The National Association of Realtors Lost an Antitrust Case. Here’s What It Means

The past few years have been wild times for the real estate industry and the agents and brokers who run it.

As if the housing crisis wasn’t enough, some of the largest real estate brokerages in the country have been under fire in a federal antitrust lawsuit. A jury found certain realtors liable (though the decision will likely be appealed), with $1.8 billion in damages heading back to home sellers.

But what’s this court case about, and what does it mean for pros and builders? Read on to learn more.

Sitzer vs. NAR: An Introduction

Sitzer vs. NAR is a class-action lawsuit where the plaintiffs claimed the National Association of Realtors colluded to keep seller commissions artificially high. The details are complicated, but here are the issues:

• Commissions for home sales range between 5% and 6% of the sale price.

• That commission is typically split between the seller’s agent and the buyer’s agent. The seller pays the full commission.

• Sellers wanted to negotiate commission rates, but claimed selling agents wouldn’t lower them. These agencies claimed lowering the commission wouldn’t attract as many buyers, effectively persuading the seller to keep the commissions set.

• With buyer agents’ roles diminishing, the plaintiffs felt they had the right to negotiate these fees. They filed suit against the NAR to recover fees and bring light and transparency to real estate buying and selling.

Ultimately, the plaintiffs won. The judge ruled the defendants must repay $1.8 billion to sellers affected by the tactics.

How Real Estate Will Change

With the court case only recently decided, it’s hard to predict exactly how the real estate industry will react. However, it’s safe to assume there will be an increase in overall transparency and changes in how agents are compensated.

The NAR maintains it encourages transparency. The trade association has been urging agents to use buyer agency agreements. The contractors outline the terms and conditions between a home buyer and a real estate agent. This will create a clear understanding for buyers and their agents about how and how much they get paid, avoiding future lawsuits.

It’s also likely compensation for buyer agents will change. Rather than the seller paying for the entire commission, buyers might start paying for their own agents. This is known as decoupling, and it may become a buzzword in the real estate industry.

Buyer agents might also shirk percentages in favor of flat or hourly rates. Whether these payment types encourage or discourage buyer agents to work harder is yet to be seen. But they’re easier to negotiate than percentages paid by the seller and set through the seller’s agent.

It’s also becoming increasingly common for buyers and sellers to forego the agent process altogether. Instead, they’re listing their homes themselves and making offers without an agent’s help. This may become more popular as the fees paid to buyer’s agents change.

How Does The Ruling Impact Builders?

This will likely impact builders in a few ways.

First, builders who fostered good relationships with the best real estate agents should continue to do so. These agents will be resilient and flexible under the new commission structures, and they’ll continue playing an important role in their local real estate markets.

Also, with more buyers looking to purchase without representation, marketing will become more important for buyers. Rather than relying on an agent to set up a walkthrough, these buyers will want to see more photos, videos and other content from the builder during their home search. This means builders may need to upgrade their social media and web presence.

What Should Builders Do Now?

The impacts of the court’s decision are still to be realized. Some industry experts believe appeals may be more successful as they reach higher courts. However, builders should consider a few key actions.

One is, pay attention. We don’t know what the outcome of these decisions will be, so builders need to stay attentive and informed. Recognizing industry changes as they happen will help builders adapt to them.

Second, increase internet presence. If buyers stop using their own agents, content builders produce on their social media accounts or websites will become more important.

Better video content, including walkthroughs and personalized videos that help the customer know the builder, may become just as important as an MLS listing. Spending more money on these forms of media, or even a marketing department to run them, will help builders get their homes in front of more buyers.

And, of course, stay flexible. The lawsuit may likely empower sellers and buyers in different ways. This may mean working and consulting directly with buyers while also maintaining a stable of credible, capable real estate agents.

This balancing act might be a challenge, especially for builders used to simply letting agents handle their entire process. However, this type of flexibility could be key to maintaining or growing future sales levels.

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