The National Association of Realtors Settles
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From the The Morning Dispatch on The Dispatch
Happy Tuesday! Despite our eagle eyes and best efforts, sometimes your intrepid TMD reporters need to crowdsource some sleuthing. After a video showing Kate Middleton shopping at a farm market in Windsor popped up online—her first public sighting since January amid wild speculation over her situation—some on Twitter argued that the woman in question was in fact not the reemerged royal. So we’re asking you, loyal readers: Was that really the Princess of Wales out for a stroll?
Quick Hits: Today’s Top Stories
The Israel Defense Forces (IDF) raided Shifa Hospital in Gaza City early on Monday, following intelligence reporting that senior Hamas officials were once again utilizing the building. “Hamas tried to reestablish its base in the hospital and use it as a shelter for terrorists on the run,” IDF spokesman Daniel Hagari said yesterday. “We will not allow this and will attack and continue to attack any place Hamas tries to reestablish its grip.” More than 200 terrorist suspects were arrested for questioning and more than 20 Hamas gunmen were killed during the fighting, according to Israeli officials. One IDF soldier was killed in the mission. Also on Monday, President Joe Biden and Israeli Prime Minister Benjamin Netanyahu spoke by phone for the first time in a month—and Biden reportedly warned Netanyahu against a military incursion into Rafah, Gaza’s southernmost city. National Security Adviser Jake Sullivan told reporters after the call that Israel agreed to send a team to Washington, D.C., to discuss plans and concerns for a Rafah mission in the coming days.
North Korea fired three short-range ballistic missiles on Monday in a test launch that coincided with Secretary of State Antony Blinken’s visit to Seoul, South Korea, for a summit on advancing democracy. The barrage—which saw the missiles land in the sea off of North Korea’s east coast, just outside of Japan’s exclusive economic zone—was the first in nearly two months, and was swiftly condemned by U.S., South Korean, and Japanese officials.
Pakistan launched airstrikes against Taliban targets in Afghanistan Monday, in retaliation for an attack Saturday in which an explosive-laden truck and suicide bombers killed at least seven Pakistani soldiers. The Taliban said that Monday’s attack killed five women and three children, and their forces fired at Pakistani forces along the northern border in retaliation.
Former President Donald Trump’s lawyers said Monday that their client could not obtain a $454 million bond to guarantee payment of the New York civil fraud judgment against him. In their filing Monday, the former president’s lawyers said it’d be “impossible” to secure such a bond after 30 surety companies rejected his request for the amount. The legal team asked instead that Trump be allowed to post a $100 million bond as he appeals the case.
Supreme Court Chief Justice John Roberts, acting in his capacity as circuit justice for the D.C. Circuit, on Monday turned down former Trump aide Peter Navarro’s request to delay a jail sentence set to begin this afternoon. Navarro, who sought to remain out of prison while appealing his case, was sentenced to four months in prison after he was convicted last year of criminal contempt of Congress when he refused a subpoena by the House Select Committee on the January 6 Attack.
Settling the Sellers’ Market
The National Association of Realtors (NAR) announced a landmark settlement Friday that would resolve more than a dozen lawsuits brought by home sellers contesting the trade group’s real estate commission practices. The settlement involves not only compensation to sellers—to the tune of $418 million—but also policy changes that could lower agent commissions, open up competition, and decrease housing costs.
For your millennial and Gen Z Morning Dispatchers who have all but given up on the prospect of home ownership in the near future, the settlement came as welcome news. But the effects on housing costs will likely be modest against the high interest rates and supply crunch pushing home prices up.
NAR has long dominated the housing market. The group is the country’s largest trade association and boasts nearly 1.5 million members. The association’s practices effectively set rules for the rest of the industry, including the 5 to 6 percent commission paid by home sellers and split between their own agents and their buyers’ agents. NAR rules require sellers to include a commission offer in their listings that is visible to buyers’ agents but hidden from the buyers themselves. Agents must abide by NAR rules in order to list homes on multiple listing services (MLS), private property databases controlled by NAR and its affiliates that are used by agents to circulate listings.
Critics of the practice argue that requiring the seller to pay the buyer’s agent introduces a conflict of interest. The buyer’s team is supposed to represent the interests of the potential homebuyer when selecting listings and negotiating sales—but they’re paid by the opposite party in the negotiation. Brokers are further incentivized to direct their clients to purchase more expensive homes, as their compensation increases proportionally with the home price.
Groups of individual home sellers challenged NAR’s commission structure in two antitrust class action lawsuits filed in the spring of 2019 against the trade association and large brokerage firms that required their agents to be NAR members. The suits argued that requiring sellers to pay the commission for the buyers’ agents in order to get access to MLS amounted to a conspiracy to inflate commissions. “The premise of our case is that the rules are rigged to stabilize prices and commissions, so that when you sell your house, it costs you more money than it would have without this collusion amongst competitors,” said Michael Ketchmark, the lead attorney representing the home sellers in one of the original cases.
The sellers in one of the cases triumphed last October, and NAR was found liable for about $1.8 billion in damages. The victory opened the floodgates for copycat lawsuits targeting additional brokerages, and lawyers representing the sellers quickly launched a national class action suit. Three of the four big real estate firms included in the original lawsuits—RE/MAX, Keller Williams, and Anywhere Real Estate (formerly known as Realogy)—reached settlements. The fourth, Warren Buffett’s HomeServices, is still fighting the litigation and has requested the Supreme Court take up the case.
NAR also opted to settle rather than face more potential damages far beyond its capacity to pay. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances,” Nykia Wright, NAR’s interim CEO, said in a statement on Friday. Under the settlement, the association can pay the $418 million over four years and did not admit any wrongdoing. But NAR could soon face more legal trouble as the Justice Department pursues its own antitrust probe into the group.
