By Jack Cahill.
Prospective homebuyers witnessed a surge in home prices over the last several years, particularly here in Phoenix. While this unprecedented trend is slowing down thanks to growth in inventory and lower interest rates, this newfound market stability could be threatened in Arizona and nationwide by the so-called Commission Lawsuits.
In November 2023, a Kansas City jury took less than three hours to determine that the National Association of Realtors (NAR) and associated local brokerages were liable for $1.78 billion in damages, with treble damages that could result in NAR paying upwards of five billion dollars. This class-action suit, Burnett v. NAR, is the most prominent of the Commission Lawsuits. In that case, plaintiffs alleged that the trade association NAR and associated brokerages colluded to “fix prices” in order to maintain artificially high commission rates for NAR Realtors®, America’s largest trade association with 1.5 million registered Realtors®.
This is not a standalone suit. Copycat suits have been filed in several U.S. states, from Texas to New York, and now in Arizona. On January 5th, one of these commission lawsuits, Masiello v. AAR, was filed in the District Court of Arizona, seeking class-action status. As in Burnett, this suit accuses several local real estate associations and brokerages of colluding to artificially inflate realtor commissions. Although NAR isn’t the direct target in Arizona, the underlying claims against local groups such as the Arizona Association of Realtors and the Phoenix Association of Realtors are strikingly similar to those in Burnett.
For context, the ordinary practice in purchasing a home looks something like this: A listing agent puts the seller’s property on the local MLS (Multiple Listing Service), and, as a part of the group’s commission sharing structure, the listing agent must offer a commission to the agent who ultimately brings the winning buyer. Ordinarily, this means that half the commission goes to the seller’s agent and the other half to the buyer’s agent. Accordingly, the buyer doesn’t ordinarily pay their buyer’s agent directly, as the buyer’s agent is compensated by the seller through closing costs.
This is not a novel arrangement. But the plaintiffs’ lawyers in Missouri were able to convince a jury that this was evidence of “collusion,” arguing that NAR and associated brokerages conspired with the MLS to require home sellers to pay the buyer’s broker, which would constitute a violation of federal antitrust law.
What Does This Mean for Prospective Buyers?
With copycat suits appearing nationwide, including here in Arizona, prospective buyers and casual observers should be aware of some potential consequences. True, some argue that these commission lawsuits will be beneficial for consumers-at-large because it will allow buyers to negotiate fee structures separate from that established in a listing agreement, thereby creating a freer market for consumers. Others argue that this will “drive out” inexperienced real estate agents in favor of more established agents, as buyers would be more willing to pay the latter group of agents directly.
This may be true, but the success of these suits may also bring negative ramifications. A wholesale change to this established commission practice could pose major problems for homebuyers and our wider real estate market, particularly in Arizona.
First, homebuyers benefit greatly from representation when purchasing a home but may be unable to afford paying a buyer’s agent directly. Without the MLS model in place, buyers would still be free to “hire” a buyer’s agent but the fees would likely come out of their own pockets. This is unwelcome news to many buyers, who for years in Arizona have seen an aggressive seller’s market, replete with sky-high prices and unequal bargaining power between the seller and buyer in residential transactions.
As dreams of homeownership are increasingly out of reach for a vast swathe of young Americans, adding this additional transaction cost is unhelpful at best and harmful at worst. Certainly, a buyer could opt to enter into negotiations without representation, but this would leave them with markedly less bargaining power and may force them to bear liability for any difficulties arising in the transaction. As NAR points out, such a change could exacerbate the disparity between homeowners and non-homeowners.
Relatedly, a change in the commission-based system could have an unintended impact on borrower down payments and mortgages. For example, a first-time homebuyer would likely elect to place a down payment of 20% on a residential property—the minimum down payment a borrower can make without a lender requiring mortgage insurance. However, borrowers unable to afford an additional payment for representation might have to opt for a lower down payment in order to save money, such as a down payment of 17%. That hypothetical borrower would need Private Mortgage Insurance (PMI) in order to do so, an undesirable option, as this would raise their monthly mortgage payments significantly.
This creates a dilemma for first-time home buyers. By upending the commission-based system, a significant chunk of buyers would face a choice: opt for riskier and costlier mortgage payments or forego purchasing a home altogether. In turn, this could disincentivize prospective homebuyers from entering the real estate market at all. Mortgage applications hit an all-time low in September and are just now beginning to recover after years of a frenzied seller’s market, particularly here in the Valley. This additional disincentive for first-time homebuyers may hinder our slow return to a balanced market.
Granted, the continued success of these suits is not guaranteed. For starters, NAR has asked the Missouri District Court in Burnett v. NAR for judgment as a matter of law, arguing that the jury lacked a legally sufficient basis to find for plaintiffs. Alternatively, they request a new trial if the judge declines to enter judgment as a matter of law. And if these options for relief fail, NAR is likely to appeal the decision.
The fate of the current compensation system may not truly be known for some time. To reiterate, the crux of the plaintiffs’ arguments in both Burnett and the copycat cases is that defendants NAR and associated brokerages conspired with MLS services to artificially keep prices high and to force sellers to pay a fixed commission. But defendants are likely to point out that compensation between agents is always negotiable, in accordance with standard MLS rules. Further, NAR and local brokerages nationwide are likely to argue that there are not enough facts to successfully allege a conspiracy with MLS services. For example, they are likely to argue that these contractual relationships, standing alone, are not themselves indicative of a wider conspiracy.
What happens next largely depends on the merits of each case and the success of NAR’s efforts to fight the Missouri verdict. Whatever the case, prospective homebuyers and realtors should keep an eye on how these cases develop. While upending the current commission system may create a freer market for buyers, it may also create unintended consequences and spell trouble in a time where stability in the housing market is greatly needed.
By Jack Cahill
J.D. Candidate, 2025
Jack is a second-year law student at ASU and is interested in Natural Resources, Real Estate, and Environmental Law. He is from Phoenix and in his free time enjoys hiking, fiction-writing, skiing, and open water swimming.