Judge: Lawsuit OK to continue accusing Realtors Association, brokers of conspiracy.
A Chicago federal judge has refused to foreclose a nationwide class action lawsuit accusing the National Association of Realtors and some of the country’s largest real estate brokerages of conspiring to improperly lock in commission rates for real estate brokers and agents, costing homebuyers thousands more than they otherwise might pay if they were allowed to more effectively negotiate the pay earned by their agents.
On Oct. 2, U.S. District Judge Andrea R. Wood denied the attempt by the NAR and its corporate co-defendants to dismiss the antitrust action.
The judge said the plaintiffs in the case had done enough so far to support their allegations of a real estate broker “pricing system in which the seller is essentially locked into a buyer-broker commission rate upfront that neither the buyer nor the seller have the incentive or ability to negotiate.”
“Each Plaintiff was a home seller required to pay a commission to the buyer-broker for the person who purchased their home,” Judge Wood wrote in her opinion. “But-for Defendants’ conspiracy, each Plaintiff would have paid ‘substantially lower commissions.’”
The legal action dates back to the summer of 2019, when a group of seven people who had recently sold homes joined together to sign onto a class action lawsuit against the NAR and four top real estate brokers.
Additional named defendants included Realogy Holdings, of Madison, N.J.; HomeServices of America, of Minneapolis; RE/MAX, of Denver; and Keller Williams Realty, of Austin, Texas.
Named plaintiffs include Christopher Moehrl, Michael Cole, Steve Darnell, Valerie Nager, Jack Ramey, Daniel Umpa and Jane Ruh. According to court documents, they sold homes in Colorado, Texas, Minnesota, California, West Virginia, Wisconsin and Maryland.
The lawsuit was filed in the U.S. District Court for the Northern District of Illinois, because the NAR is based in Chicago.
The lawsuit accused the NAR and the brokerages of violating federal antitrust law by using the Multiple Listing Services, much of which is under the control of the NAR, to centralize control of the home buying process, and force home sellers to pay commissions to both their broker and the buyers’ agents.
The lawsuit asserts agents are virtually required to use the MLS when listing homes, thus requiring them to bow to the NAR rules, which are reinforced by the large brokerages, who also assert control over the NAR.
The lawsuit accuses the NAR and the brokerage defendants of establishing a system whereby agents representing buyers get paid from the sellers at a rate which they say rarely varies, regardless of the services they actually furnished in the home sale process, or virtually any other variable.
The alleged conspiracy results in a system which has “restrained” competition among buyers and sellers, and has allegedly “substantially” inflated the cost of selling homes.
The NAR and the brokerages asked Judge Wood to dismiss the lawsuit. They asserted the lawsuit is a “complete mischaracterization” of MLS rules.
They said their rules set commission rates to encourage agents for the sellers and the buyers to cooperate, not to force sellers to pay higher rates.
The judge, however, said those rules can be read to work together to result in an anticompetitive system, at the expense of home sellers, as alleged in the class action.
For their part, the brokerage defendants argued there is no conspiracy. Rather they said each brokerage “was acting in its own rational business interest by requiring franchisees and realtors to join the NAR, local realtor associations, and MLSs, and comply with those entities’ rules.”
Judge Wood, however, said the ties between the large brokerages and the NAR run deeper than the defendants let on.
And, she said, the “commercial necessity” of the MLS for real estate agents boost the accusations leveled by the home sellers of “an interlinked market in which the NAR and local realtor associations’ market power to run and regulate MLSs is dependent on the Corporate Defendants’ support.”
Without access to the MLS, the judge noted, real estate agents can’t sell homes or help buyers purchase them.
The judge said the plaintiffs had to this point successfully demonstrated the brokerage defendants’ “conduct deprived the real estate market of independent centers of decision making by effectively concentrating power in the hands of the NAR to set the rules for buyer-broker commissions.”
“Moreover, the Corporate Defendants played a key role in maintaining that system by requiring its franchisees and realtors to join the NAR and local realtor associations and abide by their rules. And representatives from the Corporate Defendants implemented and enforced those rules through their leadership roles with the NAR and local realtor associations.”
Plaintiffs are represented in the action by attorney Marc M. Seltzer, and others with the firms of Susman Godfrey LLP, of Los Angeles, New York and Seattle; Hagens Berman Sobol Shapiro LLP, of Seattle and Chicago; Cohen Milstein Sellers & Toll PLLC, of Chicago and Washington, D.C.; Handley Farah & Anderson PLLC, of Brooklyn, N.Y., and Boulder, Colo.; Justice Catalyst Law, of New York; Wright Marsh & Levy, of Las Vegas; and Teske Katz Kitzer & Rochel PLLP, of Minneapolis.
Defendants are represented by the firms of Barnes & Thornburg LLP, of Indianapolis and Chicago; Foley & Lardner LLP, of Washington, D.C., and Chicago; Holland & Knight LLP, of Chicago and Washington, D.C.; Morgan Lewis & Bockius LLP, of Chicago and New York; Jones Day, of Chicago; and Schiff Hardin LLP, of Chicago.