In new court filings in the Moehrl case, lawyers singled out hundreds of phone calls — far more than previously reported — in which agents steered business away from discount brokerage REX.

This is the sixth and final feature in a week-long series examining the high stakes and potential impact of two closely watched federal lawsuits that take direct aim at how homebuyers pay commissions. and be sure to check out Part IPart II and Part III, Part IV and Part V.

“Sometimes the members don’t understand Antitrust laws.”

Bob Hale, CEO of HAR

That’s how Houston Association of Realtors CEO Bob Hale responded to a March 2021 email from Joe Ventrone, senior advisor for the National Association of Realtors’ lobbying arm, when Ventrone forwarded him a copy of an Inman article about recordings from discount brokerage REX Real Estate purporting to show agents steering their clients away from REX listings.

The email is Exhibit 131 in a partially-redacted, 1,286-page motion for class certification publicly released in June in the larger of two bombshell commission lawsuits that could upend the real estate industry. The message appears to be a now-public acknowledgement by a Realtor association CEO to a senior NAR official that some Realtors illegally and anticompetitively push their clients away from listings that either don’t pay a pre-set commission or a lower commission than one they believe they are entitled to.

Steering is generally considered a violation of agents’ fiduciary duty to their clients under the law as well as the Realtor Code of Ethics. The plaintiffs in the suit have accused senior NAR officials of knowing about steering among their ranks, but failing to take steps to punish or prevent it. In turn, NAR says the market will “weed out” such brokers.

In March 2019, homeseller Christopher Moehrl filed a federal antitrust suit against NAR and real estate franchisors Realogy, HomeServices of America, RE/MAX and Keller Williams. Other homesellers later joined as co-plaintiffs.

The suit alleges that some NAR policies — including one requiring listing brokers to offer buyer brokers a commission to list a property in a Realtor-affiliated MLS — violate the Sherman Antitrust Act by inflating seller costs. NAR boasts 1.5 million members nationwide; the vast majority are residential real estate agents and brokers.

Realogy, which recently changed its name to Anywhere but is still Realogy in its legal filings, has publicly called for NAR to end the cooperative commission requirement at issue, but not other ethics policies the plaintiffs allege constrain commission negotiations.

Over about two years, the discount brokerage REX recorded more than 700 phone calls in which agents from other brokerages either refused to show REX listings or simply hung up after learning the brokerage doesn’t offer a preset commission to buyer agents. The recordings, far more than previously reported by Inman, prompt questions of just how widespread commission steering is in an industry where commissions are under scrutiny on multiple fronts including federal lawsuits, the U.S. Department of Justice, and consumer watchdog the Consumer Federation of America.

REX’s recordings are now in the hands of the U.S. District Court for the Northern District of Illinois, where the Moehrl plaintiffs have submitted them as evidence of steering and an alleged price-fixing conspiracy designed to keep how much agents get paid artificially high.

“The experience of REX … confirms that the threat of steering caused by Defendants’ cartel has limited the ability of alternative business models to effectively compete and discipline prices,” plaintiffs’ attorneys wrote in the motion.

“REX has traditionally marketed properties through portals like Zillow, instead of through MLSs, and has not made blanket commission offers. Despite the small size of their business, REX has produced more than 600 audio recordings reflecting brokers from around the country — including many affiliated with the Corporate Defendants — refusing to show REX properties due to the absence of offers of compensation and/or below-standard cooperative commissions.” Another 100 or more recorded calls provide evidence of agents hanging up after learning REX doesn’t offer preset commissions.

The Moehrl suit, like a smaller federal case in Missouri known as Sitzer/Burnett, seeks to have homebuyers pay their brokers directly rather than having listing brokers pay buyer brokers from what the seller pays the listing broker. Sitzer/Burnett recently won class certification for homesellers in four MLS markets in Missouri and survived an appeals court challenge from the defendants.

By contrast, the Moehrl plaintiffs seek class certification for homesellers in 20 MLS markets nationwide, which means if plaintiffs have their way, the impact of Moehrl could be far more sweeping than Sitzer/Burnett.

The REX recordings are Exhibit 132 in the Moehrl plaintiffs’ enormous filing but remain sealed to the public. However, the filing nonetheless discloses further details about the recordings through legal declarations from REX CEO Jack Ryan and REX data scientist Will Fried and an email exchange between HAR and NAR.

