DOJ, FTC Investigate Real Estate Commission Policies

Home sale commissions are under investigation by the Biden administration, which has asked the Federal Trade Commission to adopt rules to address any unfair practices it sees in the real estate industry, the Wall Street Journal reports.

The Justice Department is investigating commissions after several civil lawsuits challenging industry rules passed muster in procedural challenges. Critics of traditional broker fees say rising home prices have highlighted an epidemic of excessive fees. Real estate agent fees are typically 5%-6% of the sale price.

Homebuyers end up paying part of these fees through the purchase price but have little control over fees because they are set by the seller.

Consumer advocates have specifically pointed to the National Association of Realtors’ (NAR) rules as contributing to unreasonably high fees and preventing serious policy changes. NAR rules require sellers to offer commissions to homebuyers’ brokers. Last year, Americans paid more than $85 billion in broker fees.

In one case last year, a federal judge threw out NAR’s motion to dismiss a lawsuit brought against them by a seller, alleging NAR’s rules forced them to pay higher broker fees. The judge found their evidence compelling and allowed the case to proceed.

“In a competitive market,” the suit says, “the seller would pay nothing to the buyer broker, who would be paid instead by the buyer, and the commission paid by the seller would be set at a level to compensate the seller broker only.”

“We intend to demonstrate how the M.L.S. system creates competitive, efficient markets that benefit home buyers and sellers as well as small business brokerages,”NAR representative Mantill Williams said.

The Trump administration and NAR had previously reached a settlement making brokerage fees more transparent, but the Biden administration has backed out of the deal.

NAR argued in a press release that the DOJ is violating the law and breaching their agreement by backing out now. “By its action, the DOJ thinks it should be free to reconsider the terms of an agreement at any time, for any reason – or no reason at all,” NAR president Charlie Oppler said. 

“If that view prevails, it would undermine the strong public policy in favor of upholding settlement agreements and public confidence that the government will keep its word in future cases.”