Litigation Update

What REALTORS¬ģ need to know about the class-action lawsuits targeting real estate commissions

 Tom Larson  |    December 09, 2019
Litigation Update

Several months ago, two nearly identical class-action lawsuits were filed against the National Association of REALTORS¬ģ (NAR) and others, claiming that the commission structure and compensation rules established in many Multiple Listings Services (MLSs) are anti-competitive and thus violate the federal antitrust laws. The lawsuits allege that NAR‚Äôs compensation rules are anti-competitive and result in inflated commissions because they require home sellers to pay commissions for both the listing agent and buyer‚Äôs agent.

Because the lawsuits have received a great deal of media attention, REALTORS¬ģ are often asked questions about the lawsuits and the potential impact of the cases on real estate commissions. This article provides background on the lawsuits, an update on the status of the lawsuits, and¬† answers to some of the questions REALTORS¬ģ most commonly receive.

When were the lawsuits filed?

On March 6, 2019, a group of recent home sellers filed a class-action lawsuit, Moehrl v. NAR, et al., in the U.S. District Court for the Northern District of Illinois against NAR, 20 of the biggest MLSs, and four of the largest real estate companies in the country ‚ÄĒ RE/MAX Holdings, Keller Williams Realty, HomeServices of America and Realogy Holdings.

On April 29, 2019, a substantially similar class-action lawsuit, Sitzer v. NAR, et al., was filed in the U.S. District Court for the Western District of Missouri. 

What are the lawsuits about?

In short, the lawsuits allege that NAR, the MLSs and the four companies conspired to create a commission structure that significantly inflated the cost of selling their homes by requiring all brokers to make a blanket, non-negotiable offer of compensation when listing a property on an MLS.

The lawsuits allege that REALTOR¬ģ compensation rules are anti-competitive and result in inflated commissions because they require home sellers to pay fees for both the listing agent and buyer‚Äôs agent.

What is NAR’s response to the lawsuits?

NAR believes the lawsuits are without merit and misunderstand and mischaracterize the MLS system. The lawsuits fail to recognize that NAR rules specifically direct listing brokers to determine ‚ÄĒ in consultation with their clients ‚ÄĒ the amount of compensation to offer buyers‚Äô brokers in connecting with their MLS listings. Moreover, under NAR rules, a buyer‚Äôs broker is free to negotiate a commission from the listing broker that is different from what appears in the MLS listing.

Accordingly, on May 18, 2019, NAR filed motions to dismiss both lawsuits on the basis that the complaints misrepresent NAR rules for the operation of MLSs, which have long been recognized by the courts across the county as protecting consumers and creating competitive, efficient markets that benefit homebuyers and sellers.

In October, the U.S. District Court in Missouri denied NAR’s motion, allowing the case to continue. The U.S. District Court in Illinois has not yet ruled on NAR’s motion.

When will the lawsuits be decided?

If the courts allow the lawsuits to continue, the cases will likely take years to be decided. Such class-action lawsuits are complex and often go through a long litigation process.

What is the likelihood that NAR would reach a settlement with the plaintiffs outside of court?

An out-of-court settlement is unlikely. NAR believes these lawsuits strike at the heart of the MLS system that has been designed to benefit buyers and sellers for over a century, and any settlement would likely cause direct harm to consumers.

Should REALTORS¬ģ talk about the lawsuits with their clients?¬†

NAR encourages REALTORS¬ģ to have transparent conversations with current and prospective clients about the services they will provide and how they will get paid for those services. NAR has developed the following talking points to make sure members are up to date and knowledgeable about the litigation and help guide their conversations with current and prospective clients.

REALTORS¬ģ are champions of homeownership, property rights and the communities they serve.

  • Every REALTOR¬ģ adheres to a strict code of ethics based on professionalism, consumer protection, and the golden rule.¬†
  • REALTORS¬ģ draw on their unmatched knowledge to help buyers and sellers navigate one of the most complicated financial transactions of their lives.¬†
  • And REALTORS¬ģ are engaged neighbors committed to building and enhancing the communities they serve.

The MLS system and the way commissions are paid create competitive, efficient markets that benefit homebuyers, sellers and small business.

  • The MLS system creates a highly efficient residential real estate market that fosters cooperation between brokers to the benefit of consumers.
  • Commission structures, including how the listing broker pays the buyer‚Äôs broker, ensure greater access for a large community of homebuyers who might otherwise be priced out of the market, which also would limit options for sellers.
    Local, expert brokers play a crucial role in helping buyers and sellers achieve their goals.
  • Given the volume of information buyers have to navigate and the complexity of this transaction, buyer‚Äôs brokers serve many essential, highly informed roles, ranging from scheduling home tours and inspections to coordinating with lenders and appraisers to coordinating attorney reviews and closing documents.¬†
  • Consumers agree: 78 percent of homebuyers say their broker was an important information source, and almost 90 percent would recommend their broker to a family member or friend.

These lawsuits are wrong on the facts, wrong on the economics, and wrong on the law.

  • Commissions are negotiable and, in fact, can be negotiated at any point during the transaction.
  • The MLS and associated brokerage system create highly competitive markets with increased transaction volume and superior customer service.
  • Consumers have many choices of different service and fee models among many brokers.
  • Over 100 years, the courts have repeatedly validated this pro-competitive, pro-consumer MLS system, recognizing it increases the efficiency of the market and thus serves the best interests of sellers and buyers alike.

Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA. 

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