CHICAGO (CN) – A group of recent home sellers filed a class action antitrust lawsuit against multiple realty agencies in federal court in Chicago Wednesday, alleging the agencies conspired to develop a commission scheme that significantly inflated the cost of selling their homes.
The 30-page complaint claims the defendants, including The National Association of Realtors, Realogy Holdings and RE/MAX Holdings, conspired “to require home sellers to pay the broker representing the buyer of their homes, and to pay at an inflated amount, in violation of federal antitrust law.”
The plaintiffs allege that the conspiracy has centered around The National Association of Realtors’ “adoption and implementation of a rule that requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation…when listing a property on a Multiple Listing Service,” or MLS.
This makes the market noncompetitive, according to the complaint, since the cost of paying a commission to the buyer broker is a cost that would normally fall on the home buyer in an ordinary, competitive market. And since the defendants have control of the local MLS, which is the key database of region-specific property listings on which most homes in the United States are sold, this gives them unfair leverage and market power.
The lawsuit also notes that “in furtherance of the conspiracy” The National Association of Realtors “advises MLS’s to enter into non-compete agreements with third-party websites, such as Zillow, so that those websites do not become competitive rivals to MLS’s.”
This means that in order for another listing service to compete under these rules, they need to have listings as comprehensive as the popular MLS’s. The inability to list properties for sale in a centralized MLS database excludes a broker or agent from the vast resources an MLS makes available.
The complaint makes the point that The National Association of Realtors requires its members to comply with the buyer broker commission rule as part of its handbook and code of ethics.
For context, the complaint states that “Brokers and their agents who currently profit from inflated buyer broker commissions and total commissions have minimal incentive to participate on an alternative listing service that would general lower buyer broker commissions and lower total commissions.”
“In a typical transaction,” the complaint states, “separate brokers will represent the seller and the buyer of a home. Both the buyer broker and seller broker…are paid a percentage of the property’s sales price.” Usually, the total broker compensation in the U.S. is around five to six percent of the home’s sale price, with half that amount going to the buyer broker.
However, the complaint charges that the “Defendant’s conspiracy has kept buyer broker commissions in the 2.5 to 3 percent range for many years despite the diminishing role of buyer brokers.”
An example in the complaint states that a class member who sold their house for $500,000 paid the buyer broker somewhere in the range of $12,000 to $15,000 in additional commissions due to the conspiracy. In a competitive market, the seller would pay nothing to the buyer broker.
Plaintiffs’ attorney Benjamin Brown, with the Washington, D.C. branch of the Cohen Milstein Sellers & Toll firm, said in a statement that “For years, economists have been sounding the alarm that American home sellers are paying inflated broker commissions.”
“This stems from that fact that to list a home for sale on an MLS, sellers need to agree to play by a set of rules that distort and destroy competition, including requiring home sellers to pay the buyer’s broker,” Brown said.
Christopher Moehrl, a listed plaintiff in the lawsuit, sold a home in the Minneapolis area in November 2017. According to complaint, he listed his home on the local Northstar MLS and, at the end of the transaction, Moehrl had paid 2.7 percentage points to the buyer broker.
The suit claims that the alleged conspiracy violates Section 1 of the Sherman Act and requests that the court award the class a permanent injunction under Section 16 of the Clayton Act “enjoining defendants from continuing to require sellers to pay the buyer broker and from continuing to restrict competition among broker buyers” among other measures.
Representatives with The National Association of Realtors could not be reached after business hours Wednesday for comment.