Realtor Commissions Challenged in Class Action
The plaintiffs would like to see commissions drop to 3%-4% instead of the current 5%-6%
Buying a home is an expensive and difficult process for most people. Realtors help make it less difficult by handling a lot of the details but their services are expensive and usually add five to six percent to the cost.
An antitrust class action lawsuit against the National Association of Realtors (NAR) may change that. A federal court in Illinois recently granted class certification to Moehrl v. NAR et al., which challenges the industry practice of requiring home sellers to pay the commissions of real estate agents representing home buyers.
In her decision, Judge Andrea Wood recognized that over $10 billion in actual damages related to home sales between 2015 and 2020 is at stake, although the NAR has dismissed the allegations as "baseless."
"We are disappointed in the decision," said NAR VP of communications Mantill Williams. "Pro-competitive, pro-consumer local MLS broker marketplaces ensure equity, efficiency, transparency and market-driven pricing options for home buyers and sellers."
Plaintiffs are asking not only for class damages, which could exceed $30 billion including punitive damages, but also for injunctive relief from the “blanket unilateral offer of compensation” from home sellers and their listing agents to buyer agents that is required by multiple listing services (MLSs). NAR makes the rules governing hundreds of local MLSs.
“This case, which involves widespread industry collusion to set broker commissions, does not pit liberals against conservatives,” said Stephen Brobeck, a Senior Fellow and real estate expert for the Consumer Federation of America. “Both have criticized the industry practice. If the court grants plaintiffs injunctive relief, we estimate that consumers should save $20-$30 billion annually in lower commissions, which are likely to decline from the current 5-6 percent level to 3-4 percent.
"This prediction is based on commission levels in countries used by plaintiffs as yardsticks – United Kingdom, Australia, and the Netherlands – and, as our research as shown, in the New York City area outside of Manhattan,” Brobeck said.
Realtors not giving up
“Our view is that the industry will fight hard to retain mandatory offers but is slowly realizing that the practice is unsustainable in a competitive, capitalist economy,” said Brobeck.
"The case is far from over, and we will continue to vigorously defend ourselves in court," said Darryl Frost, spokesperson for Keller Williams, in a Real Estate News report.
Brobeck denied that lower commissions would drive competent Realtors out of business.
“We believe that embracing price competition will only help the most competent and dedicated real estate agents and brokers. Today, real estate agents are usually paid the same commission rates regardless of their experience and competence,” he said.
A competitive market
"With this class certification, we are pleased to be one step closer to a trial that will bring a competitive market to millions of Americans buying or selling real estate," said Benjamin D. Brown, co-lead counsel for the certified classes of home sellers, partner at Cohen Milstein and co-chair of its antitrust practice.
Besides the National Association of Realtors, the case names the four largest national real estate broker franchisors, Realogy Holdings Corp., HomeServices of America, Inc., RE/MAX Holdings, Inc., and Keller Williams Realty, Inc.
It accuses them of conspiring to require home sellers to pay the broker representing the buyer of their homes, and to pay at an inflated amount, in violation of federal antitrust law, according to CohenMilstein, the lead firm representing the plaintiffs.