3 things to know about the class-action commissions lawsuits
As Sitzer/Burnett and Moehrl are joined by more buyer-broker compensation cases, these important details can help real estate pros understand the basics.
Key points:
- Plaintiffs are united by a desire to end the practice of homesellers paying the listing as well as buy-side agent commissions.
- NAR and other defendants argue that the current system “provides transparency” and benefits buyers and sellers.
- Unless there are national settlements with all parties, it could take years to resolve these cases.
The real estate industry has entered uncharted waters following a jury's decision to award nearly $1.8 billion to homesellers in the Sitzer/Burnett case. While the judge considers his final rulings, it's a good time to take stock of where things stand.
There's a growing number of other lawsuits that are in process or just getting started. Cases with sellers as the plaintiffs include Moehrl, Gibson, Nosalek and Burton. Cases built around buyers include Leeder/Batton 1 and Leeder/Batton 2.
Here are three things real estate professionals should know.
What are the lawsuits about?
While all of these cases have different key players involved, they all seek to change the longstanding practice of homesellers paying commissions for both the buyer and listing agents through the proceeds of the sale.
The plaintiffs believe that current rules in place have helped agents maintain a stable fee base of around 6% of the selling price, split between the seller and buyer agents. They contend that the fees have risen too much through home appreciation at a time when technology improvements have made it easier for homebuyers to search for a home.
Defendants in these court cases, particularly the National Association of Realtors, contend that the current system, which has been in place since the 1990s, "provides transparency and market-driven price options for home buyers and sellers," said NAR spokesman Wes Shaw. They believe that if the current system were to go away and home buyers would need to pay for their agents up front, it would create chaos that would hurt buyers and sellers.
What is the impact if the industry loses?
If the plaintiffs prevail, the effects on the industry would be widespread: Agent compensation will fundamentally change, potential homebuyers may have to negotiate and pay commissions to their agents upfront, MLSs could have to alter the way they do business, and the defendants may have to pay out a massive amount in damages.
As a class action lawsuit, thousands of home sellers who paid a commission to the specified companies from 2015-2020 as well as "current and future" sellers engaged with those entities could be compensated if the plaintiffs win — not just the handful who initially filed suit in 2019.
As shown with the Sitzer/Burnett verdict, total damages are mind-boggling: Just for those Missouri homeowners, the nearly $1.8 billion verdict could be tripled because of its antitrust implications to more than $5 billion.
When will these cases be decided?
No matter how the trial verdicts go, they are likely to be appealed, so unless there are nationwide settlements with all the parties, it'll take years before this is sorted out.
Even though this issue will be tied up in courts, significant changes are taking place, particularly with buyer agents. That could happen through court injunctions as well as brokerages and organizations making changes proactively
As noted by industry expert Russ Cofano, buyer agency will still stick around because of human psychology and the reluctance to self-negotiate. There will continue to be demand from buyers who are willing to hire someone to help reach the best deal on a home.
As lawyers, judges, and even the government continue to hammer out how compensation for buyer agents should work, the key for buyer agents during this period is to focus on better communicating their value to clients and formalizing that relationship through buyer agreement contracts.