Regulating the professional standards and certification of real estate agents since 1908 and operating the nation’s multiple listing service (MLS) since the early 1960s, the National Association of Realtors (NAR) is facing its greatest challenge. And if they don’t find a way to settle a class action lawsuit aimed at their practices, the way real estate transactions are made in the United States could change forever.
The class action lawsuits, referred to as the Sitzer/Burnett and Moehrl cases, have already cost ReMax a $55 million settlement to resolve all claims against it, following another settlement payment by Anywhere Real Estate, (formerly Realogy and the owner of Century 21, Coldwell Banker and Sotheby’s) for $83.5 million.
What is being challenged is how commissions are handled in real estate transactions. The suits claim the process is anticompetitive because sellers have to abide by predetermined commission rates, usually around 6 percent (3 percent each for the buyer and seller’s agent), with no means of negotiating the fees.
The class action plaintiffs in the suit had asked for $13.7 billion for the multiple defendants, with the NAR as the prime target. The NAR is hoping for a settlement, but
Rob Hahn, a managing partner of 7DS Associates, a Las Vegas-based real estate strategy and consulting firm, said they have no choice because they don’t have the money to pay a billion-dollar verdict. But he’s also wondering what the plaintiff’s legal plan is after the RE/MAX settlement.
“Before the RE/MAX settlement, I was fairly certain how it would all play out. But after paying only $55 million, you have to wonder if the lawyers want more money or easy money,” he told The Epoch Times. “We’ll know more after the next settlement, with either Keller Williams or Home Services.”
In a written statement, NAR Vice President of Public Relations and Communications Strategy Mantill Williams said: “Settlement is always an option for any party in litigation. NAR’s commitment to defend ourselves in court remains unchanged, and we are confident we will prevail in proving the lawfulness of the rules under attack. Pro-competitive, pro-consumer local MLS broker marketplaces ensure equity, efficiency, transparency and market-driven pricing options for home buyers and sellers.”
Though there has been ample coverage of the lawsuits this summer, little has been said by realtors about how it could affect their practices. According to Nest Seekers International Chief Economist and Real Estate Wealth Advisor Erin Sykes, the reason is that agents are more concerned about a current real estate landscape with little inventory and believe the expected ramifications of the suits are being overhyped.
“I understand how, at first glance, the lawsuits can create some fear in the minds of a lot of agents because now things are pretty standardized. But much of the fear is premature and unnecessary and more fear-mongering than it needs to be,” she said to The Epoch Times.
Even though agreeing to the $55 million settlement, RE/MAX continues denying any of the allegations in the suit. In written statements, the company contends that it only agreed to pay the money in order to remove uncertainty from the lawsuits and will change some of its business practices, including no longer requiring sellers to pay the buyer agent’s commission.
But, according to Mr. Hahn, the big fish still being pursued is the NAR and what happens in that case could have a tremendous impact on how real estate transactions are made.
“NAR is the primary defendant because it’s their rules. Things will change one way or the other. I think where the industry is expected to go is the optional route that’s negotiable,” he said. “The maximum amount of damage involved is extermination. Say the final ruling is to pay $15 billion; no one can pay that. Everyone would end up filing for bankruptcy. But what surprises me is the first settlements. You mean to tell me you’re going to let them off for less than 1 percent of what you’re suing them for?”
The next case is scheduled to begin Oct. 16 in U.S. District Court in Kansas City, Missouri, and could potentially bring multibillion-dollar damages against the NAR and its MLS members. Another could come in a U.S. District Court in Chicago in 2024.
Ms. Sykes believes that on the Realtor side, any changes that come out of these lawsuits, including the ability to cut or negotiate commissions, will still mean that the better agents with more experience come out on top. “I think it’s like any other industry. You get what you pay for. Depending on the property and the location, there will be an agent that fits your needs,” she said. “But we live in an Instagram-happy society, where everyone wants to be a luxury broker. But, are they skilled in the education that needs to happen?” What might occur is “a reevaluation of truly identifying yourself and your marketability and talents as a broker” and not leading with a commission discount.
