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This Is No Garden Variety Lawsuit

A report from Market Watch. “A new class-action lawsuit takes aim at real estate agents and the tools they use to do business.
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.”

“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.”

“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.”

“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.'”

“It’s worth noting 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.”

From Forbes. “In Moerhl v National Association Realtors (NAR), home sellers from across the nation are claiming that NAR’s compensation policies—which require all member brokers demand blanket, non-negotiable buyer-side commission fees when listing a home on a Multiple Listing Service—is a violation of antitrust law. Realogy Holdings, HomeServices of America, RE/MAX and Keller Williams are also named in the suit.”

“According to Adam Swanson, an experienced real estate attorney at McCarter & English, Moerhl and Co. are claiming the current NAR-MLS-agent payment arrangement ‘prevents buyer’s agents from negotiating their own commission, which would likely be less.'”

“The claim specifically cites a 2002 study in the International Real Estate Review journal that says that if buyer’s agents negotiated their own compensation, listing commissions for sellers would be closer to 3%, rather than the 5 to 6% seen in most markets.”

“‘In this way, plaintiff claims that he was harmed by having to pay a buyer’s agent and, therefore a higher listing commission than if he only had to pay his agent,’ Swanson said. Swanson says the suit is also claiming that the payment arrangement encourages agents to steer buyers toward higher cost (and higher commission) listings, as well as listings exclusive to MLS, both of which are ‘anti-competitive.'”

“According to Michael Walsh, CEO at Exclusively Buyers, a real estate firm that works only with homebuyers, ‘This is no garden variety lawsuit.’ ‘Potential damages are estimated at $54 billion,’ Walsh said. ‘The plaintiffs allege collusion, hidden payments and anti-competitive practices designed to maintain real estate commissions at artificially high levels.'”

“If the plaintiffs win out, it could mean a change to how Multiple Listing Services and real estate agents work—and get paid. Currently, in most transactions, the home’s seller pays a 5 to 6% commission fee, which is split between their agent—the listing agent—and the agent representing the buyer. Walsh calls the arrangement ‘absurd.'”

“‘This lawsuit could—hopefully, will—change the way real estate brokerages operate in the future,’ he said. ‘Right now, buyers don’t negotiate the fee for their agent. The seller pays. The seller is actually paying for the agent who will be negotiating against their financial interests. This is exactly why buyers are often skeptical as to whether their agent is working for them or the seller or just enjoying a nice payday for doing nothing.'”

“Robert Hahn, the founder at real estate consulting firm 7DS Associates, says the repercussions could be sweeping. ‘If the court rules in favor of the plaintiffs here, REALTOR Associations evaporate, the MLS likely dies off, and the entire infrastructure of residential real estate in the United States has to be remade,’ he wrote when the suit was filed last week.”

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This Post Has 48 Comments

  1. ‘Right now, buyers don’t negotiate the fee for their agent. The seller pays. The seller is actually paying for the agent who will be negotiating against their financial interests. This is exactly why buyers are often skeptical as to whether their agent is working for them or the seller or just enjoying a nice payday for doing nothing.’

    This is an important point. Buyers may not be paying directly, but the lender is really paying and the buyer is the one that has to pay them back. Along the way, the primary incentive is to GET THE DEAL DONE! That’s what is “represented!”

    And I’ve always wondered how those appraisals come in right where they need to? It doesn’t matter if it’s a FHA or subprime USDA.

    1. <em"And I’ve always wondered how those appraisals come in right where they need to?"

      Hmmmmm…… Hmmmm indeed.

    2. And dont forget the home inspector is in on it, he does not want to kill the deal and not get re-hired. Lambs to the slaughter is a good book outlining the players.

      1. Inspectors get hired by buyers directly, not by agents or mortgage companies. Or at least that’s the way it’s worked every time I’ve bought or sold a house.

        If anything inspectors I’ve dealt with try to find things wrong with the house just for the sake of finding something wrong. Like if they don’t find issues, the buyers will think they’re incompetent for not finding issues.