The settlement—which still must be submitted to and approved by the court—stipulates that NAR will establish rules “prohibiting offers of broker compensation on the MLS,” and requiring “MLS participants working with buyers to enter into written agreements with their buyers.” Functionally, those changes mark the end of both the default upfront 6 percent commission and sellers paying for buyers’ agents. Commissions would no longer be a functionally fixed rate and instead would become something a buyer could shop around for. Agents would have to compete with each other to work with buyers, which could save homeowners thousands of dollars.
“We started this case to challenge NAR rules that prevent competition on commissions for home sales in the United States for homes listed on multiple listing services,” Steve Berman, one of the attorneys representing home sellers, told HousingWire. “This settlement changes those rules so that competition will occur at the commission level.”
The settlement still allows for commissions to be negotiated between the seller and the buyer. For instance, while the listing agent would no longer be allowed to advertise buyers’ commissions on MLS listings, sellers could still practically cover the costs of the buyer’s agent through price concessions. Sellers’ agents can also advertise buyer commissions directly outside of MLS.
Some analysts forecast that commissions could be slashed: TD Cowen estimated that rates could fall by anywhere from 25 to 50 percent, and the investment bank Keefe, Bruyette, and Woods forecasted last fall that the case could lead to a 30 percent reduction. A 6 percent commission on a $500,000 home is $30,000—if the commission fell to 4.2 percent (a 30 percent reduction), the homeowner would save $9,000 on the sale.
The rule changes could also drive disruption and disintermediation in the industry and lower costs further. Buyers’ agents could begin offering new compensation structures such as flat fees or even hourly rates. “Alternative models … never really caught on because they could never get over this hurdle and be able to list on the multiple listing services,” Tobias Peter, co-director of the American Enterprise Institute’s Housing Center, told TMD. “Even if you were able to list it as a FSBO—for sale by owner—the other realtors were less likely to show that particular home because they knew that would affect their commissions.” Companies offering alternative brokerage models, like Redfin, have grown but have not yet supplanted industry incumbents.
Perhaps reading the writing on the wall, Redfin ended its cooperation with NAR in the fall. “If it becomes easier for buyers to understand how their agent is paid and easier for them to choose their agent based on the agent’s fee, that’s almost certainly good news for real estate consumers,” Redfin CEO Glenn Kelman wrote in reaction to the settlement. (Redfin was one of the brokerages sued in the wave of copycat lawsuits.)
The changes to commissions are likely to modestly improve homebuyers’ prospects. According to NAR, the median home sales price in January was $379,100, up 5.1 percent year-over-year. Mortgage rates are still over 6 percent, and most analysts don’t expect rates to fall below 6 percent through the end of 2024. The Federal Reserve’s Open Market Committee meets this week and will announce its rate decision tomorrow—the committee is expected to maintain current interest rates following economic data showing that inflation remains sticky.
The country also remains short of millions of homes, meaning housing prices will likely stay high until supply begins to catch up. “The benefit to the consumer who wants to buy is probably going to be limited just because home prices are going up much faster,” Peter said.
Worth Your Time
Writing for The Atlantic, Graeme Wood reported on a question plaguing Ukrainian defense officials: What if Russian forces have been using U.S. private satellite images to plan their airstrikes on Ukraine? “The Ukrainians say they monitor flyovers by Russia’s own satellites,” he wrote. “But until recently, they assumed that the satellites of allies would not be available for Russia’s advantage. ‘Before about six months ago, we couldn’t imagine that private companies would be selling satellite imagery in sensitive areas,’ [a] Ukrainian military official told me. But ‘it has become hard to believe that [these coincidences] are random.’ Russian satellite capabilities are limited, and Ukraine’s are too. Anyone who has seen the social-media footage of ragtag infantrymen huddled in trenches is aware that this war is being fought by two poor countries. But with subterfuge, even poor countries can try to rent the services of rich ones—or, more precisely, the services of the private companies that operate within the rich ones’ borders.”
Presented Without Comment
In a podcast interview released on Monday, former Deputy Assistant to the President of the United States Sebastian Gorka asked former President Donald Trump why “the Democrats hate Bibi Netanyahu,” in light of Senate Majority Leader Chuck Schumer’s speech last week calling to replace the Israeli prime minister.
Trump: “I actually think they hate Israel. … Any Jewish person that votes for Democrats hates their religion, they hate everything about Israel, and they should be ashamed of themselves, because Israel will be destroyed.”
Also Presented Without Comment
New York Times: [Former Trump Adviser Paul] Manafort in Talks to Return for the Republican National Convention
Toeing the Company Line
It’s Tuesday, which means Dispatch Live (🔒) returns tonight at 8 p.m. ET/5 p.m. PT! The team will discuss the news of the week and, of course, take plenty of viewer questions. Keep an eye out for an email later today with information on how to tune in.
In the newsletters: Kevin compared (🔒) two contemporary studies in genocide, the Dispatch Politics team checked in on the GOP Senate primary in Ohio, and Nick considered the weight (🔒) of former Vice President Mike Pence’s refusal to endorse his former boss.
On the podcasts: Sarah and David discussed Justice Amy Coney Barrett’s opinion in Lindke v. Freed and consider the test for state action on social media on the latest Advisory Opinions.
On the site today: Chris breaks down Murthy v. Missouri and considers how both progressives and nationalists keep running afoul of the First Amendment. Plus, Paul Matzko and Jennifer Huddleston argue that there are better ways to keep TikTok in check than forcing a sale or banning it.
Let Us Know
What other public policy fixes do you think could be made to make buying a home easier?
