For decades, Americans selling homes have shouldered the burden of a seemingly unshakeable 6% commission fee for real estate agents. This practice, however, has finally come to an end thanks to a landmark settlement in a class-action lawsuit against the National Association of Realtors (NAR). The settlement builds on a bitter irony I brought up nearly eight years ago on Foreclosurepedia and predicted the NAR’s ultimate demise. It has been paralleled in our Industry, both by National Association of Mortgage Field Services (NAMFS) members and Prime Vendors and their obvious price fixing, as well as that of Verisk, whom controls all property preservation — not inspections — software. In fact, when Verisk bought out both Property Preservation Wizard (PPW) and Pruvan, they hiked pricing which calculated with today’s inflation rate is in the hundreds of dollars more, per year. When drilling down, even deeper on Verisk, their placement of Matt Zoldowski, former PPW owner, as the NAMFS President shows a very clearcut sign of antitrust as defined by the Sherman Act, in my opinion as well as many others in the Industry.
The NAR, a powerful lobby group, had long enforced a system where sellers were forced to offer a set commission split between their agent and the buyer’s agent. This arrangement, deemed anti-competitive, inflated home prices and limited consumer choice.
The lawsuit, initiated by Missouri homeowners, challenged this system and emerged victorious. The settlement compels NAR to dismantle its commission structure, allowing for negotiation and potentially lower fees for home sellers. This could translate to significant savings, with estimates suggesting a reduction of up to 30% — a substantial sum considering the average US home price.
This settlement signifies a major victory for consumer rights and a potential turning point for the housing market. Here’s a breakdown of the implications:
- Increased Competition: With the fixed commission rule abolished, competition among real estate agents is expected to rise. This could lead to the emergence of services offering discounted rates or flat fees, catering to a wider range of budgets.
- Shifting Landscape: The role of real estate agents may evolve. Buyers might choose to forgo an agent altogether, relying solely on a representative for closing procedures. This trend mirrors the decline of travel agents as online booking platforms empowered consumers.
- Agent Exodus: The new landscape might lead to a significant decrease in the number of real estate agents. The current abundance, with millions licensed in the US compared to a fraction in the UK with a similar population, could be trimmed. This would likely benefit consumers by weeding out less dedicated agents.
- Weakening of NAR’s Grip: The settlement weakens the influence of NAR, which has historically lobbied against measures that could increase housing affordability. This could pave the way for policies promoting a more accessible housing market.
While the long-term effects remain to be seen, this development holds immense promise for a fairer and more competitive real estate landscape in the US. It also highlights the crucial role of private lawsuits in challenging hidden price-fixing schemes and empowering consumers.
NAR’s past president, Kenny Parcell, resigned under a cloud of sexual harassment allegations last August and his replacement, Tracy Kasper, spent about three and a half months as the NAR President before resigning after being threatened with blackmail. Sounds almost like the NAMFS Secretary, Heather Berghorst, and other NAMFS members whom have ended up in state and federal prisons over the past decade.
There was a previous settlement between the DoJ’s Antitrust Division and NAR that restricted the department from pursuing a new case against the realtor association. That is currently being challenged by the DoJ showing the vigor of the US government when it comes to how quickly the pendulum swings. Obviously, the DoJ is likely interested in taking on NAR again. This could be due to concerns about ongoing anti-competitive practices despite the recent settlement in the private lawsuit. And here we see that antitrust private lawsuits are taking center stage. The success of the Missouri lawsuit highlights the effectiveness of private action in enforcing antitrust laws. This might be a more viable path for challenging NAMFS and Verisk, going forward, in light of the current scenario.
Regulatory vigilance will be essential to prevent the formation of new monopolies like we are seeing in our Industry. Tech giants like Amazon or Google could potentially exploit the market disruption to gain dominance. We are witnessing the same thing with Littlejohn & Co. and their recent totality in purchasing with respect to MCS, GIS Field Services, and Five Brothers. Going further, though, in the NAR settlement, brokers had to subscribe to the MLS to list properties. The settlement removes this requirement. This could lead to the emergence of new platforms offering alternative listing services outside the traditional MLS system. This is nearly identical to the NAMFS requirements to utilize the Aspen Grove Solutions ABC number.
More importantly, though, the NAR settlement ensures that buyer’s agents will now be required to have written agreements with their clients before showing properties listed on the MLS. This could make it easier for buyers to understand the services they’re receiving and the associated fees. There is a similar issue in our Industry that EVERY SINGLE NAMFS Member as well as Prime Vendors refuse to disclose the pricing that they pay unless a Master Services Agreement (MSA) and Certificate of Insurance is issued naming the firm applied to. When juxtaposed, there is no doubt that the NAR’s litigation and eventual settlement will be reflected in our Industry as soon as later this year.
This settlement marks a turning point in the US housing market. By dismantling a long-standing cartel, it paves the way for a more competitive and potentially more affordable landscape for home buyers and sellers. It also will serve as the templates to sue NAMFS members and the Prime Vendors. When taking into consideration the $7 paid for inspections that pay $45 and the $35 for grass cuts that pay $525, what Labor is left in our Industry are already looking for the exit door.
