Thousands of Midwest home sellers eligible to join lawsuit challenging real estate fees
A federal judge certified the case as a class action, meaning thousands of home sellers in the Midwest may be eligible to recover damages if the plaintiffs prevail.
A federal lawsuit in Kansas City challenging rules requiring home sellers to pay commissions to brokers representing home buyers has been certified as a class action, meaning thousands of home sellers in the Midwest may be eligible to recover damages if the plaintiffs prevail.
U.S. District Judge Stephen Bough on Friday ruled that the lawsuit, which was originally filed in 2019 on behalf of Missouri home sellers who had listed their homes on the Multiple Listing Services system (MLS), met the criteria for a class action, including numerosity and common questions of law or fact.
The Kansas City case, along with a nearly identical federal lawsuit in Chicago, challenges as uncompetitive rules that consumer advocates have long criticized for artificially inflating real estate commissions.
The suit names the National Association of Realtors (NAR) and the nation’s four largest national real estate broker franchisors: Realogy Holdings Corp.; HomeServices of America, Inc.; RE/MAX Holdings, Inc.; and Keller Williams Realty, Inc.
The defendants own and operate some of the largest real estate brokerages in the country. HomeServices of America, an affiliate of Berkshire Hathaway, owns and operates ReeceNichols Real Estate and Prudential Real Estate, among others. Realogy Holdings owns and operates Century 21 and Coldwell Banker, among others.
The plaintiffs allege the real estate brokerages and NAR have conspired to require home sellers to pay brokers representing home buyers inflated amounts, in violation of federal antitrust law, Missouri antitrust law and the Missouri Merchandising Practices Act.
“The cornerstone of Defendants’ conspiracy is NAR’s adoption and implementation of a rule that requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation …when listing a property on a Multiple Listing Service …,” the lawsuit states.
As a condition of listing their homes on an MLS, a centralized database listing homes for sale, sellers are required to agree that the listing agent will split the commission with the agent representing the buyer.
Absent that requirement, the plaintiffs claim, “seller brokers would set a commission to pay themselves alone and would likely begin to engage in more vigorous competition with one another to lower their rates and/or provide additional services to justify their newly transparent rates.”
A federal judge in Chicago has allowed a similar class action lawsuit to proceed, ruling that the home sellers had supported their allegations of a “pricing system in which the seller is essentially locked into a buyer-broker commission rate upfront that neither the buyer nor the seller have the incentive or ability to negotiate.”
NAR argues that the MLS system is efficient and beneficial to consumers. It says that it allows many first-time, low-income buyers to purchase a home they couldn’t otherwise afford because they don’t have to pay brokers directly.
In response to a request for comment, NAR emailed a statement to KCUR saying it was disappointed with Bough’s ruling, which it said it plans to appeal.
“The pro-competitive, pro-consumer local broker marketplaces serve the best interests of buyers and sellers,” NAR said. “Local broker marketplaces ensure equity, transparency, and market-driven pricing options for the benefit of home buyers and sellers. 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.
"Local broker marketplaces also level the playing field among brokerages, allowing small brokerages to compete with large ones, and provide for unprecedented competition among brokers, including different service and pricing models.”
NAR, which is headquartered in Chicago, represents more than 1.3 million real estate agents belonging to some 1,200 local associations and boards in all 50 states, the District of Columbia and U.S. territories.
Not long after the lawsuits in Kansas City and Chicago were filed, the U.S. Justice Department filed a civil suit against NAR alleging it had established and enforced illegal restraints on how real estate agents compete. The department later withdrew from a proposed settlement of the case, saying it was too narrow in focus and didn’t sufficiently protect its ability to pursue future claims against NAR.
“Real estate is central to the American economy and consumers pay billions of dollars in real estate commissions every year," Acting Assistant Attorney General Richard Powers said in a statement about the department’s withdrawal from the settlement. “We cannot be bound by a settlement that prevents our ability to protect competition in a market that profoundly affects Americans’ financial well-being.”
NAR has petitioned to block the Justice Department’s withdrawal from the settlement, which was reached during former President Donald Trump’s administration. The petition is pending.
In granting the plaintiffs’ request for class certification, Bough certified three separate classes, including one consisting of all home sellers since April 29, 2015, who used a listing broker affiliated with the defendants and who paid a commission to the buyer’s broker when they sold their homes.
The plaintiffs estimate the classes include “hundreds of thousands of class members geographically dispersed throughout the state of Missouri and portions of Kansas and Illinois.”
Copyright 2022 KCUR 89.3. To see more, visit KCUR 89.3.