The NAR Class Action Lawsuit and Its Impact on the Real Estate Industry
The United States Justice Department filed a civil suit against the NAR, alleging that the real estate trade group imposed unconstitutional restraints on agents and brokers. After settling, the government withdrew. However, the NAR has filed a petition to stop the withdrawal.
NAR’s Commission-Filter Rules and Practices are Anti-Competitive
While the DOJ ruled that the rules are not anti-competitive, the plaintiffs argued that they were. The complaint accused NAR of using anti-competitive regulations and policies to suppress competition. For example, in Lawsuits Threatening Agent Commissions: Moehrl v. NAR, it claimed that NAR’s rules prohibited MLSs from disclosing buyer broker commissions. This allowed buyer brokers to misrepresent their services as accessible and facilitated their ability to filter listings based on commissions. Moreover, it argued that these rules limited competition by preventing rivals from offering lower costs.
Another anti-competitive practice is NAR’s Free-Services Rule. Buyer brokers can mislead buyers by claiming their services are “free.” However, the fees are paid by the home seller. This practice prevents buyers from negotiating lower commissions or rebate offers. Ultimately, it leads to higher prices for buyer brokers’ services.
Moreover, NAR’s Commission-Filter rules are anti-competitive because they harm consumers by increasing the cost of buying a home. As a result, the plaintiffs have asserted a claim for damages and requested a permanent injunction preventing NAR from enforcing the rules.
They Drive up Seller Costs
The National Association of Realtors (NAR) has been hit with a second class-action lawsuit alleging that the association’s policy of requiring buyers’ agents to charge mandatory fees violates antitrust laws. In addition, the lawsuit contends that the practice drives up seller costs and decreases competition.
The NAR maintains that its rules and regulations are in the sellers’ best interests. However, NAR denies that these rules are forcing sellers to pay more. The association is defending its practices in court. It has supported its rules against complaints that brokers and agents overcharge clients.
In addition, the NAR has made a point of publicly focusing on diversity. Phipps cited the goal of increasing the number of non-white agents in the industry and closing the homeownership gap. The homeownership rate for black Americans was 43%, compared with 72% for whites. The NAR believes that the American dream of homeownership should be accessible to everyone, regardless of race or income. While the NAR does not have a plan to eliminate discrimination, it does promote diversity.
In addition, the NAR Commission Rule requires buyers to pay a broker a 2.5 percent commission. This percentage hasn’t changed in recent years, even though home buying has become increasingly popular. Increasingly, buyers rely on online listing services for their home searches. Once they find a home they like, they retain a broker.
They Reduce Competition
The National Association of Realtors is currently the target of a class action lawsuit. The lawsuit has been filed by two plaintiffs who allege anti-competitive practices by NAR. For example, the NAR does not allow buyers and sellers to negotiate commissions. In response, the plaintiffs have consolidated their lawsuits. Even though the suits have different timing and law firms, they all claim that NAR has violated antitrust laws.
The NAR does not make its executives available for interviews, but their spokesperson Mantill Williams has a statement addressing the lawsuit. NAR has also asked one of its longtime members, Ron Phipps of Phipps Realty in Warwick, Rhode Island, to comment. Phipps acknowledged that NAR is currently dealing with significant litigation while coping with historic low housing inventory and a struggling housing market.
The NAR has also publicly focused on diversity and inclusion. Phipps noted that the organization aims to increase the proportion of non-white agents in the industry and close the homeownership gap. The homeownership rate for black Americans was only 43% in 2020, while it was 72% for whites. NAR believes that the American dream of homeownership should be accessible to all. Despite the lawsuit, the NAR is committed to improving its industry’s diversity, equity, and inclusion.
They Could Disrupt the Real Estate Industry
Several recent cases have shown that the NAR has a poor record of allowing competition among market participants, including brokers and sellers. This has kept consumers from experiencing higher-quality services and more competitive prices. The NAR should reconsider its policies and practices to allow for more competition.
The NAR is facing several lawsuits aimed at changing its anti-competitive practices. A Justice Department settlement with NAR in November called for reforms of anti-competitive rules. At the same time, two lawsuits seeking class-action status have been filed by plaintiffs who say the NAR system has overcharged them. Another lawsuit filed by REX Real Estate argues that the NAR’s commission structure discourages homeownership, decreasing household wealth and lowering homeownership rates.
The lawsuits are aimed at reducing the commissions paid to brokers and sellers. These lawsuits could disrupt the industry if they succeed. As a result, they could cause a shakeup in the real estate industry.
