Lawsuits target rules setting agent home sale commissions
LOS ANGELES — A series of court challenges seek to upend longstanding real estate industry practices that determine the commissions agents receive on the sale of a home — and who foots the bill.
A federal jury in one of those cases this week ordered the National Association of Realtors along with some of the nation’s biggest real estate brokerages to pay almost $1.8 billion in damages, after finding they artificially inflated commissions paid to real estate agents.
The class-action lawsuit was filed in 2019 on behalf of 500,000 home sellers in Missouri and some border towns. The verdict stated that the defendants “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.”
If treble damages — which allows plaintiffs to potentially receive up to three times actual or compensatory damages — are awarded, then the defendants may have to pay more than $5 billion.
“This matter is not close to being final as we will appeal the jury’s verdict,” Mantill Williams, a spokesman for the NAR, said in a statement. “Intheinterim,wewillaskthe court to reduce the damages awarded by the jury.”
Williams said it will likely be several years before the case is resolved.
But the NAR and several real estate brokerages are already facing another lawsuit over agent commission rules. Fresh off the verdict in the 2019 case, the lawyers filed a new classaction lawsuit in the U.S. District Court for the Western District of Missouri that seeks class-action status covering anyone in the U.S. who sold a home in the last five years. It names the trade association and seven brokerage companies, including Redfin Corp., Weichert Realtors and Compass Inc.
“What’s at issue nationwide is costing Americans about $60 billion in extra realestatecommissions,”said Michael Ketchmark, one of the attorneys representing the plaintiffs in the lawsuits.
The focus of the lawsuits is an NAR rule requiring that home sellers offer to pay the commission for the agent representing the homebuyer when they advertise their property on a local Multiple Listings Service, where a majority of U.S. homes are listed for sale. This is in addition to having to cover the commission for their listing agent or broker. The NAR’s rules also prohibit a buyer’s agent from making home purchase offers contingent on the reduction of their commission, according to the complaint.
“Defendants’ conspiracy forces home sellers to pay a cost that, in a competitive market and were it not for defendants’ anticompetitive restraint, would be paid by the buyer,” the plaintiffs argued in the newly filed lawsuit.
Plaintiffs also claim that the NAR requirement effectively keeps commissions for a homebuyer’s agent artificially high.
If NAR’s “Mandatory Offer of Compensation Rule” were not in place, then homebuyers would foot the bill for their agent’s commission, which would open the door for competition — and lower commissions — among agents vying to represent a homebuyer, the plaintiffs contend.
The NAR argues that the practice of listing brokers making offers of compensation to buyer brokers is best for consumers.
“It gives the greatest number of buyers a chance to afford a home and professional representation, while also giving sellers access to the greatest number of buyers,” Williams said.
Typically, the home seller pays their listing agent, who then splits the commission with the buyer’s agent according to the NAR rules. Traditionally, that works out to a 5% to 6% commission split roughly evenly between the buyer’s and seller’s agents.
Such commissions are justified, given the professionalism agents offer their clients and the hefty expenses they often incur in preparing to sell a home, said Matthew Shelton, a Kansas City area real estate agent.