Real estate agent commissions: What the NAR verdict could mean for Long Island

Long Island’s real estate industry began grappling Wednesday with the implications of a groundbreaking jury verdict in Missouri this week that found the National Association of Realtors, Keller Williams Realty and HomeServices of America conspired to inflate broker commissions paid by home sellers.

An eight-person jury in U.S. District Court in Kansas City issued the verdict Tuesday and awarded the plaintiffs in the case, a group of about 260,000 home sellers in Missouri, Kansas and Illinois, monetary damages of about $1.78 billion. The federal judge overseeing the case could triple those damages under U.S. antitrust law.

In addition, the plaintiffs’ attorneys in the case filed a separate antitrust lawsuit Tuesday in U.S. District Court in Kansas City against the NAR, plus Compass, Douglas Elliman, eXp World Holdings, Howard Hanna Real Estate Services, Redfin, United Real Estate and Weichert Realtors, which each have real estate agents on Long Island.

Here’s what the case means for Long Island:

What did the jury find? The jury verdict found that there was a conspiracy among the defendants that had the purpose or effect of “raising, inflating, or stabilizing broker commission rates paid by home sellers.” 

The Sherman Antitrust Act prohibits anyone from using their market power in conspiracies to unreasonably restrain trade, said Ronald J. Colombo, professor of law and associate dean at Hofstra's Maurice A. Deane School of Law. While the federal case is in a different jurisdiction than Long Island, the verdict raises questions for local real estate agents, he said. 

“That’s the question on Long Island: Is the industry norm that strong that this case could go forward here?”

How are commissions paid? In home sales, commissions are traditionally paid by the home seller. For example, on a $500,000 sale, a listing agent might charge a 5% commission, with the seller’s agent and buyer’s agent splitting $25,000. Each agent also typically splits the commission with their broker, who facilitates the transaction, depending on the terms of their agreement.

What does NAR say? The National Association of Realtors said it plans to appeal the verdict and ask the court to reduce the damages awarded by the jury.

It wrote to members Tuesday that there is nothing they need to do differently because of the verdict, according to guidance posted on its website. It did note that the verdict strengthens the need for written buyer representation agreements that formalize an agent’s relationship with a homebuyer. The NAR also stressed that commissions are negotiable between agents and clients.

How will this immediately affect Long Island home sales? Very little, according to Richard Haggerty, CEO of OneKey MLS, the multiple listing service, where real estate agents in 11 New York counties, including Nassau and Suffolk, post properties for sale. “Commissions on Long Island have always been negotiable and competitive,” Haggerty said. “I don’t believe there has ever been any discussion or conspiracy to fix commissions and the marketplace is what determines commissions. It’s the broker in consultation with the client-seller who determines what to offer to cooperating brokers, if anything.”

How will this affect Long Island real estate agents? As per guidance from NAR, local real estate agents don’t have to overhaul the way they do business. But if the courts were to continue to decide against the industry in cases involving agents’ commissions, it could drastically change the way real estate agents are paid, particularly those who tend to represent buyers.

The plaintiffs’ attorneys in the Missouri case suggest commissions to buyers’ agents should be paid by the buyers. That would add a closing cost for homebuyers. Some buyers might opt to avoid using agents, forgoing their help in searching and touring homes, making offers and negotiating with sellers.

What’s next? The NAR’s appeal could take months or years to reach a conclusion. The Justice Department also filed a statement of interest in September related to a settlement in a federal case in Massachusetts involving broker commissions. Possible involvement of the Justice Department poses a further potential threat to existing real estate practices.

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.