        Appraisals on the other hand, a complete joke. No matter the selling price, appraisal magically is within 1%. I wish someone would file a class action lawsuit against that scam. $500-800 for someone to walk around a property and go yep, looks like it’s worth $387,000. What’s that? The selling price is also $387,000? What a koinky-dink!! Mortgage companies know it’s a scam, but they don’t care since buyers pay the cost of the appraisal.

        1. The inspector who kills the deals gets blackballed, its a fraternity of greed. Sure they find the broken gate latch and a leaky faucet.

          1. I always made my Realturd or their Realturd buy me a loaded American Home Warranty. Amazing what you can break in the first year. 😉

    3. The seller is actually paying for the agent who will be negotiating against their financial interests.

      Sounds like the man’s role in a traditional divorce.

    4. Always Be Closing is the name of the game, whether a UHS notionally “works for” a seller or a buyer. In reality they are devoid of professional ethics or integrity and work solely for themselves and their own financial gain, and will screw over buyers or sellers in a heartbeat.

      https://www.youtube.com/watch?v=GrhSLf0I-HM

  4. As far as agency goes, typically listing brokers these days act as transaction brokers where they are not negotiating for either party. This came about years ago since an agent in an office act as subagents of the broker and cannot have conflicting fiduciary commitments. Therefore if the same office had a listing agent and a separate agent in the office procured a buyer, then the broker would have an agency relationship with both arms length parties. An awkward position for sure. To resolve this, the transaction broker status was formulated.

    In real terms if an agent sells an in house listing then the commission will typically be double that which they would receive if they sell an external listing. There is a motivation that way. However there will be far fewer choices for the buyer and the agent risks the buyer looking for other options if the showing do not meet their needs. Compensation to the broker with the buyer is by commission split, typically but not always 50/50. Can be much different when an agent brings a buyer to a new construction sale with a builder.

    1. “As far as agency goes, typically listing brokers these days act as transaction brokers where they are not negotiating for either party. ”

      All brokers do that. Negotiating is between buyers and sellers. The brokers are just middlemen relaying info back and forth.

      An agent working for a buyer does a lot more work than a listing agent. A listing agent puts up a sign, takes some pictures, enters the info into a database and waits. Maybe an open house, although that’s very rare these days. A buyer’s agent, drives around house to house showing buyers different options. Slitting the commission 50/50 is weird given the imbalance in time spent by both sides.

      Back in the olden days pre internet, listing agent had to do some work and spend some money to market a property. But those days are long gone. Everyone shops on Trulia and Zillow today, which is just pulling MLS data. There’s no need for any marketing or any money spent.

      1. “Maybe an open house, although that’s very rare these days.”

        Here in the Bay Area, these realtors are holding open houses every day of the week. Mabye different elsewhere but not here. I agree the sellers agent often has a more time consuming job but still way overpaid for the Uber driver level amount of work they provide. This whole article is awesome. Just mentioned how great it would be to do away with realtors and mabye that may happen sooner than later!

  5. ‘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’

    And how would anyone know they had been “steered”?

    ‘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’

    Here’s where I don’t know. We just don’t haggle. These commissions aren’t set in stone. Everything is negotiable in real estate. You can bet someone with a$10M shack ain’t paying 6%. And what kind of cartel was Mel Watt running?

    The problem as I see it is shack sales have become one giant got-damn payday for almost everyone involved. Sellers, agents, appraisers, brokers, loan officers, all handed huge checks for almost no work, as long as the deal gets done. And there’s unca sugar backing the whole shebang so nobody has any skin in the game. So what do people do? Turn a blind eye to the whole process. And that includes congress.

    2. “The problem as I see it is shack sales have become one giant got-damn payday for almost everyone involved. Sellers, agents, appraisers, brokers, loan officers, all handed huge checks for almost no work, as long as the deal gets done.”

      Neighbors, you left out the neighbors. The neighbors made more money than anyone else and they did the least amount of work compared to anyone else.

