Lawsuits alleging that NAR rules regarding multiple listing services prop up commissions that inflate buyer and seller costs keep proliferating.

The multiple listing service is under attack from a slew of lawsuits that underestimate its value and the value of agents and brokers, according to the National Association of Realtors.

The 1.4 million-member trade group’s general counsel and chief member experience officer, Katie Johnson, spoke during NAR’s midyear Realtors Legislative Meetings to talk about the many lawsuits NAR is defending against and warn MLSs, brokers and agents to talk about what they do for real estate consumers.

“The broker cooperative multiple listing service is under attack from those who don’t appreciate or don’t understand the value that the system creates for both homebuyers and sellers,” Johnson told attendees during the conference’s Multiple Listing Issues and Policies Committee meeting Friday.

“Start talking. Talk about your value, talk about Realtor value. Make sure your consumers, your clients [and] customers understand what you do for them, how you add value and how you get compensated. Better yet, also explain to them what the multiple listing service is and why broker cooperation works for them, the seller, or works for them, the buyer.”

MLSs have had marketing campaigns from the Council of MLSs (CMLS) for years to promote their value. And now NAR has also developed materials, including talking points and infographics, to help consumers see the benefits of the MLS and envision a world without it.

Source: NAR

NAR — along with real estate franchisors Realogy, Keller Williams, RE/MAX and HomeServices of America — is fighting several lawsuits filed on behalf of buyers and sellers challenging NAR’s MLS rules, particularly a rule that requires listing brokers to make a blanket, unilateral offer of compensation to buyer brokers that is either a percentage of the gross sale price of a home or a definite dollar figure when entering a home in a Realtor-affiliated MLS.

Two of the suits — dubbed Moehrl and Sitzer after their lead plaintiffs — allege that the sharing of real estate commissions between listing and buyer brokers is a conspiracy in restraint of trade in violation of the Sherman Antitrust Act  for inflating seller costs. A similar suit, Bauman, was filed not against NAR, but against an MLS, MLS PIN in Massachusetts.

More recent suits — one filed in January by New Jersey homebuyer Judah Leeder and another filed in March by California homebuyer Alfio Conti — make similar allegations but instead of alleging commission sharing inflates seller costs, they allege it inflates buyer costs because the commission is incorporated by sellers into the price of a home.

The plaintiffs in all five suits want to have homebuyers pay their broker directly, rather than have listing brokers pay buyer brokers from what the seller pays the listing broker, in order to discourage steering and encourage buyers to negotiate lower buyer broker commissions. Such an outcome could upend the U.S. real estate industry by effectively forcing changes in how buyer’s agents are traditionally compensated.

Katie Johnson

“Quite simply, these lawsuits allege that NAR policies violate federal antitrust law because they have made real estate broker commissions too high and the quality of services provided by brokers too low,” Johnson said.

She noted that in the Moehrl and Sitzer suits, MLSs are not defendants, but some have been subpoenaed to provide data and documentation that each party intends to use to help prove their arguments. Those two suits are currently in the discovery phase and are approaching the next major phase: class certification, when the court must decide whether to approve the plaintiffs’ requests to grant class action status.

“Here the plaintiffs will try to use experts to argue that all the sales of real estate are so similar that the class seller representatives are typical, and could represent the transaction experience for all sellers,” Johnson said.

“We will use experts to show that that’s not true and that this kind of allegations and lawsuit is not right for class certification.”

In regards to the Leeder suit, Johnson said NAR had filed a motion to dismiss arguing that the buyers lack standing to bring an antitrust case.

“The buyers are, as they themselves allege, only indirect purchasers of the brokerage services at issue,” she said. “They don’t directly pay for the services and therefore the antitrust laws don’t allow them to bring a claim against NAR or any of the defendants, so that motion to dismiss is currently pending.”

NAR is also fighting another suit seeking class-action status in Connecticut that includes the same allegations as Moehrl and Sitzer regarding commissions and NAR’s rules, but by buyers Mark Rubenstein and Jeffery Nolan and is not an antitrust case. Rather, the buyers accuse NAR, Realogy, Coldwell Banker, Sotheby’s International Realty, Keller Williams, HomeServices of America and RE/MAX of violating the RICO Act against racketeering.

“Beginning years before this complaint defendants engaged in a continuing contract, combination or conspiracy in a pattern of racketeering activity by wire and mail fraud,” the complaint alleges.

“The misrepresentation as to the payment of brokerage commissions by seller and the value of houses sold is an actual and proximate cause of harm to buyers. The contract, combination, or conspiracy alleged herein has consisted of a continuing agreement among Defendants and their co-conspirators to requires home sellers to pay the buyer broker to pay an inflated amount.

“The pattern of racketeering activity as alleged included defendants mailing and wiring contracts, loan application, and other documents to effectuate the purchase of homes and documents advertising homes for sale in support of the conspiracy to inflate the values.”

NAR has filed a motion to dismiss the case that is pending. “We think that [the complaint is] baseless, it’s meritless, there’s no allegations to even prove the claim that they’re alleging,” Johnson said.

She also highlighted a lawsuit brought by discount brokerage REX Real Estate against NAR and Zillow alleging antitrust violations for NAR rules that require Zillow to segregate non-MLS listings from MLS listings on its website, including listings from REX, which eschews MLSs.

As the other lawsuits have alleged, REX argues that the effect of this rule is to “protect the outrageously high commissions brokers collect on homes sold through the traditional brokerage process.”

“REX alleges that moving its listings to a different section of Zillow deprives consumers of property information and it misleads them to thinking that REX’s listings are not listed by a licensed real estate agent,” Johnson said.

“REX argues that websites like Zillow are critical for providing consumers with accurate and comprehensive property information. But REX fails to recognize that such display would be unavailable but for the existence of broker cooperation via the multiple listing service. In sum, that lawsuit has no legal basis. We intend to vigorously contest it.”

NAR recently filed its opposition to REX’s motion for a preliminary injunction regarding the rule.

“We think that this is just an example of a brokerage trying to take the benefits of the MLS system without contributing to it,” Johnson said.

In regards to the U.S. Department of Justice (DOJ) lawsuit against NAR, Johnson said the two entities were still negotiating the four anticipated rule changes. One of the rule changes would prohibit MLS listings from being filtered to consumers based on the commission amount being offered or based on the name of the listing broker or agent.

“We understand that there are some legitimate back-end uses for filtering, especially by broker name or by agent name when you’re trying to assess statistics, market activity, etc.” Johnson said.

“So the intent here is to prohibit the restriction of listings that are delivered to consumers, not to prohibit or restrict the back-end legitimate business purposes.”

Another rule change would require that lockbox access be available to all licensed real estate professionals licensed in the state where the property is located, but NAR believes access could depend on “reasonable conditions.”

“For example, if you require lease agreements to be signed in order to access a key, that same requirement could be imposed on non-member licensees,” Johnson said.

“Where you have lease agreements, you have expectations, responsibilities and sanctions for violating those expectations or responsibilities. All the same precautions — safety, administrative and otherwise — should be available in this new paradigm.”

She added that giving temporary key codes to non-member licensees is “not a wild expansion of any existing responsibility” because Article 3 of the Realtor Code of Ethics has always required Realtors to cooperate with brokers when it’s in the best interest of their client.

“That cooperation could never have been conditioned on whether or not the broker belongs to a specific multiple listing service,” she said. “So this is just an administrative function that really bolsters the Article 3 commitment and a requirement to cooperate.”

Email Andrea V. Brambila.

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