The End of 5%? Landmark Case Could Reshape Real Estate Commissions

A federal jury in Missouri delivered a $1.8 billion verdict against the National Association of Realtors and three major real estate brokerages on Tuesday, finding them guilty of illegally inflating commissions by conspiring to require home sellers to pay the buyer’s agent. This landmark antitrust case could reshape how homes are bought and sold in America by potentially changing the traditional compensation structure, where seller’s agents split a 5-6% commission with the buyer’s agent.

For decades, it has been standard practice for home sellers to pay their listing agent a commission, typically around 3% of the sale price, which is then split with the buyer’s agent who brought the purchaser. This long standing arrangement has enabled real estate agents to earn consistent, sizable commissions on home sales, even as the internet has disrupted other sales-based industries like insurance and travel.

The plaintiffs argued that requiring sellers to pay for the buyer's agent artificially inflated commissions and violated antitrust laws. They contended that commissions should be negotiable between buyers and their agents, rather than sellers being forced to foot the bill. The jury agreed, handing down the multibillion-dollar verdict after just a few hours of deliberation.

The case was brought against the largest trade group in the country, and major national brokerages including National Association of Realtors (NAR),  HomeServices of America, Keller Williams Realty and Re/Max.. Two other defendants, Anywhere Real Estate (formerly Realogy) and RE/MAX, settled separately for $140 million total.

As part of their settlements, Anywhere and RE/MAX agreed to stop requiring buyer's agents to be members of NAR in order to receive compensation. This move could pave the way for more flexibility and competition in agent commissions if membership in NAR is no longer essential for agents to be paid.

NAR, HomeServices and Keller Williams vowed to appeal the verdict, arguing commissions have always been negotiable. But consumer advocates celebrated the jury's decisively pro-seller ruling as a rebuke of anti-competitive industry practices. They expressed hope the court will order additional changes to how agent commissions are set.

The jury could triple damages to $5 billion if the judge finds the defendants willfully violated antitrust laws.If the ruling is affirmed, NAR and the brokerages would have to pay out roughly $2 billion in total, on top of the $140 million in settlements.

What does this entail for those who purchase and sell homes? Since appeals will probably take years to resolve, most real estate experts do not anticipate significant changes in the near future.

 But the verdict does signal shifting opinions on long accepted industry norms.

If commissions become more fluid rather than set at 5-6%, it could potentially lower costs for buyers and sellers. Uncoupling the seller's agent commission from the amount paid to the buyer's agent would enable more price negotiation benefiting consumers.

However, some agents argue reducing buyer agent commissions could negatively impact first-time home buyers and make transactions more complex. They contend that buyer's agents provide valuable services guiding purchasers through the complicated process, which buyers directly pay for in other countries.

The market will dictate whether consumers view paying their own agent as worth the cost. But the verdict makes clear that federal courts are no longer willing to allow industry collusion to stifle competition on agent fees.

NAR maintains an iron grip on the real estate market, with 1.5 million members nationwide. But its power is declining. The trade group is also facing a separate Department of Justice antitrust investigation into its rules around commissions and MLS access.

Last month, discount brokerage Redfin became the first national brand to drop out of NAR completely. Redfin CEO Glenn Kelman explicitly cited the DOJ probe and said the company could better “compete on price” if not bound by NAR’s policies.

With legal challenges mounting and defections increasing, NAR may struggle to justify longstanding practices like compelled commission splits. The association derives much of its influence from widely shared norms around agent fees which now face growing judicial and governmental scrutiny.

But change will not happen overnight given the complexity of real estate laws and regulations across 50 states. Brokerages like Redfin scaling back involvement with NAR so far represents more of a symbolic shift rather than an immediate industry overhaul.

Consumers fed up with high fees do have alternatives if willing to take a more hands-on role in buying or selling. Options include flat-fee MLS listing services, for sale by owner sites, and discount brokerages with lower commissions. But many find paying top dollar for a full-service, traditional agent worthwhile.

Ultimately, consumers hold the power to shift the market by voting with their wallets. The Missouri case makes clear that regulators will no longer tolerate obscure industry practices that stifle competition around commissions. If buyer demand for lower-cost agents grows, the 5-6% fee structure will adapt.

For now, NAR remains steadfast that its rules are legal and claims commissions have always been negotiable. But it finds itself on the defensive in an increasingly anti-monopoly environment. Once appeals wrap up, the nearly century-old system of standardized, seller-paid commissions may need a dramatic 21st century makeover.