11-13-2023 11:08am

An Historic lawsuit could alter the way Californians purchase and market houses

Anita Johnson-Brown Editor

A federal court has made a groundbreaking decision by ruling against the National Association of Realtors (NAR). This verdict is poised to bring significant changes to the real estate industry. The decision may reshape the way homes are bought and sold, especially in fiercely competitive markets like California.

At the center of the ruling is the NAR's policy, which mandates that its members offering home sales must provide a commission to the agent representing the buyer. This commission, usually a percentage of the home price, is paid by the seller but is commonly included in a home's listing. However, a jury ruled that the policy violated antitrust laws and inflated costs for sellers. It hindered buyers from negotiating their agent's fee.

On October 31, the NAR, alongside co-defendants HomeServices of America and Keller Williams Realty, was ordered to pay $1.8 billion in damages. Although the NAR plans to appeal, they are seeking a reduction in the imposed damages. The NAR claims that the commission offered to the buyer's representative can be as low as $0. Still, typically, both the buyer's and seller's agents receive between 2.5% and 3% of the home price.

In the fiercely competitive California market, where the median home cost sometimes exceeds $1.1 million, these commissions could translate into a substantial sum, around $60,000 for sellers.

Platforms like Zillow and Redfin now offer virtual home tours, raising questions about the value proposition of traditional brokers, especially in justifying a 3% fee, a central point of contention in the lawsuit.

The aftermath of this landmark ruling remains uncertain. While the ruling has not impacted the NAR's compensation rules, the future may hinge on whether the judge compels the NAR to modify its policy or outright ban commission sharing. Some anticipate potential cost reductions for homes if sellers no longer need to factor in buyer agents' costs, enabling buyers and sellers to negotiate agent commissions.

Despite the legal upheaval, some California real estate professionals remain skeptical about the lawsuit's transformative effects, arguing that even without commission sharing, buyers in complex markets like California would still be willing to pay a premium for representation.

The Brookings Institution believes that the broader industry could face a paradigm shift, challenging an industry that has been traditionally resistant to technological and consumer preference changes.

The ruling sets the stage for potential transformation in an industry that has long resisted change. The outcome of this legal saga has the potential to reshape how homes are bought and sold, introducing a new era of flexibility and negotiation in California.

By Anita Johnson-Brown