https://www.marketwatch.com/story/big-name-lawsuit-could-upend-realtors-and-their-6-fee-2019-03-19
The lawyers who took on Big Tobacco are aiming at Realtors and their 6% fee
Published: Mar 19, 2019 2:24 p.m. ET By Andrea Riquier
A new class-action lawsuit takes aim at real estate agents and the tools they use to do business, and housing industry watchers say it could revolutionize the way Americans buy and sell the biggest asset they’ll ever own.
The suit was filed in Chicago on behalf of anyone who sold a home through one of 20 of the largest listing services in the country over the past five years. It charges that the mighty Washington-based lobby National Association of Realtors, as well as the four largest national real estate brokerages, and the Multiple Listing Services they use, have conspired to require anyone selling a home to pay the commission of the broker representing their buyer “at an inflated amount,” in violation of federal antitrust law.
Homeowners who are ready to sell their properties usually hire a real-estate agent to represent them by staging the home, photographing it, adding it to the MLS, marketing it, and showing it to prospective buyers. Sellers agree to pay that person a commission on the selling price of the home. That commission has traditionally been known as the “6%,” but it’s a little more complicated than that.
Sellers can really only negotiate with the agent they’ve hired, while agents representing buyers are generally assured of a standard 3% commission. That means that a seller’s agent who’s willing to negotiate, or one that works for a discount brokerage like Redfin RDFN, +3.25% , will be paid less than a buyer’s agent.
Buyers can choose to be represented by an agent, or to go without one – but in any case, all commission money for both sides of the deal is always paid by the seller, thanks to a 1996 NAR rule known as the “Buyer Broker Commission Rule.”
In order to list a property on one of the many regional databases known as Multiple Listing Services, agents must abide by the Buyer Broker Rule. Listing on the MLS is essential for making a sale, and most MLSs are controlled by local NAR associations.
“The conspiracy has saddled home sellers with a cost that would be borne by the buyer in a competitive market,” the lawsuit says. “Moreover, because most buyer brokers will not show homes to their clients where the seller is offering a lower buyer broker commission, or will show homes with higher commission offers first, sellers are incentivized when making the required blanket, non-negotiable offer to procure the buyer brokers’ cooperation by offering a high commission.”
As MarketWatch has previously reported, many housing observers call Realtors a “cartel” for the way they purposely steer clients to transactions in which traditional ways of doing business are observed.
Rob Hahn is founder and managing partner of 7DS Associates, a real estate consultancy. In a blog posted shortly after the lawsuit was filed, Hahn called it a potential “nuclear bomb on the industry.” And in an interview with MarketWatch, he said that he’s taking it “very seriously.”
In large part, that’s because of the heft of the law firms behind the suit. Both Cohen Milstein Sellers & Toll, and Hagens Berman Sobol Shapiro have a long history of prevailing over weighty entities like Volkswagen, for its emissions scandal, Apple, for its e-book collusion, and Exxon , after the Valdez spill.
In response to a request for comment, NAR said, “The complaint is baseless and contains an abundance of false claims. The U.S. Courts have routinely found that Multiple Listing Services are pro-competitive and benefit consumers by creating great efficiencies in the home-buying and selling process. NAR looks forward to obtaining a similar precedent regarding this filing.”
Still, as Hahn put it, past lawsuits have mostly been filed by what he calls “ambulance-chasers,” not the firms behind some of the biggest civil settlements in American history.
That view is shared by Cohen Milstein partner Daniel Small, who called the way Realtors do business “a longstanding problem.” What’s different now, Small told MarketWatch, is that deep-pocketed law firms had done a “substantial investigation” that convinced them that there was merit to the case.
Small declined to elaborate on what had prompted the investigation in the first place. It’s worth noting, however, that the suit was filed roughly four months after the expiration of a Department of Justice consent decree against the National Association of Realtors. That settlement was struck in 2008 after the federal government spent several years unsuccessfully trying to rein in what it called anti-competitive behavior from NAR, which felt under attack from internet upstarts.
Hahn thinks it’s ironic that an innovation that tried to protect buyers, by providing them with representation in a complex and deeply emotional transaction, has soured the market so badly. Many housing watchers have long argued that real estate services should be paid for a la carte, or in a sliding-scale fee structure, rather than a flat commission, whether that’s 6% or 1%. But, Hahn said, “there’s no chance whatsoever that the industry goes that way voluntarily.”
What’s more likely, he thinks, is that the American system will come to resemble real estate markets in Australia or England, where sellers and buyers each pay their own broker – or don’t. After all, buyers are usually “cash-strapped,” Hahn noted: saving every nickel for a down payment, closing costs and moving expenses. While the entrenched interests in the American real estate industry will argue that’s not consumer-friendly, Hahn says he’s “never seen a study that says buyers get screwed” without representation.