According to Fried’s declaration, between Jan. 1, 2019 and Jan. 26, 2020 and between April 14, 2020 and July 17, 2021, REX recorded calls between buyer agents and REX representatives in charge of scheduling showings for REX listings. REX had 5,198 listings that were active at some point during that just over two-year period. (REX did not record inbound phone calls between Jan. 27, 2020 and April 13, 2020.)

Will Fried

“Unlike traditional discount brokerages which still participate in the traditional MLS system, these calls are unique to REX because buyer’s agents are often unfamiliar with our listing model and call to ask how commission splits work,” Fried said.

During that time, Fried identified evidence of buyer agents steering their clients away from REX-listed homes in 602 calls. He also identified an additional 108 calls in which buyer agents abruptly hung up after hearing that REX listings didn’t offer a preset commission to buyer agents.

“The actual incidence of steering, however, is almost certainly higher than what I was able to identify through my analysis,” Fried said.

“Buyer’s agents may not tell third parties after being informed that they are on a recorded line that they are steering their clients away from homes they would otherwise be interested in. Further, buyers may not know when or why they are not being shown a specific property.”

Fried added his analysis would also be unable to identify steering by buyer agents who were already aware of REX’s business model and never called to begin with, or by buyer agents who steered their clients away from REX listings after showing those listings.

Fried separated the calls into three groups. The first, largest group included calls from buyer agents who called REX to ask about commission splits, and then said they would not be showing the listing to their client after learning that REX doesn’t offer “a pre-determined standard commission.”

“For example, in one call a Keller Williams buyer’s agent told a REX representative: ‘If you are not offering any buyer’s commission then that’s fine, I’m not going to show that [property], and you’re probably going to run into the same issue with everybody here,'” Fried said.

“The REX representative further clarified: ‘you’re not going to show the property just because you don’t have a specific, guaranteed commission?’ The agent responded: ‘Absolutely. Correct.’ Or as one RE/MAX agent put it: ‘I’m not going to show a listing where I’m not guaranteed a commission.'”

In the second group of calls, after hearing REX doesn’t offer a preset commission, the buyer agent said that it was their brokerage’s commission policy that kept them from showing a REX-listed home.

“As one Berkshire Hathaway agent stated, ‘I don’t think I’m going to be able to do the appointment because my brokerage has to have [a commission agreement] written beforehand, before I even show [the property],'” Fried said.

“As another Keller Williams agent put it, ‘If you offer me 2.5% I will basically . . . be willing to show your property and bring in clients. For $2000, I cannot do it. My company will not allow any discount below 2.5%.'”

In the third group of calls, buyer agents end the calls right after hearing how REX handles commissions.

“Although they do not state explicitly that they will not show the REX-listed properties to their clients due to REX’s commission policy, the abrupt nature of their hang-ups suggests that it is because of REX’s approach to commission splits that they have ended the call without scheduling a showing,” Fried said.

Keller Williams recently subpoenaed REX for copies of all of REX’s call recordings, not just those in these groups.

Jack Ryan |  REX

In his declaration, REX CEO Jack Ryan said steering is “pervasive” in the real estate industry.

“Traditional brokerages know that steering is a problem in the industry, but instead of taking steps to reduce it, they lean into it for greater profits, at the expense of their clients,” he said.

“These brokerages train their agents to use the existence of steering to guide sellers away from offering more competitive commissions in their listings and listing agents are trained to tell sellers that if they don’t offer the standard (2.5 to 3%) commission in their listing, buyer’s agents won’t show the seller’s home.

“This training is further reinforced by third-party trainers and at trade shows where ‘top agents’ teach other real estate agents how best to convince sellers to keep commissions high. Because incumbent brokerages represent both buyers and sellers, when their agents turn around and act as buyer’s agents, they then reap the benefit of the elevated commissions they helped put in place.”

Anyone, not just a client, can file an ethics complaint against a Realtor with their local Realtor association. Local Realtor associations handle ethics complaints and NAR is not involved in the process, but “NAR is not aware of any ethics complaints filed by REX or REX clients,” NAR spokesperson Mantill Williams told Inman in an emailed statement.

Inman first reported on the REX recordings in January 2021, after REX told the Houston Chronicle about Houston agents who refused to show REX listings in favor of steering their clients toward listings that offered higher commissions. At the time, HAR was not immediately available for comment.

Inman ran another article about the recordings in March 2021 after REX publicly released some of the actual recordings. It was then that Joe Ventrone reached out to HAR CEO Bob Hale to ask whether the REX recordings were new. By then, Ventrone was senior advisor for NAR’s Realtor Party lobbying arm, though NAR had previously said Ventrone was going to retire from the trade association in December 2020.

