Real Estate Antitrust Case: Navigating the $1.8 Billion Missouri Verdict

Missouri Jury Awards $1.8 Billion in Antitrust Case

A recent Missouri jury decision has shaken the real estate industry, as a class of home sellers was awarded $1.8 billion. The case found that the National Association of Realtors (NAR) and some of the nation’s largest real estate brokerages had violated federal antitrust law by requiring home sellers to pay the buyer’s broker’s commission.

The Mandatory Payment Rule

At the center of the case was NAR’s Mandatory Payment Rule, which required sellers to pay a non-negotiable commission to the buyer’s broker at the transaction’s closing. Brokerages then compelled their agents to belong to NAR and follow its rules. This resulted in a lack of competition for buy-side commissions, causing inflated prices for home sellers.

Anticompetitive Practices

Aside from inflated buy-side rates, other anticompetitive practices reinforced the scheme, such as “steering,” where buyer brokers direct their clients towards homes with non-negotiable buy-side commissions. This has made it difficult for small brokerages to compete and has stifled innovation in pricing and processes.

NAR’s Control of the MLS

Why has this scheme persisted? One reason is NAR’s near-exclusive control over the Multiple Listing Service (MLS), an essential database for listing homes. Brokers who don’t belong to NAR or follow its rules cannot access the MLS, making it impossible for them to compete effectively for clients.

Antitrust Concerns

The Mandatory Payment Rule is not the only industry rule that has drawn antitrust scrutiny. Rules against buying or selling “coming soon” homes and rules that fix any terms or conditions of a home sale are also potential problems.

Changes in the Real Estate Industry

Many predict that the entire industry will change as a result of the Missouri verdict, ongoing competition-law litigation, and the fact that today’s home buyers can find homes without needing a broker’s access or market knowledge. Brokerages must adapt to these changes and guard against future antitrust concerns.

Guidance for Brokerages

1. Disclosing to sellers and buyers that commissions are negotiable is not enough. An accessible process that prompts and facilitates genuine negotiations over commissions is necessary.
2. Commission negotiations should not be discouraged in any way.
3. Disclosures about negotiable commissions should be clear, easy to find, and accompanied by an explanation of the negotiation process.
4. Whether the seller pays the buy-side commission should be negotiated on a case-by-case basis, and the buyer should not be misled into thinking their broker’s services are free.
5. Buy-side commissions should reflect the value added by the buy-side broker, which may require detaching the commission from the home’s sale price and documenting the rationale behind the chosen rate.
6. Anti-steering rules should be adopted and followed.
7. Sale-side brokers should treat all potential buyers equally, whether represented by a broker or not. This includes equal access to lockboxes and equal presentation of all offers to sellers.
8. Brokerages should either disconnect from local NAR groups that require adherence to anticompetitive rules in exchange for MLS access or negotiate new membership terms with their local NAR group. Involvement in NAR and local realtor associations can be overshadowed by antitrust risk and expensive consequences without proper controls and ongoing guidance from an antitrust lawyer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Orginal article: Link To Article – provided by Kansas City Realtors