For decades, people seeking to buy or sell a home have encountered the residential real estate industry’s 6 percent commission.
Buyers and sellers across the nation have customarily complied with the practice of paying 6 percent of a home’s sale price — widely regarded as the norm — to real estate agents involved in the sale. Typically, the percentage is split almost or exactly evenly between buyer and seller agents, with the people selling their home footing the bill. In other words: If a home sells for $200,000, the seller would usually pay a total of $12,000 in commissions, while a buyer pays nothing.
In recent years, however, federal regulators, start-ups, and academics have attempted to chip away at that tradition, arguing that the 6 percent fee is outdated. With the internet and emergence of start-ups such as Zillow, they assert, home shoppers are doing more research and house-hunting on their own. Requiring customers to pay the same fees that they did 10 or 20 years ago isn’t just unfair, these groups argue, it’s also monopolistic.
A lawsuit filed this month is now weaponizing those claims.
Three heavy-hitting law firms — Cohen Milstein, Hagens Berman, and Susman Godfrey — filed a complaint in Chicago, alleging that the National Association of Realtors (NAR) and four of the biggest national real estate brokerages violated federal antitrust law by requiring home sellers to pay not only their own real estate agent but also the broker who represents the buyer of their homes.
“The conspiracy has saddled home sellers with a cost that would be borne by the buyer in a competitive market,” said the complaint, filed in U.S. District Court, adding that sellers “have each incurred, on average, thousands of dollars in damages as a result of [the NAR and brokerage’s] conspiracy.”
The allegations — detailed in a 30-page complaint — center on a decades-old rule published in the “Handbook on Multiple Listing Policy,” which is used by hundreds of thousands of real estate agents nationwide. The rule dictates that when an agent lists a property on the Multiple Listing Service, known as the MLS (the primary platform used by agents to share properties), the agent must make a “blanket, unilateral offer” to buyers’ agents. The handbook also states that listings cannot be published if they do not include a compensation offer for the other agent.
The handbook does state, however, that the MLS “shall not fix, control, recommend, suggest, or maintain commission rates or fees,” instead stating that the listing broker retains the right to determine the commission for the other agent.
Even so, the lawsuit alleges, listing agents still must make competitive offers to buyer brokers to ensure avid interest in the properties they are selling. Otherwise, the lawsuit asserts, “most buyer brokers will not show homes to their clients where the seller is offering a low buyer-broker commission, or will show homes with higher commission offers first."
“In absence of the [rule], buyers rather than sellers would pay buyer broker commissions, and brokers would compete with each other by offering lower commissions to prospective buyer clients," the complaint continued.
The complaint was originated by a Minnesota resident whose home was listed on the MLS and sold in 2017. The man, Christopher Moehrl, paid a 6 percent commission, including 2.7 percent to the buyer’s broker, the complaint said. The lawsuit was also brought on behalf of sellers who listed properties on the MLS in other locations across the country, including in Philadelphia, Baltimore, Washington, D.C., Dallas, Las Vegas, and Charlotte. The plaintiffs are asking that the court approve class-action status.
In addition to the NAR, the lawsuit was filed against Realogy Holdings Corp., the nation’s largest owner of residential brokerages, including Coldwell Banker and Sotheby’s International Realty; HomeServices of America, a Berkshire Hathaway affiliate; RE/MAX Holdings Inc.; and Keller Williams Realty Inc.
The suit comes at a time when discount real estate brokerages have emerged to try to introduce competition by offering sellers, for example, the ability to pay low percentages or flat fees to the brokers listing their homes. Though some of these new companies have gained popularity, many still find they must abide by old traditions when it comes to compensating a buyer’s broker.
Philadelphia-based Houwzer, for example, which allows sellers to pay a flat fee of $2,500 to the listing agent, still recommends that sellers pay about 3 percent to the other agent to ensure that their property will receive sizable interest. Mike Maher, Houwzer’s CEO, said that although the company will continue “to be cooperating members of the MLS and put the customers’ best interest first,” the company is considering modifying its buyer broker fee to 2.5 percent across all its seller listings.
The complaint notes a 2002 study that found that commission rates in the United States are higher than the average rates in many other countries, including in the United Kingdom. At the time of the study, the U.K. had a total commission rate averaging less than 2 percent.
In addition, a 2016 study conducted by Maisy Wong, an associate professor of real estate at the University of Pennsylvania’s Wharton School of Business, found that properties listed with lower commission rates experience a less favorable outcome. The study, which was conducted alongside researchers from Cornell University and the Massachusetts Institute of Technology, examined more than 650,000 real estate transactions over 13 years, finding that properties that listed lower commissions were 5 percent less likely to sell and took 12 percent longer.
In an email, Wong noted that although buyers often perceive that they do not have to pay commission fees, they could potentially pay through the sale price. “The seller could factor this cost in when determining the price,” Wong said.
A spokesperson for the NAR said in an emailed statement that 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,” said Mantill Williams, NAR’s vice president of public relations. “NAR looks forward to obtaining a similar precedent regarding this filing.”
Representatives for the four brokerages included in the lawsuit declined to comment, citing pending litigation, or did not respond.