The house is on fire at the National Association of Realtors, and so far, no one from the Chicago-based organization is taking action to put it out.
For decades, the NAR, as it’s known, dominated the business of buying and selling homes. Today, scandals involving its top officials, combined with litigation challenging its most treasured rules, have left it in danger of irrelevance and, potentially, a bankruptcy filing.
Its latest president, Kevin Sears, has correctly warned of trouble ahead. Between the angry Feds and a string of class-action lawsuits, the organization’s anti-competitive policies will not survive. “The way that we operate our business is going to change,” Sears acknowledged. “It is going to change whether we embrace it and adapt, or it’s going to be forced down our throats.”
With each passing day, it looks ever more likely that the NAR is going to be forced to open wide. The realtors are failing to take the obvious steps to save themselves. A group accustomed to money and influence evidently lacks the determination to solve its self-inflicted problems at a crucial crossroads in its history.
Instead, this group continues to defend rip-off business practices that cost American consumers billions of dollars annually.
What a shame. Over the years, the NAR has been a source of useful research into the housing market and an effective advocate for its members. With offices in the heart of Chicago, it has been a visible participant in civic life. And as this page has pointed out before, many affiliated real estate agents work hard for their clients, bringing valuable expertise to the home-sale process that justifies the commissions they earn.
But as much as we hate to see a local institution struggle, we hate the NAR’s anti-competitive practices even more. The NAR needs to change its rules so that consumers can more easily negotiate competitive fees. It needs to correct a home-selling process that by NAR decree is tilted to the benefit of real estate agents at the expense of everyone else. And it needs to stop trotting out the same arguments that are failing in the courts as well as in the court of public opinion.
To hear John Baker, chief executive officer of the related Illinois Realtors, tell it, consumers should be grateful to his group. The American public has real estate agents to thank for whatever consumer protections exist in the law today, he told the Chicago Tribune Editorial Board during a recent visit. The rules under attack in the courts for stifling competition are there for a reason, he said, reflecting years of effort to balance the interests of all parties and keep the market open to those once denied equal access.
In fact, NAR rules exist mainly to ensure real estate agents get paid. Its policies work against home buyers and sellers, who end up being forced to shell out some of the highest commissions anywhere in the world, making homes less affordable.
The tide is turning via litigation such as the historic Sitzer-Burnett case that resulted last year in a federal jury awarding $1.8 billion to plaintiffs in Missouri. (Look-alike cases against the NAR are pending in Illinois and other states.)
The biggest issue in Sitzer-Burnett was the NAR rule that required selling agents to guarantee a 2%-3% commission to agents representing buyers. That rule was crucial to jacking up overall fees, in concert with the NAR’s control of its online Multiple Listing Service.
The NAR has contended there’s no such thing as mandatory, fixed or standard commissions and that everyone is free to negotiate. But anyone who has bought or sold a home understands that argument is pure baloney in practice. Traditional real estate agents do not make living-room pitches offering a variety of commissions. Backed by the NAR’s monopolistic policies, they are rarely open to anything other than their usual 5% listing fee.
Starting today, the NAR needs to eliminate mandatory commissions altogether.
If a buyer decides it’s too costly to hire a buyer’s agent, there should be no penalty, hidden or otherwise, for working directly with a seller’s realtor, who should not then get to pocket the fee that would have gone to the (now nonexistent) buyer’s agent. Given the success of alternative brokerages such as Redfin, which provide self-service technology, many Americans can readily find the properties that interest them.
The federal court of appeals in Washington, D.C., is due to issue a ruling any day that is expected to revive a Justice Department antitrust case against the NAR that was closed in the waning days of the Trump administration. While the class-action lawsuits have the potential to financially ruin the NAR, the federal trustbusters are positioned to impose sweeping changes.
NAR, make the changes that will save the organization and save American consumers billions of dollars in inflated commissions. Get ahead of this legal juggernaut.