Monthly Archives: May 2019

Class Action May Cause Major Changes Regarding How Buyer Agents are Paid in the United States

By Michael Selinfreund, Esq.
President/General Counsel of Cherry Creek Title Services, Inc.
Agent for Commonwealth/Fidelity & First American

On March 6, 2019, a Class Action lawsuit was filed in the United States District Court for the Northern District of Illinois, where the National Association of Realtors is headquartered.  The caption of the case is CHRISTOPHER HOEHRL, on behalf of himself and all others similarly situated, Plaintiffs v. THE NATIONAL ASSOCIATION OF REALTORS, REALOGY HOLDINGS CORP., HOMESERVICES OF AMERICA, INC., RE/MAX HOLDINGS, INC., AND KELLER WILLIAMS REALTY, INC.  Since then, at least one other case was also filed in the same district containing naming the same defendants and containing virtually identical allegations and rationale.

Defendant NAR has over 1.2 million individual members and is one of the largest lobbying groups in the country.  Defendant Realogy Holdings is the nation’s largest real estate brokerage company with a market value in excess of 4 Billion.  It owns, operates, and franchises many brokerage firms including Century 21, Coldwell Banker, Sotheby’s, ERA, Better Homes and Gardens and more.  Defendant HomeServices is an affiliate of Berkshire Hathaway and owns, operates, and franchises many brokerage firms including HomeServices, Prudential Real Estate, Long & Foster, Real Living and Edina Realty.  Defendant RE/MAX Holdings has a market value of approximately 1 billion dollars with approximately 6800 offices and more than 100,000 sales associates.  Defendant Keller Williams Realty, Inc. has approximately 700 offices and 120,000 sales associates.

The first thing to note is that the case still needs the Court to allow this case to go forward as a class action under Rules 23(a), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure.

The alleged conspiracy centers around NAR’s adoption and implantation of the Buyer Broker Commission Rule which requires that all brokers make a blanket, non-negotiable offer of buyer broker compensation when listing a property on a Multiple Listing Service (hereinafter “MLS”).   It is alleged that the Defendants and co-conspirators collectively possess market power in local markets for real estate broker services through their control of the local MLS.  The gist of the case is the allegation that the defendants have conspired to require home sellers to pay the broker representing the buyer an inflated amount in violation of federal antitrust laws and specifically Section 1 of the Sherman Act, 15 U.S.C. subsection 1.

All the MLSs at issue in the case are controlled by local NAR associations, and access to the MLSs is conditioned on brokers following all of NAR’s mandatory rules including the Buyer Broker Commission Rule.  The argument is that in a competitive market, sellers wouldn’t automatically be compensating the buyers, rather, such cost would be borne by the buyer in a competitive market.  In the US, any sellers that choose to pay less than the customary co-op rate to such buyer brokers will fail to have their properties shown since the buyer broker makes less money.  The argument is that if the customers using Buyer Brokers were responsible for paying them, the market would be more competitive as Buyers would negotiate lower rates than what is offered in the MLS to buyer brokers, and the effect would be such sellers would get the same amount of showings as any other property since the seller isn’t paying the buyer broker.  The Plaintiffs point out other international markets where the buyer brokers are paid by the sellers such as the UK, Germany, Israel, Australia and New Zealand and how the buyer brokers are paid significantly less in those countries.  The argument is that U.S. sellers are forced to pay higher commissions than if the buyer broker commission rule did not exist.  The sellers would just pay the listing agent, and the buyers would separately negotiate with the buyer brokers or choose to proceed without one.

Besides alleging the unfairness of the commission increasing significantly based on the sales price despite the amount of work performed being the same, the Plaintiffs allege the cost to pay the Buyer Broker is illegally shifted to the seller as it would normally be paid by the buyer in a competitive market.   Plaintiffs further allege that NAR specifically prohibits offers conditioned on lower fees to the buyer broker.  The 4 major real estate companies named all require their franchisees to comply with NAR’s rules, including the Buyer Broker Commission Rule, and it is further alleged that the executives of the Defendant franchises dominate the 2018 Leadership Team that manages NAR’s day to day operations.  The attorneys for the Plaintiffs point out that in most of the highly industrialized nations, the total commissions paid to sell homes are half or less than in the U.S.  In the UK, the total commission rates for the seller and buyer agents averages less than 2%.  In fact, in some very competitive areas, rates of 1-2% total are typical with some very competitive areas having total rates of .5 -.75%.

The Plaintiffs not only request damages and restitution, but they also seek a permanent injunction under Section 16 of the Clayton Act enjoining the Defendants from continuing to require sellers to pay the buyer broker and from continuing to restrict competition among buyer brokers.

I make no predictions nor offer any opinions regarding this case and others that follow alleging identical claims, rather, I find it very interesting and well worth watching as the outcome could radically change the real estate sales industry in the U.S.

Visit www.cherrycreektitle.com to view numerous articles I’ve written primarily on Colorado real estate legal topics and many are available in video form at the Cherry Creek Title Services YouTube channel.

This article is intended for educational purposes only and not as legal advice.