Realtors are being deluged with class-action lawsuits threatening to upend the traditional real estate compensation system, with 16 “copycat” cases filed in the wake of a mammoth $1.78 billion verdict handed down last October against top industry groups.
Two California lawsuits filed this month — one in Los Angeles and one in Sacramento — brought to 20 the number of federal court cases seeking to end requirements that home sellers pay agents for the buyers.
The lawsuits name the National Association of Realtors and more than 200 other industry groups in 11 states as defendants. Since the Oct. 31 verdict against NAR and two real estate brokerages, new cases surfaced in New York, Pennsylvania, Illinois, Georgia, South Carolina, Texas, Arizona and Nevada.
At least four of the cases were filed on behalf of a nationwide class of home sellers or buyers. A state case also has been filed in the Florida Panhandle, according to news reports.
The actions accuse real estate industry groups of conspiring to keep agent compensation artificially high by requiring sellers to offer payment as a condition for listing homes in broker-affiliated databases, often called the MLS.
Using terms like “anticompetitive” and “conspiracy,” law firms have blamed Realtors for pocketing rising commissions tied to escalating home prices, even as technology has cut sales costs.
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“Defendants conspired and continue to conspire to restrain trade by causing (homeowners) to pay buyer broker fees and inflated commissions on home sales,” said the latest California lawsuit, filed on behalf of a Sacramento home seller. “Because housing prices significantly increased, … the dollar amount of commissions is increasing at the same time the work done by buyer brokers is decreasing.”
Typically, home sellers make commission payments to all the agents in a transaction, and buyers pay no compensation. If the lawsuits are successful, buyers would have to pay their agents directly.
In addition, the possibility that damages in the Missouri case could be trebled to $5.3 billion raises the prospect that NAR — the nation’s largest trade group, according to the New York Times — could be forced into bankruptcy.
Consumers benefit
NAR vowed to appeal the Missouri verdict, maintaining that the current practice is in their clients’ best interest, adding that all commissions are negotiable.
“The cooperative compensation practice makes efficient, transparent and accessible marketplaces possible,” Mantill Williams, NAR’s communications vice president, said in an email. “Sellers can sell their home for more and have their home seen by more buyers while buyers have more choices of homes and can afford representation.”
Agents attending NAR’s annual conference in Anaheim last November argued that first-time and minority buyers — already struggling to cover down payment and closing costs — won’t be able to hire an agent if they have to pay commissions.
Meanwhile, plaintiffs’ attorneys are seeking to have all the cases consolidated before a single judge, preferably Missouri Western District Judge Stephen R. Bough. Bough presided over the trial with the $1.78 billion verdict.
NAR attorneys responded on Tuesday, Jan. 23, saying they prefer to have the cases heard in Chicago, where NAR is based.
“The Northern District of Illinois is not only the district in which the original actions were filed … but also the district with the largest number of actions,” the trade group’s motion says. Four of the 20 federal lawsuits were filed in Illinois.
California cases
On Dec. 8, Marin County home seller Christina Grace sued NAR, several local Realtor associations and a multiple listing service on behalf of sellers in five Bay Area counties.
On Jan. 17, a second California lawsuit accused NAR and almost three dozen Realtor enterprises on behalf of home sellers in Los Angeles, Fresno and Madera counties.
According to the lawsuit, plaintiffs Gael Fierro and Patrick Thurber paid 6% in commissions — $51,300 for the sale of Fierro’s home in Hollywood and $27,000 for the sale of Thurber’s home in the Sierra Nevada foothills. Half of those amounts went to agents working for the buyers.
In addition to NAR, their lawsuit names the California Association of Realtors and 20 local Realtor associations as defendants, including Realtor groups in Los Angeles, the South Bay, Pasadena and the San Gabriel and San Fernando valleys.
“We believe these allegations are without merit for many reasons, and we will present those arguments in court,” CAR General Counsel June Barlow said in a statement.
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On Jan. 18, Sacramento home seller Willsim Latham LLC sued MetroList Services Inc., a multiple listing service for a dozen Northern California counties. In addition, 18 local Realtor associations and brokerages are being sued, seeking compensation for anyone who listed homes for sale on the MetroList MLS.
While not a defendant in the Sacramento case, NAR is named as a “co-conspirator.”
The Sacramento lawsuit, like other lawsuits across the country, cite a NAR-commissioned 2015 study by Orange County-based industry analyst Stefan Swanepoel finding that real estate commissions in the U.S. are inflated compared with countries like Great Britain and Australia.
“Currently, total broker compensation in the United States is typically, on average, 5% to 6% of the home sales price,” the lawsuit said. “According to (the Swanepoel) report, the average total commissions range between 1% and 3% in countries such as the United Kingdom, Singapore, the Netherlands, Australia and Belgium.”
