A legal conflict with potentially disastrous implications for the real estate industry has come to a head, pushing leaders across the industry to take swift action.
The National Association of REALTORS® (NAR) and several national brands named in a lawsuit over an NAR policy announced that they are fighting a recent court decision designating the case as a class-action lawsuit.
“We are disappointed in the decision and plan to appeal,” said NAR spokesperson Mantill Williams in a statement. “This case threatens to disrupt consumers’ equitable access to the largest centralized database of homes for sale in a given market, as well as their ability to afford professional representation during what is likely the most complex and consequential transaction they’ll make in their lifetime.”
According to Williams, losing this legal battle could deal a detrimental blow to the industry that would be felt by professionals and clients alike.
“Forcing buyers to take on the additional out-of-pocket expense would cause them incredible hardship and would freeze many, particularly first-time and low- and middle-income homebuyers, out of an already competitive market,” he said.
The outcry comes after a U.S. District Court Judge in Western Missouri granted a class certification order to a group of home sellers alleging that NAR and industry franchisors conspired to inflate seller costs through a multiple listing service (MLS) policy geared toward promoting cooperation among buyer and seller agents.
The ruling, which came only days after the court heard oral arguments from both sides, opens the door for “hundreds of thousands” of home sellers to join in on the lawsuit if they paid a broker commission in transactions involving a listing that was featured on one of four local MLSs—Heartland MLS, Columbia Board of Realtors (CBOR) MLS, Mid America Regional Information System (MARIS), or the Southern Missouri Regional MLS.
“The Court agrees with Plaintiffs that a class action is the superior method for fairly and efficiently adjudicating the controversy. Accordingly, the superiority requirement of Rule 23(b)(3) is satisfied,” wrote Judge Stephen R. Bough, who is presiding over the case.
According to Bough, the plaintiffs—listed as Scott and Rhonda Burnett, Ryan Hendrickson, Jerod Breit, Scott Trupiano and Jeremy Keel—pushed to have the antitrust case tried as a class action suit based on the size of the case and the issues involved and because “the identical claims would result in uniform damages calculation, each class members’ damages will be small compared with the relatively high costs of bringing litigation, separate proceedings would produce duplicative efforts and risk inconsistent verdicts.”
Williams stated that NAR is poised to “aggressively contest the allegations.”
NAR isn’t alone in that fight, as Realogy and Keller Williams—also defendants in the case—plan to take similar actions.
“The court did not decide the merits of the plaintiffs’ claims, which we categorically deny,” said Keller Williams spokesperson Darryl Frost in an emailed statement. “The case is far from over, and we will continue to defend ourselves in court vigorously.”
In a recent SEC Filing, Realogy indicated that it plans to “pursue an interlocutory appeal of the decision” on the class certification order.
“Realogy disputes the plaintiffs’ allegations against it in the antitrust litigation, believes that it has meritorious defenses, and will vigorously defend these actions,” read the SEC document.
The court decision and looming appeals mark the latest development in a court case that has been brewing for several years following a 2019 lawsuit filed by Joshua Sitzer and Amy Winger initially against NAR, Realogy, RE/MAX, Keller Williams, and HomeServices of America—including its subsidiaries BHH Affiliates and HSF Affiliates.
The Burnetts and the other plaintiffs joined the case later.
At issue is an MLS policy that the case file referred to as the “Adversary Commission Rule.” However, the policy is commonly known as the “Participation Rule” or “Buyer Broker Commission Rule.” The longstanding MLS policy mandates that brokers list buyer agent compensation as a prerequisite to listing a property on certain multiple listing services.
The lawsuit contends that NAR’s policy is anticompetitive, alleging that NAR and the company conspired to inflate commissions by requiring all seller brokers to “make a blanket, unilateral and effectively non-negotiable offer of buyer broker compensation,” violating federal antitrust laws.
The lawsuit argues that buyers’ agents wouldn’t show their clients a listing depending on the commission a seller’s agent was offering. Conversely, the suit also alleges that buyers’ agents may prioritize showing homes with higher adversary/buyer commission offers.
“If NAR’s Adversary Commission Rule were not in place, then the cost of buyer broker commissions would be paid by their clients (home buyers),” read an excerpt from the original court document. “Buyer brokers would thus have to compete with one another by offering a lower commission rate.”
Williams argued the contrary, stating that “the pro-competitive, pro-consumer local broker marketplaces serve the best interests of buyers and sellers.”
“Local broker marketplaces ensure equity, transparency and market-driven pricing options for the benefit of home buyers and sellers,” he said. “These marketplaces reduce transaction costs by ensuring, among other things, that a buyer broker and their client understand how much the listing broker will pay the buyer broker for procuring a buyer for the listed property.”
Aside from a list of real estate companies and NAR, the lawsuit also targets a group of local MLSs, which also help lay the foundation for the following classes established in Judge Bough’s order:
Subject MLS Class and Missouri Antitrust Law-Subject MLS Class: People from April 29, 2015, through the present, used a listing broker affiliated with HomeServices of America, Inc., Keller Williams Realty, Inc., Realogy Holdings Corp., RE/MAX, LLC, HSF Affiliates, LLC, or BHH Affiliates, LLC in the sale of a home listed on the Heartland MLS, Columbia Board of Realtors (CBOR), Mid America Regional Information System, or the Southern Missouri Regional MLS, and who paid a commission to the buyer’s broker in connection with the sale of the home.
MMPA Class: All people who, from April 29, 2014, through the present, used a listing broker affiliated with Home Services of America, Inc., Keller Williams Realty, Inc., Realogy Holdings Corp., RE/MAX, LLC, HSF Affiliates, LLC, or BHH Affiliates, LLC, in the sale of a residential home in Missouri listed on the Heartland MLS, Columbia Board of Realtors, Mid America Regional Information System, or the Southern Missouri Regional MLS, and who paid a commission to the buyer’s broker in connection with the sale of the home.
The court filing gave plaintiffs 14 days from April 22 to submit the appropriate documentation to add class members who sold their homes using the CBOR and Southern Missouri Regional MLS.
While the Sitzer/Winger case centers on markets in Missouri, the lawsuit’s implications could send ripples throughout the industry. However, onlookers and leaders nationwide aren’t convinced that the recent ruling signals that the plaintiffs will prevail.
“It is possible that, once the plaintiffs walk the court through how the transaction would look under the system they are suggesting, it may become evident that consumers would end up in a worse position than under current custom,” says Craig Cheatham, president, and CEO of The Realty Alliance. “I certainly wonder about the plight of the first-time homebuyer unless the housing finance industry adjusts to allow them to finance payment of their trusted advisor.
“Agency law has been examined and reexamined time after time over the past few decades, and policymakers continue to allow the current practice,” Cheatham continues. “And the marketplace has continued to affirm the value of having an agent and paying that agent.”
Ken Trepeta, executive director of the Real Estate Services Providers Council, echoed similar sentiments.
“The judge has allowed the case to go forward and is allowing for this class status, but it’s very early stages, and I think that there is a lot of evidence that this particular MLS rule has nothing to do with trying to set prices,” Trepeta says.
Trepeta adds, “The idea was to disclose the compensation amount upfront, so there is no back and forth or debate over how much the buyer’s agent deserves. It’s basically out there in the open, and that’s that whole point behind the MLS. It was more about governing the relationships among agents concerning listings and aspects of listings.”
This is a developing story. Stay tuned to RISMedia for further updates.
Jordan Grice is RISMedia’s associate content editor. Email him your real estate news to jgrice@rismedia.com.
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