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Last month the National Association of Realtors paid $418 million to settle a massive lawsuit over the commission that realtors earn on home sales. Planet Money's Amanda Aronczyk takes us inside the courtroom for a look at how this all came about.
AMANDA ARONCZYK, BYLINE: Back in 2019, lawyer Mike Ketchmark signed on to represent a group of Missourians in a lawsuit against four of the country's largest real estate companies and the National Association of Realtors.
MIKE KETCHMARK: I had never heard of the National Association of Realtors. And then when I started looking into it, I thought, wait a minute. They're the largest lobbyist in the country?
ARONCZYK: This class action lawsuit argued that the NAR had rules that benefited realtors at the expense of home buyers and sellers. So usually realtors are paid a 5- to 6% commission on the sale price of a home. Three percent goes to the seller's realtor, and 3% goes to the buyer's realtor. Basically, these two competing sides are incentivized to work together to keep commissions high.
KETCHMARK: There's a law - it's the Sherman Antitrust Act - that says that you cannot join with competitors to follow a system that's designed to inflate or stabilize prices.
ARONCZYK: Now, Ketchmark and his team needed to prove this in a courtroom. So they hired an economist to look at thousands of home sales in the Kansas City area to see what commission the buyers' realtors were getting. Now, in a truly competitive market, you would see a range - 1%, 2%, maybe 4%. But that was not happening in Kansas City. To illustrate this to the jury, Ketchmark put up a chart of the economist's analysis.
KETCHMARK: It was a very visual image. If it's a randomness to it, you would expect on a chart, like, all these dots all around. But it was a single bar graph.
ARONCZYK: It was basically one red line. The buyers' realtors got the exact same commission in almost all the sales - 3%.
KETCHMARK: The prices were so stabilized, and the chances of that happening without collusion was almost zero.
ARONCZYK: Also, home sellers were discouraged from negotiating the commission. To make this point, Ketchmark played a video. It featured the CEO of one of the big real estate companies training realtors from a couple of different companies to insist on 6% or more. Here, he says, if a customer asked...
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED PERSON: Aren't commissions negotiable? I would always answer confidently, yes, commissions are negotiable, but I can only go up.
ARONCZYK: Ketchmark pointed to this as proof of collusion. Now, the realtors disagreed. Here is a former president of the NAR, Ron Phipps. He's also a realtor.
RON PHIPPS: Consumers have always had the right and the opportunity to meet with me and say, here's what I want to do.
ARONCZYK: Phipps says everything is negotiable, including the split between the seller's agent and the buyer's agent.
PHIPPS: There's no requirement that it be split a certain way. There is no NAR rule about how that is allocated.
ARONCZYK: Phipps also said there are many places where there is healthy competition. Missouri is an outlier. In the end, though, Ketchmark and his team won the case, and last month the NAR agreed to a settlement.
KETCHMARK: We're in the process now of sending out notice to all of the people who've sold homes in the United States so that this money can be returned to them.
ARONCZYK: So if you sold your home recently, you might get a postcard about this settlement. Looks a bit like junk mail. It isn't. Or head to realestatecommissionlitigation.com. Amanda Aronczyk, NPR News. Transcript provided by NPR, Copyright NPR.
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