Underway in federal court, a class action suit takes aim at one impediment to affordable housing: the fees charged by realtors.
I’ve always found realtors ironic and disingenuous listening to them opine on the “free market” when, they stand protected behind one of the largest collectively bargained, price-fixing schemes in the U.S. when it comes to their fees. Even the right-leaning Editorial Board of the Wall Street Journal, which concedes that “the Realtors may own the U.S. Congress,” refers to them as a cartel. The WSJ has come out in support of a federal jury trial underway that takes aim at “numerous rules that inflate their pay” according to an October 15th, 2023 statement.
Burnett v National Association of Realtors (NAR) is an anti-trust lawsuit brought by plaintiffs in Missouri. NAR views the case as an existential threat. “The future of the buyer representation and the sanctity of the MLS system…is at stake,” according to Drive with NAR a podcast by Realtor Magazine. NARs Chief Legal counsel Katie Johnson, interviewed on the podcast, expects an appeal no matter who prevails. She states that the 100-year-old model representing homebuyers and sellers is efficient, professional and lends stability to the marketplace. The interviewer points out that agents lend their services “free” for the many deals that don’t close, and that because the buyer is not paying out of pocket for the service, that they have more funds for closing. For a group supposedly expert in negotiating, it has always been odd that realtors refuse to negotiate their fees, especially for affordable housing.
At crux in the case is whether the price is “fixed” in the structure. It sounds as though the two sides argue different definitions of fixed. Of course, a percentage is not “fixed” by one definition, but the set percentage does not reflect varied amount of time, complexity of effort marketing or a negotiating a deal. Some realtors are known for the effort they put into preparing and showing a home. Others, not so much. Many transactions require no more than perfunctory paperwork, especially in a “hot” market. And 6% is often far from insignificant; and becomes be quite a chunk of a buyer’s annual wages as median home prices spike over a half million dollars in the high country.
There are other tools which realtors object to when it comes to addressing housing affordability, like allowing more communities to impose Real Estate Transfer Fees (RETT). The NWCCOG Workforce Housing Report, soon to be published, speaks to what a powerful tool RETT has been to the 12 communities in Colorado that were grandfathered in before TABOR. Reforming that law in the state could allow these communities to direct those funds to affordable housing like Aspen which generates over $30M each year for that purpose from a dedicated RETT. The Town of Vail’s 1% RETT is dedicated currently to other purposes. The barriers for communities implementing new RETT are too high within the current law.
While communities innovate to bring down home prices through reforms and funding tools, the variable of realtor fees which adds significantly to the cost of housing can only be changed by action of the courts, hopefully beyond the powerful influence that realtors continue to have over legislators.
UPDATE: Nov 1, 2023. A federal Jury found NAR and large residential brokerages liable for $1.8B in damages for conspiring to keep commissions artificially high. Read more at WSJ https://www.wsj.com/real-estate/jury-finds-realtors-conspired-to-keep-commissions-high-awards-nearly-1-8-billion-in-damages-b26f9c2f?mod=itp_wsj,djemITP_h
Though two brokerages settled prior to this case, lawyers for the defendants will be asking for the judge to reduce damages and are likely to appeal the decision. The Trump Justice Department had worked to settle all claims, while the Biden JD is seeking to revisit the settled cases also.