A former lawyer himself, Hahn isn’t sure how to handicap this case. But if it prevails, he thinks enormous changes are in store for the industry. The ranks of buyers’ brokers will likely be decimated, and the infrastructure behind the MLSs and the local associations will wither away too.
A spokesperson for Realogy RLGY, -1.02% said, “We believe this case has no merit and will not be commenting further.”
A spokesperson for Keller Williams said, “It’s not our policy to comment on pending litigation.” A spokesperson for RE/MAX Holdings RMAX, -2.20% declined to comment, and a request for comment by Berkshire Hathaway-held BRK.B, -0.74% HomeServices of America, Inc. was not returned.
“This is an important case for many reasons,” Daniel Small said. “Among them is that this is the biggest transactions of most peoples’ lives. There is a lot at stake.”
That said a good real estate professional can save you a whole lot of hurt if you aren’t real savvy about the local laws and contracts. I cannot tell you the times she has rescued a fsbo transaction out of the goodness of her heart because she took pity on them. Many many times over her 17 years. Most didn’t even thank her.
It's amazing how effective a few well-placed "For Sale by Owner" signs can be. ;-)
Matt
For the $20k or so I paid in realtor fees I really got jack shit in return. They created a profile that was literally just a copy of the profile when we bought the place with new pictures that a photographer took. He held three open houses (one of which he was late to and a prospective buyer pulled up and drove away after waiting a few minutes) and that's literally it.
They install a remote key box on the door that any realtor can access. When we would get a showing request it would come directly to me and I would accept it over my phone. When I had a realor show my place and not lock our doors I had to call and talk to her about that. He didn't want to "make any waves".
I paid $20k for an MLS listing.
The first home was 3%, then 4%, then 4.5%, then 4% and the last one 1.5%.
Will be a very high probability that we will sale our home this late summer or fall and will probably go back to the gent for 1.5% to make sure all paper work is done right at closing. Otherwise, he has no other interest in marketing or showing, ect. We already have the person that wants to buy our place.
The commission should be done on a sliding scale, had to fire several agents in the past and then usually was sold shortly afterwards.
Never forget this couple (agents), he use to be on TV as a sports announcer and his wife owned a beauty salon, good looking couple with no substance and lot of bs. The home sold 2 wks later after they were dx with a lower commission from the new agent. They wanted us to put our furniture in storage and rent from their home staging company for $3K and to either place our pets in a kennel or friends, game mounts and pictures were a big no-no that it would offend some buyers. I told them to sale as is or move on which I eventually did.
$500000 at 6% is $30000, alot of money for very little effort, suggest to deal with the agent before signing the contract.
Why is that? I honestly don't get it. Are you saying Minnesota buyers enjoy paying more than they have to for a house?
Matt
True story. In 2000, my wife and I decided to sell our home near Boulder. 15 minutes after I put a FSBO sign in the front yard, we had an interested young couple knock on our door. Kathy and I hadn't even discussed what price we were going ask for it, yet. After showing the house to the young couple, the husband finally asked about the price. I intentionally threw out a high number to give myself some negotiating room. We were shocked when the guy stuck his hand out and said "we'll take it!" By the time we closed with that couple, we had 2 backup offers for even more money. It was ridiculously easy.
But, again, that was in one of the strongest real estate markets in the state, at a time when there were far more buyers than sellers. I know it's not that easy in other areas.
Matt
I never inferred they like paying more; I am simply stating selling a home around here without a realtor is a tough sell...for lack of a better term. My guess is the potential buyers are getting pressure from their realtor and scared towards only buying from those represented by a realtor. I see very few FSBO sales for single family dwellings that aren't mobile homes or shitholes sold "as is". If it's a legitimate and decent property it will sit forever with a FSBO sign until one day you drive by and they have a brand new shiny realty sign in the yard...that tells me they weren't getting many bites on the FSBO.
Matt
In the not so long ago past realtors kind of had a corner on the internet listings. Now, not so much. There are sites specific FSBO. And legal firms specializing in finalizing the deals much more available as well. Like Ike said.... the internet has had real effect on real estate and sales. And it's just starting. May come a day when they start to go the way of the Travel Agent. (when was the last time you used a travel agent?)
It should also be noted, as a seller, there are a number of ways to structure a realtor contract that will save you money over the traditional 6% commission contract. Some realtors are willing to help with any portion of the transaction, whether it's market advice, listing only, paperwork support, or any combination of those tasks. Sometimes they'll even work on an hourly basis, depending on how hungry they are. If they aren't flexible with their scope of work and fees, walk away.
Matt
