In real estate, the last few years have seen unprecedented upheaval. First, there was the coronavirus pandemic. Then, large sums of money went into housing, fueling total new segments. Technology has also become pervasive. The list could go on and on. But, there is one that has the potential to be of highest impact: the ongoing agent commission lawsuits. The Department of Justice's investigation of buyer and broker commissions issues continues. Class-action cases are advancing, and associations and MLSs are adjusting their policies. As a result, agent commissions of the future may look very different than they do today. A couple of class-action lawsuits have been sitting on the books for the past three years. These cases await their day in court. In one of these cases, there has recently been an alarming development. And the other one looms in the background. If either of these cases is successful, the industry will experience a severe impact. The financial ramifications will be on an almost unimaginable scale. Here is some important information about these real estate commission lawsuits to watch.
Bauman v. MLS
Instead of suing the National Association of Realtors, Bauman v. MLS went after many listing services. Bauman v. MLS came from a group of Massachusetts home sellers in December 2020. It claims that brokerages violated antitrust laws with a "buyer-broker commission rule." These companies involve Realogy, Keller Williams, and HomeServices of America. RE/MAX and the owner of many listing services, Pinergy, are also included in the case. The suit claims that if buyers and sellers each paid their brokers, the total would be less. So, this situation would be ideal rather than having sellers pay buyer-broker commissions. In the current system, in which sellers pay both. The sellers argue in the suit that such a practice is anti-competitive. It also causes sellers to pay "artificially inflated, supra-competitive commission rates." The system, the lawsuit claims, promotes steering. This scenario prevents rates from falling to competitive levels. Such a case lets brokers avoid doing business with other brokers. It also enables them to retaliate against brokers who attempt to offer lower rates. Moehrl v. NAR in Missouri and Sitzer v. NAR in Illinois are two other legal battles.
The ‘Bombshell’ Moehrl suit (Moerhl v. NAR)
Let us examine the flagship Moehrl suit through a massive recent court filing. First, it is worth noting that this lawsuit is a critical issue at this point. So, this case can transition from being about one consumer to being about millions. To put it another way, can the Moehrl case become a class action suit? In the short term, billions of dollars are at stake. A class-action status could allow millions of consumers to seek compensation as well. On a deeper level, the Moehrl case may continue to gain class-action status. As a result, it may amplify the case's structural impacts on the industry. The larger the case becomes, the more likely it will change the way agents get paid everywhere. This article delves deeper into the claims made in the commission lawsuits. Let us consider the plaintiffs in the Moehrl case. They are claiming a "longstanding conspiracy" to get consumers to pay higher commissions. Sources mention NAR and other well-known real estate franchisors being in the scheme. As a result, the core argument for changing the status quo is that the industry is overcharging. Consumers feel that the industry is manipulating the market.
Burnett/ Sitzer et al. v. NAR et al.
This case is another battle with home sellers against NAR and many top franchisors. A court decision designating it as a class-action lawsuit has moved the Burnett v. NAR case forward. The lawsuit contains the same allegations and defendants as Moerhl v. NAR but is only in Missouri. Moerhl spreads across several states. Joshua Sitzer and Amy Winger are the two homebuyer plaintiffs responsible. They filed a lawsuit against the National Association of Realtors, Realogy, and others. Their concern is the alleged sharing of commissions between listing and buyer brokers. They imposed that this scenario violated the Sherman Antitrust Act. The lawsuit hoped that homebuyers would pay their brokers forward instead. They would not prefer listing brokers to pay buyer brokers from what the seller pays them. According to the lawsuit, the model inflates seller costs. The ruling that class-action certification is the best way for fair judging of the case. As a result of the decision, the Sitzer/Winger lawsuit can now represent any seller. This decision includes those who paid a commission for a real estate transaction. But, only across four Missouri MLSs from April 2014 to the present. Nonetheless, the case has the potential to reverberate throughout the industry. Besides damages, the plaintiffs also seek a permanent injunction. This case will stop NAR from continuing to restrict competition among buyer brokers. The plaintiffs may also ask the court to overturn the Participation Rule. Thus, prohibiting the creation of similar policies.
Final Thoughts
Many believe that the current situation stifles market competition and violates antitrust law. But those who support the status quo argue as well. They think that splitting seller-agent commissions paid by their clients strengthens the market. Plus, it also makes it less expensive for first-time buyers today. The truth is that there is a lot much that could happen to improve the home buying and selling process. Technology has altered our way of life in many ways. It has given us conveniences we could not have imagined in the twentieth century. We have also seen the transformation of entire industries. These happened as a result of the adoption of exciting new technologies. We are, in fact, living in a period of incredible growth and change. People embrace the changes, reveling in the ease and convenience they provide. These lawsuits are another bump in the road and we will see how it shakes out for the real estate industry.
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