The National Association of Realtors (NAR) and the four largest national real estate broker franchisors violated federal antitrust laws by conspiring to require home sellers to pay inflated buyer broker commissions, according to a class action lawsuit filed by a group of home sellers.
The case is Christopher Moehrl v. The National Association of Realtors, Realogy Holdings Corp., HomeServices of America, Inc., Re/Max Holdings, Inc. and Keller Williams Realty Inc. (U.S. District Court, N.D. Illinois, 19-cv-01610).
Moehrl filed the suit on behalf of sellers who paid a broker commission in the last four years related to the sale of residential real estate listed on one of 20 Multiple Listing Services (MLS) across the country.
The alleged conspiracy centers around NAR’s Buyer Broker Commission Rule, which requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation when listing a property on a MLS. The rule has led to home sellers being saddled with a cost that would be borne by the buyer in a competitive market, said plaintiff attorney Benjamin Brown, a partner at Cohen Milstein.
“Home buyers are now able to identify homes online that they are interested in touring and purchasing,” Brown told RESPA News. “Yet due to the defendants’ restraints on buyers negotiating their brokers’ rates, commissions have remained at inflated levels. This lawsuit could have profound effects on the real estate industry going forward, introducing true competition and ultimately saving people thousands of dollars when they sell their homes in the future.”
If the Buyer Broker Commission Rule didn’t exist, buyer brokers would be paid by their clients and would compete to be retained by offering a lower commission.
This hurts competition among buyer brokers because the buyer does not negotiate or pay his or her broker’s commission, according to the lawsuit. In addition, the seller’s inflated commission offer cannot be reduced by buyers or their brokers, as the rule also prohibits buyer brokers from making home purchase offers contingent on the reduction of the buyer broker commission.
However, NAR Vice President of Communications Mantill Williams called the suit unwarranted.
“The complaint is baseless and contains an abundance of false claims,” Williams told RESPA News. “The U.S. courts have routinely found that Multiple Listing Services are pro-competitive and benefit consumers by creating great efficiencies in the homebuying and selling process. NAR looks forward to obtaining a similar precedent regarding this filing.”
Current total broker compensation in the United States is about 5 percent to 6 percent of the property’s sale price – with increasingly more than half paid to the buyer broker, according to the suit.
“Defendants’ conspiracy has kept buyer broker commissions in the 2.5 (percent) to 3.0 percent range for many years despite the diminishing role of buyer brokers,” the plaintiffs’ attorneys argued. “A majority of homebuyers no longer locate prospective homes with the assistance of a broker, but rather independently through online services. Buyer brokers have increasingly been retained after their client has already found the home the client wishes to buy. Despite their diminishing role, buyer brokers continue to receive 2.5 (percent) to 3.0 percent of the sales price due to defendants’ conspiracy.”
Other effects of the alleged conspiracy, according to the lawsuit, include:
- Home sellers have been compelled to set a high buyer broker commission to induce buyer brokers to show their homes to the buyer brokers’ clients.
- Price competition among brokers to be retained by home buyers has been restrained.
- Total U.S. residential brokerage fees should be closer to 3 percent based on global data.
Moehrl is seeking unspecified damages, attorneys’ fees and a permanent injunction barring NAR from continuing to require sellers to pay the buyer broker and from continuing to restrict competition among buyer brokers.