Housing: Another class-action lawsuit targets real estate broker commissions
Real estate broker commissions are on the hot seat again.
A new federal class-action lawsuit filed in South Carolina alleges that the powerful National Association of Realtors (NAR) and real estate brokerage firm Keller Williams Realty violated federal antitrust laws, and in turn, artificially inflated home prices in the state.
The lawsuit filed Monday comes on the heels of a similar class-action case in Missouri that resulted in a jury verdict against the NAR last week. The jury found the NAR and some of the country's largest real estate brokerage firms entered into illegal agreements that cost home sellers in the state $1.79 billion in losses.
The damages in that case allow for "treble" or triple damages, meaning that a judge could require the defendants to pay up to $5.3 billion. The NAR's co-defendants in the case included Keller Williams, as well as Berkshire Hathaway's HomeServices of America (formerly Century 21 Sweyer and Associates) and its subsidiaries, RE/MAX, and Anywhere (formerly Realogy).
Anywhere Real Estate and RE/MAX reached a $138 million settlement before the verdict.
The South Carolina plaintiffs are seeking class-action status on behalf of all home sellers in the state who since November 2019 used a listing broker affiliated with Keller Williams that listed their home on one of the NAR's Multiple Listing Services (MLS).
The NAR's rules imposed on Keller Williams, they say, placed anti-competitive restraints on the housing market by effectively enforcing non-negotiable commission structures, then requiring home sellers to pay commissions to buyers' brokers.
"The effect of these rules is not simply that the seller must pay the buyer broker's compensation," the lawsuit states. "These rules effectively take the compensation structure out of the view of the buyers and sellers, masking who pays the buyer broker's compensation."
"Indeed, a buyer broker may not even present an offer to a seller that is conditional on the seller reducing the buyer broker commission," the suit states.
The cases, and cases like them, could ultimately dismantle the NAR’s stronghold over a system that has long been criticized for disadvantaging sellers and buyers by setting and maintaining broker commission rates between 5% and 6% of a home’s sales price.
The NAR’s MLS databases, which in 2020 held listings for 91% of homes sold in the county, remain a primary tool to match home buyers and sellers. Brokers who are members of the NAR and list their clients’ properties in its databases must also agree to share their commissions with other MLS participants.
That agreement, the plaintiffs argued, artificially drives up home prices and deprives sellers of profit. The NAR, for its part, contends that their commission structure, which has been in place for over 100 years, benefits consumers.
The NAR said it plans to appeal the Missouri verdict.
Data from online real estate listing service and broker, Redfin (RDFN), which ended its NAR membership last month, shows that buyers paid over $41 billion in broker fees last year.
The plaintiffs in the South Carolina case are seeking a jury trial and unspecified damages, along with an order that would stop the NAR from continuing to enter into the alleged anti-competitive agreements.
The Justice Department has reportedly considered legal intervention, too. In July 2021, the department stopped moving forward with a settlement with the NAR after concluding it could prevent its ability to protect competition in the market, which "profoundly affects Americans’ financial well-being."
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
