If you are a Realtor and have not been paying attention to the antitrust lawsuit against the National Association of Realtors (NAR), then it is time to start paying attention. Now that the lawsuit has been “certified” for Class Action Status, it is time to start keeping track of this in the news.
The lawsuit was originally filed on March 6, 2019 as an antitrust action in the US District Court of the Northern District of Illinois. Cohen Milstein (a law firm) filed the suit on behalf of home sellers who paid a broker commission in connection with the sale of residential real estate listed in one of 20 Multiple Listing Services (MLS) covering areas of the entire country. Both the Canopy MLS in Charlotte and the Triangle MLS in Raleigh were included in the filing.
On March 29, 2023, the judge Andrea R. Wood, granted class action certification to the case, now being referred to as Moehrl vs NAR.
The Plaintiffs, a group of home sellers who listed their homes with Realogy, now rebranded as Anywhere (Coldwell Banker, Century 21, Better Homes and Gardens, Cartus relocation, Corcoran Group (Barbara Corcoran), ERA Real Estate and Sotheby’s), HomeServices of America (Berkshire Hathaway, Ebby Halliday, Fonville Morisey, Long and Foster), Re/Max Holdings, Inc and Keller Williams Realty, Inc, allege that these companies conspired to require home sellers to pay the broker representing the buyer of their homes, thereby paying an inflated amount.
At the center of the argument, is NAR’s “Buyer Broker Commission Rule” which required MLS systems to have listing brokers offer a blanket, non-negotiable offer of buyer broker compensation. Even before the action was filed, brokers could list a home with zero payout, a flat fee or a percentage of the sale price. NAR has made some changes as has the North Carolina Association of Realtors which will be discussed later.
See NAR President Charlie Oppler’s Comments On The Original Action Here
Unknown to many in the general public, is that MLS systems are owned by the local Realtor associations. Those local associations are managed by a board of directors, but they answer to NAR and must follow the requirements of the national association. There is an NAR Handbook on Multiple Listing Policy that must be followed, including the Broker Commission Rule.
The conspiracy alleged by the plaintiffs, has cost home sellers money that would be otherwise paid by the buyer in a competitive market. There are agents who will not show a property that does not offer a commission in the MLS or those agents might show homes with higher commissions first.
From the Cohen Milstein summary, “The mandatory Buyer Broker Commission Rule ensures that price competition among buyer brokers is restrained because the person retaining the buyer broker, the buyer, does not negotiate or pay his or her broker’s commission. In addition, the seller’s inflated commission offer cannot be reduced by buyers or their brokers, as Defendants also prohibit buyer brokers from making home purchase offers contingent on the reduction of the buyer broker commission. Absent this rule, buyer brokers would be paid by their clients and would compete to be retained by offering a lower commission.”
The claim alleges that the real estate companies and MLS systems have conspired to keep total commissions between 5% and 6% with somewhere near half being paid to the buyer broker. That conspiracy has kept buyer broker fees between 2.5% and 3% despite that fact that many buyers find their homes and then use a buyer broker to facilitate the transaction and help them through the contract to close process.
As a result, the conspiracy has bloated buyer broker commissions, which have inflated the total commissions paid by home sellers, who have incurred thousands of dollars in damages as a result of the conspiracy.
The Likely Outcome
More than likely, NAR and the corporate defendants will lose in the first round at trial because policy makers in the US no longer care for the fundamental structure of how the real estate industry works. In addition, the cost of the real estate transaction in the US far exceeds what is paid in other countries across the world.
However, a loss at the initial level will trigger an appeal no matter who wins. The bottom line is there is too much money at stake and real estate companies don’t want government or anyone else telling them how their business should be run.
Ultimately, I believe this will end up at the Supreme Court for a final ruling. That will take years to finalize the decision.
Until that time, welcome to an extended period of chaos. Copycat lawsuits will take place all over the country including areas that are not covered by the class action lawsuit (Chicago, Atlanta, Miami to name a few).
Local associations, real estate companies and individual agents will have to up their legal budgets to defend themselves from the same action by multiple consumers.
Eventually, we could see regulations from the Federal Government, most likely the Federal Trade Commission (FTC). The Department of Justice and the FTC would like to eliminate the power that NAR has over commissions and they have been trying to do that for decades unsuccessfully.
For the next few years at least, agents on the ground won’t see any changes more than what we have already seen.
For example, the North Carolina Association of Realtors updated their listing contracts to include the amount of commission paid. Paragraph 8 in Form 101, Exclusive Right To Sell Listing Agreement discusses “Cooperation with/Compensation to other firms.”
In MLS systems across the state of North Carolina, buyer broker payouts have been listed on the MLS sheet for years. Builders have notoriously lowered payouts to agents during the sellers’ market from 2020-2022, drawing the wrath of agents who have vowed to remember those same builders when the market flips. There is even an option for zero payout on the MLS and some brokers are already taking that tact due to the DOJ interest in the case.
The biggest concern in changing the way commissions are paid would be the impact to first time home buyers. The biggest obstacle to buying a home is saving for a down payment.
According to the most recent Federal Reserve Survey of Consumer Finances, the typical American household has an average of $5,300 in the bank. That’s not even half of the median down payment on a starter home, which is 7% or $16,100 for first time home buyers. If home buyers had to pay broker fees, every 1% of broker commissions would require the buyer to have another $2,300, putting the home out or reach. Adding to the problem is that lenders won’t allow the brokerage fee to be financed if being paid by the buyer.
The change in agent compensation could also cause another issue. What happens if first time home buyers forgo using real estate agents altogether?
Imagine first time home buyers with no experience navigating the complicated process of buying a home. Agents do much more than find a house. Agents assist with negotiating the price, compliance with laws, paperwork, home inspections, appraisals and much more. If the seller can afford a real estate professional but the buyer cannot, the buyer is operating at a disadvantage.
Strong communities and neighborhoods are dependent upon access to safe and affordable housing. Buyers paying an extra 2%-3% in fees upfront delays the timeframe to which a home can be purchased and costs the buyer thousands in accumulated wealth and delays life savings.
Stay tuned. There will be much more information coming down the road.