The Class-Action Lawsuit
A new class action lawsuit alleges that the National Association of Realtors, along with the “Big Four” — Realogy, HomeServices of America, RE/MAX and Keller Williams — violated federal antitrust law by conspiring to require home sellers to pay buyer’s broker’s commissions at inflated rates. The suit was first reported by Inman.
The complaint, filed March 6, 2019 takes aims at NAR rules that require all brokers to offer buyer broker compensation when listing a property on a MLS, saying this has driven up costs to the seller and stifled competition.
“Because most buyer brokers will not show homes to their clients where the seller is offering a lower buyer broker commission, or will show homes with higher commission offers first, sellers are incentivized when making the required blanket, non-negotiable offer to procure the buyer brokers’ cooperation by offering a high commission,” the complaint reads, “Absent this rule, buyer brokers would be paid by their clients and would compete to be retained by offering a lower commission.”
Filed on behalf of Christopher Moehrl, a homeseller from Minnesota, the lawsuit also says it will represent any home sellers who sold property and paid a broker commission in the last four years in specific geographic areas covered by different regional MLSs.
This includes areas in Texas, Maryland, North Carolina, Ohio, Colorado, Michigan, Florida, Nevada, Wisconsin, Minnesota, Pennsylvania, Arizona, Virginia, Utah and the District of Columbia.
If other homesellers joined the class action, the defendants could find themselves potentially liable for millions of dollars. (Source: The Real Deal)
My Thoughts
After researching Antitrust laws it seems that the main violation that Hagens Berman Sobol Shapiro LLP is what they perceive as price fixing. This is regarding a standard negotiated commission of how much a seller would pay to their listing agent if they are successful in selling their clients home.
The lawsuit alleges NAR and the Big Four have enacted a set of anticompetitive policies intended to prevent competition among real estate brokers, as well as stopping buyers and sellers form negotiating commissions, including:
- Only allowing listing brokers to list a property on an Multiple Listing Service (MLS) if the listing broker makes a unilateral, non-negotiable offer of compensation on the MLS to buyer brokers.
- Because of this agreement this prohibits buyers and sellers from negotiating buyer broker commission.
- Prohibits brokers from disclosing commissions offered on MLS.
- Allowing brokers to take both buyer and seller commissions, if the buyer is not represented by a broker.
From what these articles are suggesting they are trying to find ways to save sellers a significant 2.5-3% of commission. If you were to sell a home for $500,000 the average commission that you would save would be around $12,500 - $15,000. Now that is a lot of money! "How would they get around that" you ask? They are suggesting that the buyers agent have their buyers pay them. As a buyers agent, this solution doesn't sound like a solution at all. Think about it for one second. If you were to purchase a house for $500,000 at 20% down ($100,000) get a loan of $400,000 you still need to pay for closing costs around 3% ( $15,000) that means before you purchase the house you would have to have over $115,000 before you could even consider buying a house. Then on top of that you want the buyer to pay for their agents commission. That would be a total of about $130,000! Many people might read this and think to themselves "well if that's the case I might as well go to the listing agent and use them as my agent!" Which, by the way, is something that most buyers do today! But in all honesty I feel this is a bad decision. Why is that? Well, for one, it is a huge conflict of interest! As a Listing Agent your job is to get the highest and best price for their seller. As a Buyers Agent your duty is to get the lowest price possible for your buyers. Now lets forget about the conflict of interest at this point. Let's say that someone does go to the Listing Agent directly, what is to keep them from having to pay the commission to the Listing Agent? Won't the Listing Agent just ask for the buyer to pay them the buyers agent commission? Because as a Listing Agent if you were to "double end" the deal (represent both sides of the transaction as Listing and Selling (buyers) agent). Wouldn't they only want to represent the person that pays them the commission? If this class action changes anything, it might in all honesty, (and this is just one Realtors opinion) make the market even worse for buyers and create a real sense of unfair competition. Many buyers already have a hard time gathering their down-payment for their house, now on top of that they might have to pay an agent commission? Even if they were to represent themselves ( which is highly not recommended) the listing agent could still push their own clients or other agents offers more since they will either:
a. Make more money themselves by double ending
b. Work with an actual buyers agent and will not have to worry about and discrepancies, and have a fast and efficient escrow period.
This would make home buying even harder than it already is. It will require more money to purchase, and also on top of that, the only people I really see benefiting from this would be sellers and investors. If you have any thoughts, suggestions, questions, or feedback, I would love to hear from you!
