Who actually benefits from the $1.8 billion verdict in Burnett v. N.A.R.?

Realtors are predominantly compensated on a commission based on the sale price of a home. But that may change following a recent federal court verdict.

On October 31, 2023, in Burnett v. National Association of Realtors, et al., a federal court ordered the National Association of Realtors (“NAR”) and its co-defendants––the parent companies of some of the country’s largest real estate brokerages––to pay $1.8 billion in damages for “price fixing”.

The Western District of Missouri lawsuit alleged that home sellers were induced to pay inflated commissions to buyer’s agents through their own agent’s listing agreements. Put simply, the defendants’ standard listing agreement required sellers to pay buyer’s agent commissions after the sale; but sellers had little to no ability to negotiate the amount of the commission.

Under federal law, “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce,” is prohibited. The plaintiffs claimed that, because the majority of homes sold in the United States utilize Multiple Listing Services (“MLS”) controlled by local realtor associations, the NAR’s rules requiring sellers to make a blanket, unilateral offer to sellers agents as a condition of using an MLS created restrained commerce by inflating the buyer’s agents’ commissions.

The NAR and its codefendants have already declared their intent to appeal the decision. Moreover, brokerages across the country are adjusting their forms and policies to avoid similar lawsuits. However, beyond the sizable sum owed, it is unclear what effect this decision will have on the real estate industry.

Agents’ commissions are typically paid by the seller out of the purchase price and split between the agents. But the Burnett decision puts buyer’s agents in a precarious position.

If sellers are no longer willing to pay the buyer’s agents, the most obvious avenue for compensation is the buyers. But if you are already spending hundreds of thousands on a home––a luxury many struggle to afford––you do not want to spend thousands more to pay for what was a “free” service.

In response, some real estate professionals believe that buyers will need to finance their agents’ commission. But aren’t they doing that already?

If Jill buys Jack’s home for $100,000 (what a steal!) at 20% down, she will take out an $80,000 loan. At the close of escrow, Jack will take usually 5-6% from the purchase price and give it to the agents to split. While to Jack, it might feel like he just paid the agents $3,000 each, those funds are ultimately coming from the amount Jill financed; and Jill is paying the interest on that money.

If post-Burnett buyers are independently required to finance the buyer’s agent commission, then, for Jack’s $100,000 home, Jill will need to take out $80,000 plus whatever money she owes her agent, say 3%. Ultimately, Jack ends up better off with $97,000 after paying his agent $3,000, Jill’s agent gets her $3,000 and Jill is left in $83,000 of debt instead of the $80,000 from before.

Alternatively, others believe that this verdict spells the end of buyer’s agents as a whole. Instead, leaving seller’s agents to “double end” the transaction and leaving buyer’s without their own unbiased representation.

There are undoubtedly more nuanced, middle-ground paths forward, but if either of these theories came to fruition, it leaves buyers on the short end of an already short stick.

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