The attack on realtors is gaining steam and going national following a historic $1.8 billion judgment in Missouri this fall that found a powerful realtors association had set up a system of collusion that was harming home-buyers by artificially inflating commissions.
Since then, class action lawsuits that mirror the case made in Missouri reportedly have been filed in Illinois, Florida and Pennsylvania.
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Now, a class action lawsuit in California against the powerful National Association of Realtors (NAR) is similarly alleging collusion and anti-competitive business practices, joining the wave of lawsuits across the country spurred by the original October court decision. The state is by far the largest and most valuable residential real estate market in the country.
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The lawsuit filed on December 8 in the Northern District of California San Francisco Division argues that NAR violated the federal Sherman Antitrust Act as well as the state’s own antitrust act and Unfair Competition Law, along with national broker firms RE/MAX, Anywhere Real Estate, Keller Williams Realty, Compass, and several California-based realtor associations.
It follows the $1.8 billion judgment for a class action lawsuit filed in a federal court in Missouri that alleged that large real estate brokers and NAR were illegally keeping a system in place that required home sellers to pay broker’s fees for both the seller and buyer. This so-called “cooperative compensation rule” left homebuyers with no room for negotiation in how much they paid agents, driving up total commission costs in a scheme that amounted to collusion, lawyers argued.
The federal jury found the argument convincing and sided with the plaintiffs. Another identical lawsuit filed by the same attorneys followed immediately after the decision was announced.
The plaintiff in the California lawsuit is a homeseller named Christina Grace who says she listed her Marin County home for sale on a Bay Area listing site in Sonoma, Napa, and Marin County. Grace sold her Marin County home in April 2020 and paid $50,328 in broker fees, with 3.5 percent of the home’s total sale price going to the listing agent and 2.5 percent going to the buyer’s agent.
The listing site she used, Bay Area Real Estate Information Service, is partially owned by broker companies, “[u]nlike the vast majority of (multiple listing sites) in the United States,” according to the complaint. The complaint says that the listing site’s board members were from various broker firms, who “were obligated to and did adopt, implement, and enforce anti-competitive restraints.”
The complaint claims that the practice of sellers paying a broker fee for the buyer can lead brokers to steer their clients toward more expensive homes where they stand to make a larger profit. “Steering is a key reason why agent commissions have remained high in the United States during the internet era, even as commissions in other countries have plummeted,” the complaint says. It cites NAR’s own research showing that broker rates, which average 5.5 percent in the U.S., are inflated in the United States compared to many European countries, especially the United Kingdom, where brokerage commissions average 1.3 percent
Brokers have expressed anger over the lawsuits and fear of how it will affect their future employment. Some have argued it will hurt first-time homebuyers or put buyer-brokers out of business.
Norman Miller, a real estate professor at the University of San Diego, told Motherboard that the current U.S. system was set up during a period when brokers had all information on listings and buyers had no choice but to go through them. He said websites like Zillow have made listings more easily accessible, though they participate in the same system as NAR by charging users referral fees and requiring agents for most listings.
(“Even though Zillow competes with the realtor system now which is open to the public, they’re still perpetuating the same old system,” by charging referral fees, he said.)
Miller added that the result is that the country is oversaturated with agents, many of whom lack expertise. NAR, which owns the trademark on the word “Realtor,” claims to have 1.5 million members and says an estimated 3 million adults have real estate licenses, far and away the most of any country.
“Everybody has an agent that is a cousin, a sister and uncle and and in the business,” Miller said. “When you choose your agent, it might be that over half the time, you have to pick one who’s a relative or friend so you don’t offend them, even though 80 percent of the agents out there are part time, mediocre, inexperienced, and don’t really produce much,” he said.
Some have hoped this could lead to lower home prices, or at least more leverage for homeowners, at a time of historic unaffordability in the housing market.
But Miller said that remains to be seen, and that the lawsuits might have a mixed impact, since buyer brokers can still negotiate leases where sellers have to pay both fees.
“It’s not clear that this is going to break down the existing system from what we’ve had in the United States,” he said.
Correction: Due to an editing error, a previous version of this post incorrectly stated that the average brokerage commission in the U.S. is 6.2 percent of the home’s price. It is 5.5 percent.