    3. That’s exactly right. Everything is negotiable. Not just for $10M listings either. I’ve never paid 6% commission and don’t ever intend to. And there are plenty of companies that advertize 1% commission service (which is really 4% since it’s 1% for them and 3% for the buyer agent). It’s not some secret that sub 6% options are available. You can hate the NAR/MLS all you want. But calling it a cartel is ridiculous.

      And even if 6% were set in stone, so what? Nobody forces anyone to use a real estate agent. As a buyer or seller everyone has the option of selling or buying privately. Plenty of homes right now listed for sale privately on Craigslist and FSBO websites. Calling the NAR a cartel is like calling used car dealers cartels. You may not like the way they do business and their cars are more expensive that buying privately. However, as a consumer that is your choice to make. Buy privately and save money but make more of an effort or go to a dealer and pay more, but spend less time looking.

      1. Yeah not Cartel… But they are just like Unions. If you list FSBO, realtors will never show your house to their clients and even make an excuse to their clients as to why they don’t want your house.

        “Nah, not that house, it’s not a good option for you, trust me. But let me show this other one near by that I think you will love it.”

        1. Very true. They essentially boycott listings if the commissions don’t match there self entitled expectations. I witnessed this with a buyers agent who said his client wanted my friends house but he wouldn’t show it because the contract only paid 2% buyers agent commission where this UHS stated he would only bring the buyer in if he got 3%. That sale went to another buyer and that buyers agent was happy with her 2%.

        2. Why do people expect real estate agents to show fsbo houses? Does a Carmax salesman bring customers to test drive cars listed privately on Craigslist? Of course not. Same principle applies.

          You have 2 options as a seller:

          1. Pay a commission and have access to the MLS and real estate agents who will show their buyers your house

          2. Don’t pay a commission and find a buyer yourself

          What everyone wants is #3 which is pay no commission and have access to the MLS/brokers. Doesn’t work like that.

          1. You missed my point COMPLETELY.

            Realtors don’t give the buyer that option, instead they hide the FSBO and discourage the buyer from pursuing that option so the buyer doesn’t end up calling the owner himself and buying without the realtor.

            Something like: You like that house? Go for it, but if you want me involved you would have to pay my commission since the seller won’t, it’s up to you. You are also welcome to buy that house without my assistance if you choose.

            No, instead they will talk the buyer out of it so the buyer doesn’t even consider that option.

            That was my point.

      2. Remember travel agents? They (mostly) had access to the list of flights and you could pay through them. But now, I can go to Kayak or Travelocity and find a flight myself. The transaction is handled by Mastercard, turnkey.

        What we really need is a few nationally-known title companies who handle realty transactions, turnkey. (we do have title companies who do this, but nonational chains like ReMax or Long&Foster). Buyers and sellers can match up via Zillow/Craisglist et al, meet and agree on a price, and call up the Title Place. Buying a house will become not much more complex than booking a flight. That will reduce Realtors to the house equivalent of travel agents.

  6. “the entire infrastructure of residential real estate in the United States has to be remade,’ he wrote when the suit was filed last week.”

    Oh my! Will we be ok????? Oh noes!

    Trust me on this….. this will work out beautifully for everybody.

    1. Larry Yun’s next gig? Competing with Tom Selleck hawking reverse mortgages? Take over for Captain Kirk at Priceline? Or pitching legal services for people wanting to ditch their timeshare?

  7. Can they both lose? Greedy lawyers vs greed UHS, which is worse? After all, if the lawyers win, what to home buyers get (vouchers?) and what do the lawyers get (lots of cash?).

    Also, IIRC, during the last downturn, many UHS slashed effective commissions (up front or via rebates) to 3-4%.

  9. U. S. Is rife w/ cartels. Real Estate, Healthcare, Taxis, Higher Ed., High Tech., etc., which is great for 1%, but 99% are being stripmined. Desired result of crony-capitalism. No competition. Sherman Anti-Trust Act applies, but no one wants to derail the gravy train. Congress represents whom?

  10. At first blush this seems like a ploy to get Silly Valley “disruptors” a wedge into the UHS market via forcing open the listing data process. It’s pretty plain to see that automation will mostly kill off the Realtor(TM) like Uber/Lyft are killing traditional cab companies.

