A class action lawsuit was filed on March 6th that could fundamentally change the way real estate is bought and sold in the U.S. A homeseller in Minnesota is suing the National Association of Realtors, as well as several big name brokerages like Keller Williams and ReMax, alleging that the required, non-negotiable sharing of sales commissions between listing brokers and selling brokers on homes listed in the multiple listing service (MLS) is a violation of the Sherman Anti-Trust Act. According to the plaintiff, this practice has lead to inflated sales costs for homeowners and amounts to a price fixing conspiracy between members of the MLS.
The strongest point of this argument is to do business as a residential real estate brokerage, you have to be a member of your local MLS. Not just you, but thanks to the National Association of Realtors, every single agent that works for you has to join as well so NAR can collect all those sweet annual membership dues. MLS defenders will tell you it’s “optional” and no one forces you to join, but that is disingenuous. If you want to effectively serve your clients, and actually, you know, sell houses, you have to be a member of the MLS. The MLS then requires you to offer anyone bringing a buyer a certain portion of the commission.
The suit gets a little more shaky after this because it delves into collusion and conspiracy territory. For this to be true you would have to prove that major industry players conspired to set a standard buyer’s broker commission offer. As we all know, those sort of assertions are hard to prove or sometimes, to even define. However, have I, and every other listing agent ever, told potential homesellers that their chances to sell their home go down if they offer less than 2.5? Yes, because our clients need to know that info. We know that there are agents who will steer people away from homes that offer lower commission rates and our clients need to balance that risk against the money they will save. It’s the classic “everyone knows” conventional wisdom that is very difficult to substantiate, even if everyone knows it.
What does this mean for the average client buying and selling houses? To determine that, a look at how we got here is helpful. Prior to 1991, there was no such thing as buyer’s agents. -Everyone- was considered to be working on behalf of the seller. The problem with that scenario is no one was looking out for the interests of the buyer. Oh yeah, and no one really bothered to tell the buyer that. So a lawsuit was filed that eventually gave rise to the buyers agent and the MLS system. The MLS’s original purpose was to provide a database of all member listings and the amount of commission offered to agents bringing in a buyer. It has since morphed into a huge repository of data about the housing market, and in 2019, that kind of data is as good as gold. The MLS is the way the National Association of Realtors has managed to keep a stronghold on the industry, stifle innovation, and keep their coffers full of millions and millions of dollars.
The addition of buyer’s agents didn’t raise costs for consumers. Commission rates largely stayed the same. But has the practice, mostly unique to the U.S., keeping commissions artificially high? The suit points out that while commissions have fallen in virtually every other country, they have stubbornly, and in some ways, inexplicably, stayed the same here.
It’s hard to argue that commission rates wouldn’t go down if buyers agents didn’t exist. Their piece of the pie would no longer be necessary, and market forces would push price (commissions) down. But that brings us full circle to what got us this system to start with, who would look out for the interests of the buyer? Many times in my career, I have served as a buyer’s agent and shuddered at the thought of what would have happened to my unsuspecting clients if they had been at the mercy of an unscrupulous listing agent and/or homeseller.
As with most things involving power and profits, it’s always a good idea to ask, who is really benefiting from this? The plaintiff is being represented by no less than 6 high powered law firms specializing in class action lawsuits that have won literally billions of dollars from defendants like Apple and Toyota. Seems like a lot for an individual homeowner in Minnesota. Is this really to protect homeowners, or is to burn the entire MLS system, with its 800+ fiefdoms (representing regional areas), to the ground, and bring the National Association of Realtors down with it? Who has an interest in doing that? It will be interesting to follow the money as this case develops to see exactly who is pulling the strings and what effect that has on how homeowner’s sell their most valuable asset.
Melanie Coker is a real estate broker and owner of Property Sprocket. She can be found on Twitter, @melanie_larae; or via e-mail, firstname.lastname@example.org