An ever-increasing number of law firms are lining up to attack the real estate industry practice of sharing sales commissions between listing agents and buyer’s agents, but the National Association of Realtors is fighting back.
In March, homeseller Christopher Moehrl filed a class-action antitrust lawsuit against the 1.3 million-member trade group and real estate franchisors Realogy, HomeServices of America, RE/MAX and Keller Williams. Shortly thereafter, NAR distributed an FAQ to its 1,100 or so local Realtor associations encouraging agents and brokers to talk to clients about their compensation and denouncing the suit’s claims.
“The complaint falsely asserts that NAR rules prohibit seller and buyer brokers from negotiating over the amount of commission that will be paid to the buyer broker and that such rules have inflated commissions,” the FAQ said.
Mantill Williams, NAR’s vice president of communications, told Inman via email that the trade group “regularly provides informational and background documents to members on a range of relevant issues” to keep them up to date and informed.
The FAQ offers a roadmap for Realtors to respond to the Moehrl suit’s strongest assertions, even as similar lawsuits proliferate. In mid-April, another homeseller, Sawbill Strategic Inc., filed an antitrust lawsuit nearly identical to the Moehrl suit. Both suits target real estate transactions in the last four years in 20 MLS markets nationwide.
This week, a pair of homesellers, Joshua Sitzer and Amy Winger, filed a similar suit in federal court against NAR, Realogy, HomeService, RE/MAX and Keller Williams. But the latest complaint is on behalf of sellers who listed their homes in four MLSs in Missouri that are not included in the other complaints: MARIS, Heartland MLS, Southern Missouri MLS and the Columbia Board of Realtors MLS. These MLSs have some 30,000 subscribers combined.
“Together, Defendants have conspired to require home sellers to pay the broker representing the buyer of their homes, and to pay an inflated amount, in violation of federal antitrust law and the Missouri Merchandising Practices Act,” the April 29 complaint said.
“The cornerstone of Defendants’ conspiracy is NAR’s adoption and implementation of a rule that requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation (the ‘Adversary Commission Rule’) when listing a property on a Multiple Listing Service.”
The Missouri Merchandising Practices Act (MMPA) makes it illegal to use deception or an unfair practice in connection with the sale of any merchandise. The law firms that filed the suit are Kansas City, Missouri-based Boulware Law LLC and Williams Dirks Dameron LLC.
Regarding the latest suit, NAR’s Williams told Inman in an emailed statement:
“In today’s complex real estate environment, Realtors and multiple listing services (MLSs) create competition, value and efficiency for home buyers and sellers contrary to the baseless claims of the Moehrl v. NAR lawsuit and other copycat lawsuits. Inspired by our code of ethics, Realtors are dedicated to providing services that guide clients through complex real estate transactions with expert knowledge, extensive experience and a commitment to the communities we serve.
“MLSs create competitive, efficient markets for residential real estate transactions by connecting listing brokers and buyer brokers to facilitate a sale that benefits both parties through transparent and streamlined information sharing. The pro-consumer, pro-competitive MLS system is evident in the dynamic U.S. real estate market and has been upheld by courts and regulatory agencies many times over. We believe that the lawsuit fostered by several plaintiffs’ class action law firms is completely without merit. We will defend the challenged policies, and we are confident that we will prevail.”
Since the Moehrl lawsuit’s filing, opinions in the industry have varied with some saying the suit could wreak havoc on homebuyers and Realtors or turn out to be a dud. Benjamin Brown, a partner at Cohen Milstein (one of the plaintiff firms in the Moehrl suit) told Inman in an interview recently that the case would likely stretch on for years, include billions in damages, and if successful, its winners would be brokers “who are willing to innovate.” Brown declined to comment for this story.
Now that a third lawsuit has joined the fray, it’s unclear whether and how the three suits are related, if at all. The first two suits were filed in the U.S. District Court for the Northern District of Illinois, while the third was filed in the U.S. District Court for the Western District of Missouri. What is clear is that all three suits hope to change how the real estate industry works by having buyers pay buyer’s brokers directly, compelling buyer’s brokers to compete by offering lower commission rates.
According to the latest complaint, plaintiffs and Kansas City, Missouri residents Sitzer and Winger listed their home in the Heartland MLS and sold it on Nov. 14, 2017, paying a total commission of 5.5 percent (2.5 percent to the listing broker and 3 percent to the buyer broker). Because Kansas and Missouri prohibit buyer brokers from offering rebates to buyers, attorneys for the plaintiffs argued that that made the defendants’ “anticompetitive conspiracy” even more effective.
“As observed by the Consumer Federation of America, when an anti-rebate law is combined with ‘the coupling of listing and buyer brokerage’ commission rates, as required by the Adversary Commission Rule, ‘there’s just really no hope for effective [price] competition on the buyer’s side,'” the complaint said.
“The economic evidence is plain that the Adversary Commission Rule works to restrain competition in several respects in real estate markets with the end result being that homesellers pay more than they otherwise should.”
But according to NAR’s FAQ, the claim that listing brokers and buyer brokers conspire to keep commission fees high is “patently false.”
“Because consumers have a multitude of choices in service and fee models, they also have great choice regarding payment for real estate services. Importantly, sellers have the ability to discuss and negotiate with their broker what fee they are willing to pay for their broker’s services and what fee they are willing to pay a cooperating broker for bringing a willing and able buyer to close the transaction,” the FAQ said.
Perhaps taking aim at assertions made by plaintiff lawyer Brown that data on actual sales commissions”exists” and “will be explored,” the FAQ said, “The plaintiffs cannot have data supporting their commission claim because, while the MLS displays a listing broker’s offer of compensation to a buyer’s broker, it does not track or record the listing broker’s commission nor the final amount paid to a buyer’s broker. Such information is required by law to be set forth in the final closing documents, which are not publicly available.”
In addition, NAR took issue with the lawsuit’s implication that buyer’s agents deserve less compensation due to their alleged “diminishing role.”
“In fact, given the voluminous amount of information that buyers now have available, the need to have a qualified, local professional help sift through this information and advise the client is crucial. Buyer brokers do that, as well as many other functions that are essential to the buying process,” NAR’s FAQ said.
HomeServices and RE/MAX declined to comment for this story. Realogy and Keller Williams did not respond to requests for comment.