    1. I agree. And it’s not all bad. Will probably end up like travel agents. They still exist for the well heeled. But the masses no longer need to use them to get the best deal. Now they’re for people with more money than time. And if somebody in California makes the winning killer app for it I’m ok with that.

  12. Holy cow! I didn’t think that the most far fetched prediction from earlier this year would be somewhat plauseable…

    “Think I’ll have to stick with my mid-year prediction, in addition the following conspiracy theory: this spring will bring the extraordinary slow down in housing sales. Afterwhich, the real estate market will fully unravel. Revealing the cause of this housing bubble: market manipulation by the NAR through app based ‘data’ (Zillow and trulia), and prolific use of subprime (non prime) loans from smaller banks/lenders to a new generation of FBs.”

  14. “Overload! PLEASURE OVERLOAD”!!!

    Seriously, I’d rather find my own agent and pay him out of my own pocket to work on my own behalf. I will be following this case to see how it plays out.

  15. “‘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.'”

    How old are these court decisions? Before the 2008 DOJ consent decree? With intervening technologies, this argument may no longer be valid.

    1. Oops. Didn’t nest under “Million Dollar Shack: Trapped in Silicon Valley’s Housing Bubble”

  20. I have been an appraiser for over 45 years. Both commercial side and residential side. The residential appraiser is doomed as of Dodd Frank. They basically stated no one but certified appraisers could do work. At this point the number of appraisers has dropped to ridiculously low levels. You cannot build a firm nor make sense of an office environ. The government in an effort to keep the banks from pressuring the appraiser made Appraisal Management Companies act in between. The fees are no through the roof. $500-$600 per house. Pre DF they were about $300. The AMC’s put their snoots in the trough and sucked out all they could. At this point the appraiser gets $225-$275 and is told to hit a 2-3 day turn around. Then the lender dictates all these stupid stipulations they want answered to cover their azzes. Most are foolish and are regurgitating the data which is obviously in the report if one can read them. The reports go through several levels of review and then the dat in them is fed to the government for stockpiling. They are building a database from the appraiser’s work product which by the way is a violation of confidentiality and a couple of other things in our code of Conduct. But the rules are different aren’t they. Now the best part. Let’s say that based upon years of practice you raise an issue or fifty with the lenders request, through the AMC you are blacklisted for being a problem child. In other words for good sense and practice you are cut-off. The bank says, not us, the AMC uses who they want to use. All the while the Bank is calling the shots hiding behind the AMC’s. To that I had a job wherein I told them the value was not there and I would not waste my time nor the borrowers money. The AMC rep. said, “no worries we’ll find someone who will do it.” He meant hit the number. They did just that as he called me to let me know. I no longer work for them and I am glad to have fired them. The question was raised as to how the appraisals all come in so close to contract price. Some appraisers are lazy and others are good. The government makes the agents supply the appraiser with the contract. I never run that into a PDF until I finish my report. At times I nail it. In fact most of the time I am within 5 % of the purchase price. Sometimes I am way off the contract price and I call it as I see it. I double work these to see if I missed something but usually it is a situation wherein there was a bidding contest. This is a bad thing to allow. Once a contract selling price is set at listing it should be the first to hit the number gets the house but the Realtors like to set up a damn casino and they keep letting the price rise while dumbazz buyers compete. This is a huge red flag and one of the reasons we get into boom cycles. Prequalification is another issue as far as I am concerned. It is like the house gives you so many chips and you keep bidding till you run out of chips. And there is a problem too as the Realtors drive up the prices. I am worn out with the whole process and with the evident lack of dedication on the part of lenders and government. I will say it as most people are loathe to come right out with it. The difference between now and 2007 is 12 years. Every other aspect is right back where we started. In fact banks claim that appraisers are so in demand they can’t get timely appraisals and they should get a pass of a true appraisal. The government is giving blanket relief to them and no appraisal is required. By the way most sales have dried up and all we are seeing is refi’s. Another great sign. If I were a sheep dog I would eat the sheep and save them the pain of waiting.

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