Busting Up the Home Sales Cartel Is Overdue and Necessary

The housing market, a key driver of the economy, has struggled of late. Sales of previously owned US homes just had their worst year since 1995, and affordability recently hit a record low by one measure.

But better news is ahead for homebuyers. Pressure from the Justice Department and a set of lawsuits may finally succeed in restoring market forces to an industry that’s been in the grip of a powerful cartel for decades.

The National Association of Realtors, with some 1.5 million members, boasts of being “America’s largest trade association” and traces its origin to 1908. The organization has long imposed norms on the hundreds of private local databases, known as multiple-listing services, used by its members to advertise and scout properties for sale. Among them: that the seller’s agent offer compensation to the buyer’s agent, typically half of the commission.

Those commissions, about 5% to 6% of the sale price, are much higher in the US than in countries such as Australia, the UK and Norway. A more competitive environment could lead to a 30% drop in such fees, according to one analyst’s estimate, reducing the cost to consumers by tens of billions a year. Lower commissions could boost homeownership, household wealth and geographic mobility.

The NAR has been in the crosshairs of the Justice Department’s antitrust division for years, under both Republicans and Democrats. A 2005 lawsuit over the group’s control of multiple-listing services was settled in 2008 when the association said it would grant access to internet-based brokers. A 2020 lawsuit was settled when the NAR agreed to be more transparent about fees charged by buyers’ brokers. The Joe Biden administration withdrew from that settlement and is seeking to reopen an investigation.

Other legal challenges are likely to bring more change. Last year, a federal jury in Kansas City found that the NAR and two large brokerages had colluded to keep sales commissions high, awarding nearly $1.8 billion in damages to plaintiffs. The NAR has said it plans to appeal the decision. Similar lawsuits are now underway throughout the country.