How Moehrl v. National Association of Realtors Increases Transaction Costs for the Potential Homebuyer

Blog Post | 113 KY. L. J. ONLINE | October 15, 2024

How Moehrl v. National Association of Realtors Increases Transaction Costs for the Potential Homebuyer

By: Brooke Allison, Staff Editor, Vol. 113 

Each year, Americans pay an estimated “$100 billion in real estate commissions” to make arguably the most important purchase of their life: their home.[1] For the past several decades, the National Association of Realtors (NAR) has set the guidelines “governing realtors’ client relationships and home sales across the United States.”[2] This year, Moehrl v. National Association of Realtors resulted in a settlement of $418 million, which changed the rules regarding how real estate transactions are done.[3]

In Moehrl, the plaintiffs brought a class action against NAR, alleging the defendants violated the “Sherman Act and other anti-trust laws.”[4] NAR agreed to settle, resulting not only in cash payments for the member of the class who brought this suit, but also allowing home sellers to no longer have to pay the costs of the homebuyer’s agent.[5] Buyers will now negotiate directly with their agent about those fees.[6] Why is this a big deal? Well, typically, when a house is listed for sale, the seller agrees to pay the seller’s agent 6% of the sale price.[7] Once they have found a buyer, the seller’s agent keeps 3% of the sales price and will give the other 3% to the buyer’s agent.[8] But now, with the NAR rules left behind, sellers are free to offer “less compensation, or nothing at all” to the buyer’s agent, saving the sellers money.[9]

Initially, this settlement deal sounds like good news, especially for sellers. Homebuyers, on the other hand, can expect their transaction costs to increase. Under the new system, homebuyers are required “to enter into a buyer representation agreement with their potential realtor before showings happen.”[10] Not only will this add an additional step in the home buying process for the buyer, but some argue that buyer representation agreements do not protect the buyer enough.[11] The problem, law professor Tanya Moestier explains, is that asking first-time homebuyers to negotiate the price of commission before any offer has been made on a home will still lead to them paying too much.[12] This is because when the property goes up for sale, “either the seller themselves or the seller’s agent is allowed to market the offer of compensation as a carrot,” resulting in the homebuyer paying a high commission to the buyer’s agent.[13] This was what the lawsuit hoped to avoid, but, according to Moestier, nothing is protecting home buyers from paying increased prices.[14]

What if, to try to save some money, the buyer cuts the buyer’s agent out of the transaction entirely and tries to go it alone? If a buyer opts to forego having an agent, then the transaction costs for the buyer increase drastically. Without an agent, the buyer will “have to meet with their [home] inspectors and contractors” without someone who is an expert in the process.[15] This could be especially risky for a first-time homebuyer who is not familiar with the home buying process. They will be left to navigate a costly, time-consuming transaction without an agent to advise them, advocate for them, and ultimately drive their transaction costs down.

Another transaction cost that first-time homebuyers will need to be on the lookout for is selecting the right agent. With the 3% commission for the buyer’s agent no longer being customary, buyers will need to spend extra time finding an agent within their budget. The process of purchasing a home already requires a lot of research, time, and money. This additional hurdle will add stress and another step to the lengthy process of buying a home.

Considering the increased transaction costs, the recommendation for the first-time homebuyer should be “beware.” In an already expensive housing market, homebuyers will have additional concerns on their plate: excessive agent commission, negotiating with contractors, and finding an agent within their budget. The reality is that Moehrl set out to help the homebuyer, but it may have done more harm than good.

[1] Current Cases: Moehrl v. National Association of Realtors, et al. Cohenmilstein,  https://www.cohenmilstein.com/case-study/moehrl-v-national-association-realtors-et-al/ (last visited Oct. 14, 2024).

[2] Id.

[3] National Association of Realtors and HomeServices MLS proposed class action settlements, Top Class Actions (Aug. 20, 2024), https://topclassactions.com/lawsuit-settlements/open-lawsuit-settlements/national-association-of-realtors-and-homeservices-mls-proposed-class-action-settlements/.

[4] Id.

[5] Nicole Friedman & Laura Kusisto, Cutting Fees. Going It Alone. New Rules Are Changing How We Buy and Sell Homes, Wall Street Journal (Aug. 22, 2024, 9:15 AM), https://www.wsj.com/real-estate/new-real-estate-commission-rules-impact-9a880731.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Mason Lawlor, ‘Nothing Is Good for the Consumer Right Now’: Experts Weigh Benefits, Drawbacks of Updated Real Estate Commission Policies, Law.com (Aug. 27, 2024), https://www.law.com/2024/08/27/nothing-is-good-for-the-consumer-right-now-experts-weigh-benefits-drawbacks-of-updated-real-estate-commission-policies/.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Emily Ross, I’m a Realtor. NAR settlement may not be as good for home buyers and sellers as they think, USA Today (Mar. 28, 2024, 3:20 PM), https://www.usatoday.com/story/opinion/voices/2024/03/28/real-estate-nar-settlement-home-buyers-sellers-commission-win/73070096007/.