As a full-time discount agent in Utah, I've been battling local real estate agents, brokers, and brokerages for nearly two decades. I don't have any hard proof my clients or I have been discriminated against, but after selling hundreds of homes, I know when I'm being treated unfairly.
Why would other so-called professionals and members of the National Association of Realtors (NAR) take issue with my business model? Because it challenges the industry's status quo of high commissions, which artificially inflate home prices, while my discount real estate model saves Utah home buyers and sellers thousand in commissions.
A recent nationwide real estate commission lawsuit against the National Association of Realtors and major brokerages could shake the foundations of the real estate industry. With potential damages exceeding $400 billion, this legal battle has the potential to change how commissions are paid and reshape the way real estate transactions are conducted. But what does this mean for home sellers, buyers, and the industry's future?
Nationwide class-action lawsuit alleges NAR and major brokerages of conspiring to manipulate agent commissions, potentially resulting in damages over $400 billion.
Missouri case verdict awards plaintiffs $1.8 billion against NAR, HomeServices & Keller Williams for collusion and violation of anti-trust laws.
Recent lawsuits have potential implications that could lead to substantial changes in agent compensation & MLS business practices with reduced commission rates & increased consumer negotiating power.
The Nationwide Lawsuit Against NAR and Major Brokerages
The class-action lawsuit spans the United States, targeting the National Association of Realtors (NAR) and several major brokerages, including:
eXp World Holdings
United Real Estate
Howard Hanna Real Estate
The lawsuit alleges that NAR and these brokerages are guilty of conspiring to manipulate agent commissions, resulting in anticompetitive practices that led to the potential damages of over $400 billion.
The plaintiffs, some hailing from Kansas City, seek to halt the artificial inflation of commission payments. They argue that the commissions they were compelled to pay buyer brokers in the class action lawsuit against NAR and other residential brokerages were unjust.
The lawsuit alleges that NAR and brokerages colluded to inflate commissions, violating antitrust laws. Home sellers have alleged that NAR and its members engaged in anticompetitive practices, such as:
Inflating fees and driving up housing costs
Requiring blanket, non-negotiable offers of buyer broker commissions
Imposing mandatory rules to limit competition and raise fees
Steering buyers away from homes with lower buyer broker commissions
Impeding competition, including internet-based methods of home buying and selling
These anti-competitive practices allegedly necessitated that all homes be listed on member-controlled multiple listing services, which may be related to NAR’s clear cooperation rule. The jury in the Missouri case determined that NAR, a trade group, HomeServices, and Keller Williams were guilty of collusion in this regard.
Should the plaintiffs’ claims be successful, the potential damages against NAR and other defendants could exceed $400 billion, marking a significant financial event for the real estate industry. This could lead to alterations to agent compensation and MLS business practices and potentially significant financial losses for the defendant brokerages.
The potential consequences of the plaintiffs receiving a significant sum in damages, which could be considered a consequential financial transaction, include:
Impacting the financial stability of the defendant brokerages
Decrease in the number of real estate agents in the real estate industry
Possible alterations to commission structures
The Missouri Case: A High-Profile Verdict
In a recent high-profile case in Missouri, NAR was found liable for $1.8 billion in damages. The federal jury determined that NAR, HomeServices, and Keller Williams were guilty of collusion after two weeks of testimony. The plaintiffs argued that NAR’s rules impeded competition and contravened anti-trust laws by augmenting the expense of buying a home. The jury ordered NAR and others to remunerate approximately $1.8 billion in damages to hundreds of thousands of Missouri home sellers.
This case revolved around NAR’s cooperative compensation rule, with the plaintiff arguing that it resulted in inflated commissions. The jury’s decision could set a precedent for other class action lawsuits against NAR and major brokerages in the United States.
The Cooperative Compensation Rule
The cooperative compensation rule requires participants in the multiple listing service to compensate other MLS participants, ensuring collaboration among brokers in real estate transactions. The plaintiffs assert that this rule produces inflated commissions due to its stipulation that sellers must pay higher commissions to buyer’s agents, thus resulting in higher costs for home sellers.
This policy is perceived as a collusion that raises commission rates and reduces competition in the real estate industry.
Jury's Decision and Plaintiff's Plans
The federal jury in the Missouri case assigned $1.78 billion in damages to the plaintiffs and ruled that the defendants acted intentionally, not negligently, potentially tripling the damages. However, the plaintiffs are not only seeking monetary compensation but also injunctive relief to force NAR to change its business practices.
