Ohio Real Estate Market Included in Class Action Lawsuit
April 18, 2019 |
A group of home sellers has filed a federal class-action lawsuit against the National Association of Realtors (NAR) and some of the nation’s largest brokerage firms, alleging antitrust violations. The brokerage firms named include Realogy (franchisor of Better Homes Real Estate, Century 21, Coldwell Banker, ERA Real Estate and Sotheby’s brands), Home Services of America (an affiliate of Berkshire Hathaway), Re/Max and Keller Williams.
The reach of the lawsuit is significant. Realogy’s website indicates its brands have over 16,300 offices and approximate 300,000 independent sales associates. Keller Williams’s website indicates as of 2017, it has approximately 940 locations and 155,000 agents, generating more than $300 billion in sales. HomeServices of America’s website indicates it has 879 offices and 42,600 agents with a sales volume of $137.6 billion. Re/Max’s website discloses a total of 120,000 agents worldwide. The outcome of this case could have a groundbreaking impact on how listing and selling agents are compensated for their services.
The lawsuit was filed on March 6, 2019, in the U.S. District Court for the Northern District of Illinois, and alleges the NAR and brokerage firms violated federal antitrust laws in implementing rules that keep commissions at 5% or 6% per transaction. The Plaintiffs allege the Defendants implemented policies that are aimed at keeping buyers and sellers from negotiating commissions. Specifically, the Plaintiffs cite to the NAR’s Buyer Broker Commission Rule, which it adopted in 1996 as part of its MLS policy handbook. The Rule provides when a listing agent files a listing on the MLS, the agent is making a blanket unilateral offer of compensation to other MLS participants. The Rule requires listing agents to specify on each listing the amount of cooperative compensation being offered. If compensation in the form of a percentage of the gross selling price or dollar amount is not offered, the MLS is prohibited from accepting listings. The Plaintiffs allege the brokerage firms have participated in the conspiracy by requiring their agents comply with the NAR rules, supervising NAR’s adoption, maintenance and enforcement of the rules, and influencing local realtor associations to enforce the NAR rules.
How does the Buyer Broker Rule impact buyers and sellers? The Plaintiffs allege the Rule shifts to the seller costs that should be paid for by the buyer. If buyers paid commissions to their own agents, then brokers would compete with one another to offer low commissions. The Plaintiffs also allege the Rule incentivizes selling agents to only show properties with high offers of compensation. Because the NAR Code of Ethics prohibits using an offer to attempt to modify the listing agent’s offer of compensation, buyers cannot seek to reduce their commission as part of a purchase offer negotiation.
Both Cleveland and Columbus, Ohio are cited as “Covered MLSs”, wherein members of the class sold homes listed in those MLSs within the last four years. The lawsuit provides that the average brokerage commission in the Covered MLSs is 5%-6% per transaction. Citing international studies and home price trends, the Plaintiffs estimate that residential brokerage fees should run closer to a total of 3%.
The lawsuit seeks restitution for inflated commissions paid by the class, along with pre-and post-judgment interest, attorney’s fees. The lawsuit also requests the Court issue an injunction against the Defendants, prohibiting them from continuing to require sellers to pay the buyer broker’s commission.
More information about the lawsuit and a copy of the complaint can be found at Hagens Berman.