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Have you ever sold a home and been left wondering why you paid a commission to the buyer’s real estate broker, a person not representing your interests?
That’s a question at the heart of a class action lawsuit filed in federal court in Kansas City last week. The lawsuit contends that the custom of having a seller pay both their own and the buyer’s broker commissions — often about 6% of the sale price for the home — artificially inflates transaction costs and stifles competition in the residential brokerage industry.
Lawyers for Boulware Law and Williams Dirks Dameron, both Kansas City law firms, sued the National Association of Realtors, a lobbying and trade organization for Realtors, as well as the four largest residential brokerage companies. The lawsuit claims the defendants devised a scheme to maximize commissions for themselves in a way that leaves consumers with little or no opportunity to negotiate lower commission rates.
The lawsuit is on behalf of anyone who has sold a house and paid broker commissions in Kansas City, Springfield, Columbia or St. Louis since April 29, 2015.
The lawsuit says that local NAR associations have created and maintained what’s known as multiple listing services in Missouri, essentially large databases of homes listed for sale and information about those that have sold. To have a home for sale listed on the database, the seller has to be represented by a licensed real estate broker. The MLS database is not publicly accessible.
Having a home listed on MLS gives a seller an advantage over sellers who represent themselves. Indeed, most people hire an agent to help market their property, and many buyers hire their own agent to help them find a home they’re interested in and get easier access to view the house.
The lawsuit says that local NAR associations and the brokerages created requirements to have a home listed on the MLS, including a non-negotiable offer of compensation to the buyer’s broker. Buyer’s brokers often try to negotiate lower sales prices.
“The rule forces the seller to pay the one person on the other side of the transaction (buyer’s broker) who is actively working against the seller’s interest,” said Brandon Boulware, an attorney suing the NAR and the other brokerages, in an email. “If the rule were not in place, the cost of the buyer brokers would be paid by their clients (home buyers). Buyer brokers would then have to compete with one another by offering lower commission rates.”
The NAR did not respond to a request for comment.
“We believe this case has no merit and will not be commenting further,” said Elliott Frieder, a spokesman for Realogy Holdings Corp., a residential real estate brokerage firm that’s named as a defendant.
A spokesman for Keller Williams Realty, another defendant in the case, said it’s the firm’s policy not to comment on pending litigation.
RE/MAX Holdings and HomeServices of America, other defendants in the case, did not respond to requests for comment.
The Missouri lawsuit is similar to a class action complaint filed in Illinois earlier this year against the same defendants and making many of the same legal arguments.
Both lawsuits point out that other countries, such as New Zealand, Germany, Israel and Australia, typically have home buyers pay their own brokers and often pay at a lower rate than the custom in the United States.
“Total commission rates in the U.S. have remained steady at 5-6%, despite great advances in technology that make it easier for buyers to find homes on the internet,” Boulware said. “It is no accident that in markets where there is no commission rule, total commissions are as low as 1%. The commission rule keeps costs elevated in the U.S. by preventing competition among buyer brokers.”