In this nature, injunctive relief is pivotal as it enables the plaintiff to secure a court order demanding the defendant to halt or refrain from specific actions. In this case, the plaintiffs are requesting substantial financial remuneration and substantial alterations to how buyer-broker commissions are paid in NAR’s business practices.
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Reactions and Responses from Defendants
Reacting to the nationwide lawsuit, NAR intends to contest the ruling. Their financial resources allow them to post bond, permitting the continuance of appeals and postponing potential damage payments. Other defendants in the case, such as major brokerages, have declared their intent to appeal the verdict and highlighted their commitment to instructing agents on demonstrating their worth in the face of commission lawsuits.
Moreover, some defendants have taken various legal actions, such as objecting to the plaintiffs’ intention to withdraw and filing relevant documents. The U.S. Justice Department has indicated its intent to investigate a proposed settlement in the case.
NAR has not issued an official response to the Moehrl v. NAR case, which is anticipated to be heard in a federal court in Chicago in the upcoming year, with potential damages estimated at approximately $41 billion. However, NAR has chosen to appeal the Missouri verdict to pursue a reduction of damages.
So far, there have not been any explicit modifications to NAR’s policies or approach stated in the search results.
Other Defendants' Actions
Other defendants in the nationwide lawsuit have declined to comment on the allegations or have already implemented changes to their commission practices. For example, Remax has consented to pay $55 million and implement alterations to its business practices as part of the settlement.
Realogy and HomeServices of America have not divulged their reactions to the class-action lawsuit publicly, and Keller Williams and Coldwell Banker have not released any official statements in response to the NAR lawsuit.
Impact on Home Sellers and Buyers
The lawsuits against NAR and major brokerages could significantly impact home sellers and buyers, potentially changing how commissions are paid and reshaping real estate transactions. The real estate market is already challenging, with high mortgage rates, steep home prices, and low inventory levels. These lawsuits could further complicate the real estate market by increasing the cost of real estate commissions, making it more difficult for buyers and home sellers to negotiate, and creating uncertainty about the future of the real estate industry.
Moreover, the future of buyer’s agent commissions is uncertain as the industry faces potential changes. Some experts predict that untying buyer and seller agent fees could reduce commissions by up to $30 billion annually, and consumers may have increased negotiating power and the option to select alternative fee structures such as hourly rates or flat fees.
Challenging Real Estate Market
High mortgage rates, soaring home prices, low inventory levels, the introduction of virtual and augmented reality, and the impact of modern logistics on transportation systems already pose challenges to the real estate market.
These lawsuits could have several impacts on the real estate market, including:
Increasing the cost of real estate commissions
Making it more difficult for buyers and home sellers to negotiate
Creating uncertainty about the future of the real estate industry.
The Future of Buyer's Agent Commissions
Potential changes in the industry cast uncertainty over the future of buyer’s agent commissions. Influences on potential changes in buyer’s agent commissions include:
Discount real estate
Lawsuits seeking to disentangle commissions.
Various alternatives to the traditional buyer’s agent commission model have been proposed, such as:
Uncoupling buyer agent and listing agent commissions
Employing alternative compensation plans such as 100% commission split or referral fees
Implementing a flat fee model
Investigating low-commission real estate brokers.
The ramifications of potential modifications to buyer’s agent commissions are extensive. They could have a substantial effect on the real estate sector, including heightened competition, lower commissions, and a transformation in the manner agents are remunerated.
Regulatory Involvement: The Federal Trade Commission (FTC)
The Federal Trade Commission (FTC) has shown interest in real estate commissions, indicating possible regulatory changes. The FTC’s role in regulating real estate commissions includes:
Preventing practices that are seen as unfair or deceptive in the real estate industry
Taking action to block proposed mergers
Filing complaints against entities that are believed to be restraining competition
Issuing reports on competition in the real estate brokerage industry.
In the past, the FTC has implemented regulatory changes in real estate, including:
Challenging restrictive rules adopted by Multiple Listing Services (MLS) to promote competition and prevent exclusion of low-cost and discount brokers
Taking action to block proposed mergers in the real estate and mortgage industry
Proposing rules to ban junk fees and require sellers to disclose upfront the amount and purpose of fees.