Joe Ventrone

When Ventrone forwarded the Inman article, Hale wrote back, “Sometimes the members don’t understand Antitrust laws.”

Last week, Hale told Inman that he did not recall what he meant when he said that.

“Consider we have 47,000 members and we are trying to educate on so many issues,” Hale said, stressing that HAR “takes antitrust laws very serious.”

When asked whether HAR took any action, including warning members against steering, after hearing about Houston agents steering a year-and-a-half ago, neither Hale nor HAR’s legal counsel, Grant Harpold, could recall if HAR had.

Exhibit 131 in Moehrl plaintiffs’ motion for class certification

NAR did not respond to questions regarding Ventrone or why NAR was interested in whether the recordings were new.

When asked whether NAR had taken any action to discourage steering, NAR’s Williams said, “[T]he market will weed out those who are not properly serving their customers.”

Mantill Williams

“As highlighted in the NAR code of ethics, it is a broker’s ethical duty to provide information about any homes the buyer requests to see in addition to others the broker considers to be a fit for a buyers’ priorities,” Williams said in an emailed statement.

“Brokers who were only to show homes that offer high commissions wouldn’t be in business very long, as buyers would demand to see other options or go to someone else who will.”

Williams also pointed out that NAR had adopted rules prohibiting filtering listing searches by commission rate, even though California Regional MLS, the largest MLS in the U.S., reported in February 2021 that only 1.5 percent of the more than 250,000 searches in its system included commission in the criteria.

In 2021, when a similar commission lawsuit was filed by a homeseller in Canada against the Canadian Real Estate Association (NAR’s counterpart to the north), an undercover Marketplace investigation into steering found that most of the agents tested did indeed push buyers away from homes offering lower commissions to buyer agents and warned sellers against offering lower commissions, according to CBC News.

Shortly after learning about the Marketplace investigation, provincial regulator the Real Estate Council of Ontario (RECO) issued a notice about steering to the more than 93,000 real estate agents, brokers and brokerages then under its purview and said such behavior breaches its code of ethics, CBS News said.

“In addition to being illegal, the conduct undermines consumer protection, consumer confidence and the reputation of the real estate profession as a whole,” the notice said.

According to NAR’s Williams, MLSs “level the playing field among brokers to create highly competitive markets and encourage new market entrants, including different service and pricing models.”

“While NAR takes no position on specific business models, we are committed to acting in the best interest of and advocating for consumers,” Williams added.

“Forcing buyers to come up with additional cash at closing to pay their broker would put the American dream of homeownership firmly out of reach for first-time, low- and middle-income, Black and Hispanic/Latino homebuyers. And it would force sellers to substantially lower their prices, reducing in turn their ability to purchase a new home.”

However, in his declaration, Ryan described how REX’s business model works and how it allows buyers to finance their agent’s fee through a mortgage.

“REX believes that buyers and their brokers should determine, by negotiation if necessary, what fee buyer’s brokers deserve and should receive, in the same way fees are set in other professions like law and banking,” he said.

“Doing so eliminates a conflict of interest that arises under NAR’s rule requiring blanket offers of cooperative compensation, which incentivizes buyer’s agents to sell the home to their clients that makes the agent the most money in commission, rather than based on which home is best for the client.

“As a result, REX typically requests that buyer’s agents disclose and negotiate their fee directly with their buyer clients. If asked, REX will then adjust the closing price of the house to incorporate the fees the buyer and their agent agree upon. This facilitates buyers’ ability to finance any broker fee they have agreed to pay through a home mortgage.”

Ryan said that REX had “not encountered any issues during the appraisal or financing process” when doing this.

Moreover, REX has found the result of buyers negotiating directly with their agents is that the buy-side commission is often well below 3 percent, according to Ryan.

“Total commissions paid on REX-facilitated home sales averaged 3.3% of a home’s selling price, and I expect this percentage to fall over time,” he said.

“Further, REX calculated savings based on total commissions actually paid on REX transactions versus what they would have been if a 5.5% commission had been paid. According to this calculation, REX saved consumers $28.7 million in real estate brokerage commissions in over just five years of operations.”

Keller Williams, RE/MAX, and HomeServices of America and its fellow defendant subsidiaries — HSF Affiliates, BHH Affiliates, and The Long & Foster Companies — declined to comment for this story. Realogy and REX did not respond to requests for comment.

Email Andrea V. Brambila.

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