2023, a federal civil jury found that the National Association of Realtors (NAR) has conspired to inflate commissions paid to homebuyers’ real estate agents. It determined that the NAR and its co-defendants (some of the largest real estate companies in the country) owed almost $1.8 billion in damages to the plaintiffs (a class of buyers of real estate properties). The lawsuit, Burnett et. al. v. National Association of Realtors et. al. was filed and tried in the U.S. District Court for the Western District of Missouri. It involved violations of federal antitrust laws by the NAR, HomeServices of America, Keller Williams Realty, Anywhere Real Estate (the parent company of Coldwell Banker, Century 21 Real Estate and Sotheby’s International Realty) and Re/Max. Immediately after the verdict, the NAR and HomeServices announced that they intend to appeal, while Keller Williams announced that it was considering doing so. Both the plaintiffs and the defendants have made public announcements regarding the selection and hiring of their respective appellate counsel.

The verdict has sparked a national debate over agent commission fees and the longstanding role (and disputed necessity) of buyer agents in real estate transactions. Currently, sellers of residential real estate properties pay a five to six percent commission on a sale, which is split between the buyer’s agent and the seller’s agent. What the verdict means for the industry remains to be seen and will largely depend on the result of the appeals process and the injunction (if any) that the Court will issue.

The complaint in the Burnett case alleged that sellers are effectively unable to negotiate the compensation amount offered to buyer brokers. The vast majority (approximately 90%) of U.S. homes are bought and sold through real estate agents affiliated with the NAR. The NAR (the country’s largest trade association) used to require home sellers to offer a non-negotiable commission before listing homes on a property database, also known as a Multiple Listing Service (MLS), which feeds into real estate sites such as Zillow. However, shortly before the trial, the NAR changed its guidelines and allowed listing agents to offer compensation of $0. In other words, buyer-side commissions have become optional—rather than mandatory—to list a residential property on an MLS. They used to be a condition imposed by the NAR to allow a listing agent to list a property.

The plaintiffs in Burnett successfully argued that the NAR’s rules curtail competition and artificially inflate the price paid by home sellers. Their central argument is that in a normally functioning competitive market, buyers would compensate their own agents just as sellers do. Therefore, buyer brokers would have to compete by offering lowers commission rates than their competitors.

If affirmed on appeal, the Burnett verdict could bring significant changes to the traditional structure of real estate transactions and the compensation scheme for brokers. It could cut the $100 billion annual commission pool currently shared among 1.6 million realtors in the United States, a portion of which may be returned to sellers of residential real estate properties. More disclosure could be required to inform both sellers and buyers of the options available to compensate their respective brokers. Brokers, sellers, buyers and other players in the residential real estate industry should be aware of the verdict and its legal significance. They should also keep abreast of further post-trial and appellate developments.