FTC's Stance on Real Estate Commissions
The FTC has expressed concerns about the lack of transparency and competition in real estate commissions. They have contested rules adopted by Multiple Listing Services (MLS) to prevent low-cost and discount brokers from entering MLS. In addition, the FTC has filed charges against real estate groups for engaging in anticompetitive conduct, and the FTC and the Department of Justice have conducted workshops to explore the competitiveness of the residential real estate industry.
To improve transparency and competition in real estate commissions, the FTC recommends studying real estate commissions, increasing transparency in commission levels, and encouraging market-driven pricing for home buyers.
Possible Regulatory Changes
Potential regulatory changes the FTC might implement in the real estate industry include:
Modifications to data security standards
Prohibitions on mergers that affect competition
Banning false consumer reviews
Possibly alterations to franchising regulations
The FTC undertakes a comprehensive regulatory review program to implement regulatory changes in an industry. This program includes:
Issuing trade regulation rules
Exercising rulemaking authority
Establishing industry-wide regulations
Periodically reviewing regulations over a ten-year cycle.
Class Action Lawsuits: A Growing Trend in Real Estate
Class action lawsuits are an escalating trend in the real estate industry, with numerous high-profile cases alleging antitrust violations and pursuing billions in damages. These lawsuits have drawn attention to the compensation practices and cost structure within the industry. Real estate brokers are taking proactive steps, such as adding buyer representation agreements, reducing costs, and providing training to address the growing number of commission lawsuits. The settlements reached in some of these cases have had a substantial financial impact on the industry.
The rise in class action lawsuits in real estate can be attributed to:
Allegations of fraud and misrepresentation
Increased regulatory oversight
Consumer rights violations
Data privacy concerns
Substantial class action settlements
These lawsuits have the potential to significantly alter buyer representation agreements and commission structures in the real estate industry.
Recent examples of class action lawsuits against major players in the real estate industry include cases against:
Zillow has faced several class action lawsuits, including one filed by shareholders resulting in a $15 million settlement and another brought by REX alleging unfair practices on Zillow’s website.
Redfin has been involved in multiple lawsuits, including one accusing them of systematic racial discrimination by offering fewer services to homebuyers and sellers in minority communities and another alleging that Redfin’s minimum home price policy violated the Fair Housing Act by discriminating against home sellers.
Compass (no specific details provided)
In the recent Missouri case, NAR and certain residential brokerages, including Keller Williams Realty, were found liable for approximately $1.8 billion in damages. The result of this case could potentially set a precedent for other class action lawsuits against NAR and major brokerages in the United States.
Implications for the Industry
The potential repercussions of recent class action lawsuits for the real estate industry are extensive. Modifications to agent compensation and MLS business practices may occur, leading to changes in how commissions are paid and reshaping real estate transactions. If the lawsuits are successful, there could be a considerable decrease in commission rates for real estate agents, and consumers may be able to negotiate alternative fee structures.
These lawsuits could bring about significant changes to the industry’s commission practices, such as untying buyer and seller agent fees and reducing commissions by up to $30 billion annually. Furthermore, consumers may have increased negotiating power and the option to select alternative fee structures, such as hourly or flat fees.
Frequently Asked Questions
Can a real estate agent sue for commission?
Yes, a real estate agent can sue for commission if they believe their contract has been breached or their commission has not been paid.
Why the class action lawsuit against NAR and the big brokers makes sense?
The class action lawsuit against NAR and the big brokers makes sense because their rules allegedly restrain negotiations around broker compensation, denying buyers greater funds for their home purchase.
What is NAR's clear cooperation rule?
NAR's cooperative compensation rule ensures that brokers cooperate in real estate transactions by mandating that they offer compensation to other participants in the multiple listing service.
How might the FTC implement regulatory changes in the real estate industry?
The FTC may implement regulatory changes in the real estate industry, such as strengthening data security standards, prohibiting mergers that affect competition, banning false consumer reviews, and revising franchising regulations.
What are the potential implications for the real estate industry due to recent class action lawsuits?
Recent class action lawsuits could have wide-reaching implications for the real estate industry, potentially changing agent compensation, MLS business practices, commission payments, and reshaping real estate transactions.
In conclusion, the nationwide lawsuit against NAR and major brokerages, along with the growing trend of class action lawsuits in the real estate industry, have the potential to significantly impact the way commissions are paid and reshape real estate transactions. As the FTC continues to scrutinize the industry and the real estate market faces ongoing challenges, the future of buyer’s agent commissions (BAC) remains uncertain. As these legal battles unfold, all stakeholders in the industry need to stay informed and adapt to the potential changes on the horizon.
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