National Association of Realtors Slapped With New Lawsuit Over Anti-competitive High Commissions
By Nadia El-Yaouti | Posted on November 17, 2023
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The National Association of Realtors (NAR) is facing another class action lawsuit over violations of antitrust laws. Along with the NAR, the lawsuit also targets popular real estate brokerage firm Keller Williams Realty.
The lawsuit was filed in early November in South Carolina by plaintiff Shauntell Burton. Burton’s lawsuit comes on the heels of a similar class action lawsuit in Missouri that resulted in a jury verdict against the NAR and other real estate groups. In the Missouri case, a jury found a number of real estate brokerage firms guilty of antitrust violations, resulting in damages of $1.78 billion for homeowners in Missouri, Kansas, and Illinois between 2015 and 2022.
The plaintiff in the South Carolina lawsuit is representing all home sellers in the state who have worked with Keller Williams since at least November 2019. The lawsuit maintains that the agreement Keller Williams entered into with the NAR created anti-competitive practices that forced sellers to pay higher commission fees to a buyer’s brokerage.
The lawsuit accuses the plaintiffs of "conspiring to impose and enforce an anticompetitive restraint that requires home sellers to pay the broker representing the buyer of their homes, and to pay an inflated amount, in violation of federal antitrust law."
Federal antitrust laws are a series of laws designed to promote fair competition in the marketplace. They are intended to prevent practices like company mergers that would monopolize industries, resulting in unfair pricing of consumer goods. The Sherman Act, the first antitrust law, was passed in 1890 as a "comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade." A number of laws have since been passed to help protect American consumers.
The new lawsuit argues that it's these very laws that are being violated with current NAR Multiple Listing Service (MLS) listing practices.
The NAR MLS databases hold a majority of home listings for sale in the state. Homes that are listed on an MLS typically receive more views from prospective buyers and are more likely to sell, often at higher prices, than homes not listed on an MLS.
In order for a brokerage firm like Keller Williams to list a home on the NAR MLS, the brokerage must agree to certain rules set by the NAR. One such rule has come under fire because plaintiffs say it creates anti-competitive restraints in the housing market which in turn increases a seller's costs unnecessarily.
The rule in question requires that a seller's agent must offer a buyer's agent a “non-negotiable” compensation fee. The lawsuit argues that sometimes this fee is offered even before a buyer's agent is ever identified.
This commission fee is then split between the seller's agent and the buyer's agent so as to help pay a part of the buyer's agent's commission. Without this rule, the lawsuit says that they would have paid half or even less in commissions when selling their home.
Because of the NAR's dominance in the market, the plaintiff says the defendants were able to set and maintain these high brokerage fees. The NRA has been widely criticized because it typically sets the standard for commission rates to hover between 5% and 6% of a home's final sale price. This rate has since been accepted as an industry standard.
The lawsuit explains, "The effect of these rules is not simply that the seller must pay the buyer broker's compensation. These rules effectively take the compensation structure out of the view of the buyers and sellers, masking who pays the buyer broker's compensation."
The lawsuit explains that in many cases, a buyer broker may not even put up an offer to a seller on the condition that a buyer broker’s commission is reduced.
The lawsuit is seeking a trial by jury in addition to having the NRA end its Clear Cooperation Policy. The policy outlines the rules that the lawsuits say foster anti-competitive practices.
Mantill Williams, NAR’s Vice President of Communications, pushed back against such criticism saying, “The cooperative compensation practice makes efficient, transparent, and accessible marketplaces possible.” He adds, “Sellers can sell their home for more and have their home seen by more buyers while buyers have more choices of homes and can afford representation. The National Association of Realtors is reviewing this new filing and will respond to it in court.”