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May 23, 2019Cart

Business

by Fairfield County Business Journal
by FCBJ

Realtors react to lawsuit: ‘Commissions are negotiable’

The White Plains-based Hudson Gateway Association of Realtors (HGAR), along with real estate professionals in Connecticut, emphasized the value of a multiple listing service (MLS) and the integrity of real estate colleagues when asked by the Business Journal about a class-action lawsuit, which alleges impropriety in setting real estate commissions and operating the property listing services.

The lawsuit, filed in March in the U.S. District Court for the Northern District of Illinois, charges that rules established by the National Association of Realtors (NAR) regarding MLS operations are anticompetitive. Six law firms submitted the lawsuit, including Seattle-based Hagens Berman, a firm which specializes in class-action litigation and said it has achieved more than $260 billion in settlements in lawsuits against big banks, automakers and technology corporations such as Apple.

HGAR was not named in the lawsuit and its MLS was not mentioned. HGAR’s MLS has been growing to include data for Long Island and parts of New York City as well as Westchester, Putnam, Orange, Rockland and Dutchess counties.

The lawsuit named as defendants NAR and the four largest national real estate brokerage franchisors. The lawsuit alleges a conspiracy requiring home sellers, rather than buyers, to pay the broker representing the buyer of their homes and to pay inflated commissions. It also challenges what it says is the NAR rule that requires all brokers to make a blanket, nonnegotiable offer of buyer broker compensation when listing a property on an MLS.

Among those named as defendants along with NAR were: Realogy Holdings Corp., headquartered in Madison, New Jersey, which owns, operates and franchises such well-known brokerage names as Century 21, Coldwell Banker, Sotheby’s International and ERA Real Estate; HomeServices of America, Inc., headquartered in Minneapolis, which is an affiliate of Berkshire Hathaway and owns, operates and franchises firms including HomeServices, Prudential Real Estate and Edina Realty; RE/MAX Holdings, Inc., headquartered in Denver; and Keller Williams Realty, Inc., headquartered in Austin. The lawsuit also named 20 MLSes in several states.

The lawsuit contends that total broker compensation in the U.S. has been five to six percent of a home’s selling price with about half of the amount paid to someone representing the buyer. It claims that the alleged conspiracy has kept buyer brokers’ commissions artificially high. It questions why a buyer broker receives a commission on a million-dollar home, which is four times the commission received on the sale of a $250,000 home when the buyer broker’s costs are similar regardless of the price of the home.

Richard Haggerty, CEO of HGAR and the Hudson Gateway Multiple Listing Service, said, “The service the MLS provides to the consumer is the antithesis to anti-competitive behavior. We take antitrust issues very seriously and continually educate our membership as to the severe consequences if members engage in any anti-competitive or antitrust behavior.”

He was unequivocal in characterizing HGAR’s MLS. “Our MLS does not engage in any anti-competitive or antitrust practices. In fact, a MLS does not inhibit competition but rather increases it and provides the consumer and the industry with the necessary information to make a knowledgeable decision when buying, selling or leasing real estate,” Haggerty said.

Quintin Simmons, a vice president of NAR at its Chicago headquarters, said, “The complaint is baseless and contains an abundance of false claims.” He said previous court cases have found that MLS operations “…are pro-competitive and benefit consumers by creating great efficiencies.”

Haggerty underscored that an MLS is not involved in the negotiation of commissions between real estate licensees and their clients. “A MLS in no way restricts the negotiation of commissions,” he said. “To the contrary, MLS rules and NAR’s ethics rules explicitly state that commissions are negotiable.”

Ryan Raveis, co-president of William Raveis Inc., headquartered in Shelton, Connecticut, who also is president of William Raveis Mortgage, told the Business Journal, “The MLS systems have served a critical role to the home buying and selling process, which has positively impacted accessibility to homes and created an efficient market.”

The William Raveis organization has 134 offices in nine states. Ryan Raveis said, “The lawsuit is misguided, claiming that buyer’s agent commissions aren’t subject to negotiation…the commission offered to the buyer’s broker is determined by the seller — not by the MLS. It can be a percentage of the purchase price or a fixed amount. And, contrary to what the class-action law firms allege, the commission is subject to negotiation.” Raveis added that the buyer brokers continue “…to play a critical role in bringing deals together, as well as guiding customers through a complex and infrequent transaction.”

Elaine Barksdale of Barksdale Realty in New Milford, Connecticut, has been a real estate agent for more than 30 years serving clients in Fairfield as well as Litchfield counties.

“Commissions are 100 percent negotiable,” she said bluntly. “There’s nobody I’m working with that will do what I call price fixing.” Barksdale said her experience has been that real estate professionals are absolutely ethical. “We truly do operate like we are trying to make something happen to the satisfaction of buyers and sellers.”

The principal plaintiff in the lawsuit is Christopher Moehrl, a resident of Shorewood, Minnesota. In November 2017, he sold his home and was represented by a RE/MAX franchisee. The buyer was represented by a Keller Williams franchisee. Moehrl’s property had been listed on a local MLS. He paid a total commission of 6 percent, with 2.7 percent going to Keller Williams.

In addition to Moehrl, the lawsuit identifies the class of plaintiffs as all the home sellers who in the last four years paid a broker commission in connection with the sale of residential real estate, which had been listed on any of the MLSs named in the complaint.