Just hours after securing a victory for his home seller clients in the landmark Sitzer/Burnett commission lawsuit, Michael Ketchmark, the lead attorney for the plaintiffs, filed another class action antitrust lawsuit against some of the real estate industry’s biggest players, in U.S. District Court for Western Missouri.
Let’s break down the case and the potential implications for the industry.
Who’s named?
The new lawsuit, known as Gibson after its lead plaintiff, accuses the National Association of Realtors, Compass, eXp World Holdings, Redfin, Weichert Realtors, United Real Estate, Howard Hanna and Douglas Elliman, of conspiring to inflate real estate agent commissions.
With nearly double the number of corporate defendants as both the Moehrl and Sitzer/Burnett cases, and the fact that the proposed class includes anyone who listed a property for sale on an MLS in the U.S. using a listing agent or broker affiliated with one of the seven brokerage defendants and paid a buyer broker commission from Oct. 31, 2019, to the present, the Halloween filing date befits the spooky consequences this suit may have for the industry.
How big could this case be?
According to the complaint, the three named plaintiffs, Don Gibson, Lauren Criss and John Meiners, are bringing this suit against the defendants “for agreeing, combining, and conspiring to impose and enforce an anticompetitive restraint that requires home sellers to pay the broker representing the buyer of their homes, and to pay an inflated amount, in violation of federal antitrust law.”
The filing claims that the defendants “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.” The attorneys for the plaintiffs wrote that the alleged conspiracy “inflated and stabilized buyer broker commissions, which, in turn, have inflated the total commissions paid by home sellers such as Plaintiffs and Class members.”
Like the three other commission lawsuits, Moehrl, Nosalek, and Sitzer/Burnett, the complaint claims that the “cornerstone of the conspiracy” is NAR’s cooperative compensation rule (internally known as the Participation Rule), which requires all home sellers to make a blanket, unilateral offer of buyer broker compensation when listing a property on the MLS.
The complaint alleges that the seller is effectively unable to negotiate the compensation amount offered to the buyer broker, however, NAR recently changed its guidelines, allowing listing agents to offer compensation of $0 and still list the property on the MLS. The filing also claims that due to industry-wide collusion, agents steer their buyers to properties with larger compensation offers or higher overall price tags in order to receive a larger payout, which the complaint says hinders “innovation and entry by new and lower-cost real estate brokerage service providers.”
What the defendants are saying
Although the brokerage defendants in this suit were not involved in the Sitzer/Burnett trial, many say that they were watching the proceedings carefully.
“While we are still studying the formal complaint, we have been closely observing the ongoing antitrust litigation against our competitors in recent years,” an eXp spokesperson wrote in an email. “We are committed to upholding fair and transparent practices compliant with law and we already have mechanisms and a plan in place that enables buyers and sellers to negotiate commissions. Our agile business model allows us to make adjustments seamlessly and effectively, no matter the jurisdiction.”
Despite his discount brokerage being named a plaintiff in this suit, Glenn Kelman, the CEO of Redfin, remains optimistic and believes that these suits will generate positive change for the industry.
“Change, in whatever form it takes, can be painful for many industry incumbents, but it could be good for consumers, good for innovators, and good overall,” Kelman wrote in a blog post. “I spent the first year or two of my now-18-year Redfin career proclaiming every other month that a revolution was at hand, only to discover how impervious to change our industry is. No matter what happens with the Missouri judge, or in any other courtroom, one thing is certain: there’s no going back to the way things were. What Redfin wants in this uncertain world is what we’ve always wanted: to give real estate consumers a better deal.”
Douglas Elliman declined to comment, while NAR, Weichert Realtors, United Real Estate, Compass and Howard Hanna, did not return a request for comment.
should be an interesting ride
Sellers have many different models to choose from when selling including By Owner, post it on an online site, use a real estate firm that does not offer a co-op like REX and other methods. The Realtor model is known for and is disclosed as offering a co-op to a buyer’s agent. The terms are laid out in a listing agreement. The process is described in the listing agreement. Sellers know it is the most expensive model and those that choose it do so because they believe it is effective, which data supports. Agents offer differing commission levels. Sellers often bring up that another agent has offered to do it for less or they saw an ad for reduced listing commission. There is no fixed commission in the industry. They know that they are entering into a model that uses buyer agent co-op as a marketing tool to help sell their home. In many states the listing agreement is clear that the listing office is charging x% (the full commission) and, as part of their marketing plan, the listing office will offer some of the commission that the seller is paying them to a buyer’s agent who brings a buyer. The co-op is a marketing fee to the listing office, not a payment to the buyer’s agent from the seller. Sellers know they have cheaper models and possibly agents that will charge less commission. Where did the deception supposedly occur?