April 10, 2019

A class-action lawsuit is seeking to upend the way homes are listed for sale and the commissions paid to agents. The goal, say the plaintiffs, is to make home selling more affordable by challenging how agents share commissions on local Multiple Listings Services known as the MLS.

In Moerhl v National Association Realtors (NAR), filed in Chicago on March 6 by home seller Christopher Moehrl, the defendants are the National Association of Realtors, 20 of the biggest MLSs throughout the country and four of the largest real estate broker franchisors: Realogy, HomeServices of America, RE/MAX and Keller Williams Realty. They are accused of violating federal antitrust laws by conspiring to require home sellers to pay buyer commissions at an inflated amount.

The focus, the suit claims, is on NAR’s “Buyer Broker Commission Rule,” which, according to the complaint, requires “all brokers to make a blanket, non-negotiable offer of buyer broker compensation” in order to participate in the MLS, which is what brokers traditionally use to list for-sale properties. Brokers who don’t participate in the MLS can’t effectively market their properties, according to the lawsuit.

“Essentially what the case boils down to is the rules of the game that’s set up by NAR and its board in terms of how homes are sold and how broker relationships work with clients. Those rules are really mandatory. There’s one MLS in each of the jurisdictions that’s an issue in the case and that MLS has, as a requirement, that you adhere to NAR’s rules,” says Benjamin Brown, a partner at Cohen Milstein in the firm’s antitrust practice group and one of the plaintiffs’ attorneys on this suit.

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For most sellers, paying a 5 or 6 percent commission is the standard. On a $300,000 home sale with a 6 percent broker commission, a seller would pay $18,000, which is then split with the buyer’s agent. This is a standard scenario that many sellers might assume is carved in stone.

There are two problems with this system, according to the complaint. First, since the buyer’s agent will get half of the commission it may induce them to cherry-pick listings to show those with the highest commissions.

The second alleged problem is that the commissions presume full-service work on the parts of both agents. For selling agents, that means listing and marketing the property, vetting buyers and negotiating the sale price, among other services. For the buyer’s agent, that includes finding suitable properties, scheduling showings and negotiating contracts.

But what happens if a buyer already knows what property they want or if a seller already has a buyer? In both cases, the agents’ work will be reduced — but the commission often stays the same, the complaint asserts.

The result of sellers paying for both parties’ commissions is an ineffective and anti-competitive market, Brown alleges.

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The outcome Brown hopes for is to reduce the commissions that sellers are paying while changing the MLS to something that provides for more competition, although he’s not sure what that would look like.

“It’s potentially a very important lawsuit. When you start talking about tweaking the percentages that comes with these transactions, this has a big impact on people’s lives,” Brown says.

The full article can be accessed here.