Do The National Association of Realtors’ Rules Stifle Competition?

National Association of Realtors Commission

It’s no secret that commission plays a big role when it comes to working in the sales industry. Not so different from servers or bartenders receiving tips as the majority of their pay, a sales commission is the additional compensation one would receive for exceeding the minimum sales threshold. However, what happens when sales opportunities are avoided because the expected commission is lower than most? For the National Association of Realtors (NAR), this situation is all too familiar.

Keller Williams, the Austin-based residential real estate company, is facing backlash for its training policies. This has resulted in a class-action lawsuit challenging the commission structure on home sales brokered by members of NAR. The case itself revolves around whether or not NAR rules stifle competition by requiring listing agents to say up-front exactly how much of their sales commission will be shared with buyers’ agents.

The sellers who initially brought on the lawsuit argued agents actually avoid listing and/or showing certain properties that offer lower commissions, which can create an environment that stalls commission rates at around three percent for each cooperating agent. However, the NAR and the brokerages named in the litigation have asserted the defendants are mischaracterizing the rules.

Keller Williams is a defendant in the newly filed class-action lawsuit that consolidated previously filed litigation in Minnesota, along with suits filed by a half-dozen other plaintiffs. The class action suit goes into greater detail than the original complaint, citing the NAR training of real estate agents at Keller Williams University as evidence agents have less incentive to show homes with low commissions.

If a judge decides to strike down the standard practice of splitting commissions, it could have the potential to save a homeseller thousands of dollars in commissions by forcing more buyers’ agents to negotiate their pay or shift their fees to buyers. It would also result in cutting the earnings of real estate agents across the country and put more pressure on traditional brokerages.

The class action complaint includes a script allegedly used to train real estate agents dealing with a seller who wishes to reduce the buyer commission to save money. “When you reduce the commission, you reduce the incentive for that agent to bring a buyer to your house,” the agent in the script explains, according to court documents. “If an agent has 10 different houses, nine of which come with a 3 percent commission, one of which comes with 2.5 percent commission, which houses do you think they’re going to show?”

While NAR defends its commission structure in federal court, the Department of Justice (DOJ) has opened its own investigation into real estate agent fees. In the investigation, the DOJ has demanded information from CoreLogic, a system that provides many real estate agents with platforms where they can share listings, known as multiple listing services. While the information in regards to whether or not multiple listing services prevent competition in the real estate agent fee structure has yet to be determined, it’s clear there is a long road ahead for the NAR.

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