One of two federal lawsuits regarding agents’ commissions has been certified as a class action effort. The potential impact of how agents are compensated could have far-reaching ramifications nationwide.
Class Action Certification Seen as Major Blow to NAR and Major Real Estate Franchisors
Back in 2019, two home seller plaintiffs filed a lawsuit against the National Association of REALTORS® (NAR), Realogy, RE/MAX, Keller Williams and HomeServices of Americaplus its subsidiaries BHH Affiliates and HSF Affiliates concerning buying and listing brokers sharing commissions on house sales. The plaintiffs, later joined by two additional home selling plaintiffs, claimed that sharing commissions violates the Sherman Antitrust Act by inflating seller costs.
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Another larger federal case brought by a home seller seeks to have homebuyers pay their broker directly instead of have listing brokers pay buyer brokers from what the home seller pays the listing broker.
As of one week ago, after hearing oral arguments, a judge granted the plaintiff’s motion to have the initial lawsuit become certified as a class action suit. (Class action certifications are designed to curtail duplicative efforts by many individuals claiming the same position against the defense, to share in the high costs of bringing litigation, and to minimize the risk of inconsistent verdicts.)
This “Fight” Is Over NAR Policy Rules
Plaintiffs in this case represent sellers who paid a broker commission for the sale of residential real estate in Missouri that was listed on one of four MLSs in April of 2014 to the present.
The NAR rules being disputed here include:
- NAR rule that prohibits MLSs from publishing listings that don’t include an offer of compensation (either a percentage of the list price or a definitive dollar amount) to the brokers involved with the transaction. Plaintiffs contend that this rule requires every seller to make a non-negotiable offer of buyer broker compensation.
- NAR’s Code of Ethics has a Standard of Practice 16-15 that stipulates, “In cooperative transactions Realtor shall compensate cooperating Realtors.” Plaintiffs allege that his rule requires sellers to compensate buyer brokers.
- NAR’s Standard of Practice 16-16 states, “Realtors, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation to subagents…” The plaintiffs contend that this limits the consumer’s ability to negotiate buyer broker compensation.
- NAR’s Standard of Practice 3-2 states, “Any change in compensation offered for cooperative services must be communicated to the other Realtor prior to the time that Realtor has submitted an offer to purchase or lease property…” Plaintiffs contend that this rule inflates commissions “by eliminating opportunities” for consumers to negotiate buy broker commissions.
Long story short, this case is about NAR’s rules preventing consumers from doing two things: being allowed to negotiate commissions with their buyer brokers themselves and disallowing antitrust disparities that prevent free market compensation.
Case “Far From Over”
There is no point to discussing the back and forth among plaintiffs and defendants at this point in time since the court did not decide the merits of this case from either perspective. Darryl Frost, a spokesperson for one of the case defendants, Keller Williams, said, “This case is far from over…”
What is crystal clear at this time is that whenever this case is finally decided, the real estate industry as a whole and how agents are compensated nationwide will be impacted.
Hundreds of thousands of home sellers may ask to be reimbursed for more than $1B in commissions they paid to buyer agents in the past eight years. Hundreds of thousands of listing and buyer agents may be asked to come up with that reimbursement. And hundreds of thousands of agents in general may be forced to face new protocols and strategies for their reimbursement as drivers of real estate transactions.
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