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| 2 minutes read

The Potential Impact Of A Recent Residential Real Estate Broker Commission Case On Us Commercial Real Estate Broker Commissions

In October 2023, the multi-trillion-dollar United States residential real estate industry was upended by a jury verdict in a Federal District Court in Missouri which awarded plaintiffs $1.8 billion in damages against the National Association of Realtors (NAR) and several major residential real estate brokerage firms. The jury determined that the NAR and participating brokerage firms had illegally colluded by requiring real estate sellers to pay artificially high 6% agent commission fees in order to have their properties listed in most local real estate databases administered by the NAR. Those inflated commissions were then shared with brokers representing home buyers, denying sellers or buyers the opportunity to individually negotiate lower commissions with their agents and effectively making buyers pay more for their properties.

 The impact of the Missouri verdict has been immediate and wide-ranging, as similar class-action lawsuits on behalf of home buyers or home sellers have been filed in state and Federal courts across the United States (including major states such as California, Illinois, and Pennsylvania). In addition to the proliferating class-action lawsuits, the United States Department of Justice is reportedly evaluating an antitrust action against NAR for its practices of tying specified commission rates to real estate databases. Several national real estate brokerages have entered into settlements with plaintiffs, refunding hundreds of millions of dollars in commissions to the plaintiffs, and agreeing to modify their commission split practices going forward. Further settlements and changes to the practices of the residential real estate industry in the United States are anticipated in the near future, with buyers likely having increased control in the negotiation of commissions for their agents and the terms of commission splits between buyer and seller agents. 

While the litigation to date has focused exclusively on the residential real estate industry, it has the potential to also affect the customs and practices of the commercial real estate industry. In the United States, commercial real estate sales typically involve the payment of brokerage commissions between 5% and 8% of the purchase price. Similar to residential real estate, these commissions are usually paid by the seller to its agent and then split between the seller agent and the buyer agent pursuant to a separate agreement. Although commercial real estate buyers typically have more leeway to negotiate commissions directly with their agents, the increased flexibility of residential buyers to negotiate commissions may lead to corresponding flexibility on the part of commercial buyers in negotiating commissions with their agents in terms of the overall rates, fee splits with the seller agent and timing of payment. In addition, the practices of commercial real estate database listings are likely to come under administrative or judicial scrutiny where such practices mimic the purportedly anti-competitive practices of the NAR. Further developments in this area of commercial real estate practice bear close monitoring by real estate owners, potential buyers and their counsel.


real estate, litigation, nar, missouri