Real Estate Industry Braces for Overhaul Amid Justice Department Scrutiny

The real estate industry is on the brink of a significant transformation as it prepares to abandon its longstanding commission structure next month. This shift comes as part of a $418 million settlement agreement resulting from a class-action lawsuit against the National Association of Realtors (NAR). According to the Wall Street Journal, the Justice Department’s ongoing scrutiny suggests that further changes to how real-estate agents are compensated may be imminent.

Set to take effect on August 17, the new industry rules are expected to reduce commissions by approximately 30%. Currently, these commissions are split between the buyer’s and seller’s agents. Under the new rules, sellers will no longer be obligated to compensate buyers’ agents. This settlement aims to address longstanding concerns about high commission rates in real estate transactions.

Despite these impending changes, the full settlement is not scheduled for final approval by a federal judge until November. This delay provides the Justice Department with a window of opportunity to formally object to the settlement if it believes the new rules do not adequately reduce commissions or address other issues within the industry.

The Justice Department has already signaled its continued interest in real-estate commission practices. It has intervened in two industry lawsuits and issued a formal inquiry to the California Association of Realtors regarding some of its legal forms used during home sales. Additionally, the department has sought information from various real-estate companies about their listing rules.

At a meeting with the NAR in late June, the Justice Department expressed concerns that agents might attempt to circumvent the new rules. NAR President Kevin Sears highlighted these concerns in a letter to the association’s members, underscoring the ongoing federal oversight.

“Clearly the DOJ is still very much involved in this,” said Gary Acosta, chief executive of the National Association of Hispanic Real Estate Professionals, who attended the meeting.

The Justice Department’s involvement could potentially influence the final outcome of the settlement. If the department decides to formally object, a judge could require the parties to renegotiate the agreement, though this would not automatically negate the existing settlement.

Source: WSJ