Commission Class Action Lawsuits Part 4
As a bombshell class-action trial fast approaches, the National Association of Realtors says it’s now allowing listing brokers to offer buyer brokers nothing in compensation when listing a home in a Realtor-affiliated multiple listing service.
The new interpretation of the controversial commission rule being challenged in the case comes as the 1.5-million member trade group is mired in turmoil due to multiple listing services distancing themselves from the association, the U.S. Department of Justice sniffing around its rules, and prominent brokerage Redfin breaking with NAR precisely due to its commission rule and other allegations.
“The real problem NAR has is that listing a property for a penny, a dollar or zero will only further the problem pointed out by the Department of Justice that the MLS is a vehicle for the large corporate brokers to steer buyers away from low commission houses. NAR and the large corporate brokers need to get out of the sellers’ pockets, according to the lawsuit.”
On top of that, the association is gearing up for a three-week trial starting Oct. 16 to defend its commission rule in a case where two of the four major franchisor defendants, Anywhere (formerly, Realogy) and RE/MAX, have struck settlement deals with the plaintiffs for tens of millions of dollars and agreed to change their business practices.
Specific rule changes agreed to by MLS PIN include eliminating a mandatory offer of compensation from the seller to the buyer-broker, requiring listing agents to notify their sellers that such compensation is not required, and making it clear that any compensation offered by the seller to the buyer-broker can be negotiated among all parties.
Mounting pressure' on industry as MLS agrees to settle commission suit in Nosalek vs. MLS PIN, et al Case
Originally filed in December 2020, the Nosalek lawsuit, named after its lead plaintiff, alleges that the broker-owned MLS PIN is not directly required to abide by the National Association of Realtors (NAR) rules. However, it has nonetheless adopted a rule similar to an NAR rule requiring listing brokers to offer a blanket, unilateral offer of compensation to buyer brokers in order to submit a listing to MLS PIN, known as the “Adversary Commission Rule which was adopted by NAR in 1996.
Other defendants in the lawsuit include Anywhere RE/MAX, Keller Williams and HomeServices of America. Unlike the two other buyer-broker commission lawsuits, Moehrl and Sitzer/Burnett, NAR is not a defendant in the Nosalek lawsuit, because it is not a Realtor owned MLS. Additionally, while Anywhere has filed settlement agreements in the Moehrl and Sitzer/Burnett suits, it has not tried to settle the Nosalek suit.
MLS PIN, which is New England’s largest multiple listing service (MLS), filed the settlement agreement in late June. In the agreement, MLS PIN denied any wrongdoing, but stated that it agreed to the settlement in order “to avoid the further risk, expense, inconvenience, and distraction of burdensome and protracted litigation, and thereby to resolve this controversy, to avoid the risks inherent in complex litigation, and to obtain complete dismissal of the Action as to MLS PIN, which has agreed to pay $3 million and stop requiring sellers to offer buyer-broker compensation, a practice at the core of two other major lawsuits.
Key points in the Nosalek vs. MLS PIN, et al Case:
- In addition to paying monetary damages, MLS PIN will eliminate its requirement that sellers must offer compensation to buyer-brokers.
- The other defendants in the case, including Anywhere, RE/MAX and Keller Williams, have not settled.
- This settlement could influence similar lawsuits currently making their way through the courts.
In a move with implications for high-stakes commissions cases, the Massachusetts MLS has agreed to pay $3 million and alter its business practices to settle a class action lawsuit challenging buyer-broker compensation.
In the case brought by Jennifer Nosalek and others, MLS PIN has agreed to change its rules to eliminate the "the requirement that a seller must offer compensation to a buyer-broker," according to a settlement agreement filed Friday in U.S. District Court in Massachusetts.
This is the issue at the heart of two other class action lawsuits — the Moehrl case and the Sitzer/Burnett case — filed against the National Association of Realtors and several major real estate brokerage companies, including Anywhere, HomeServices of America, RE/MAX and Keller Williams.
Both suits claim NAR and the other defendants participated in anticompetitive practices by forcing sellers into a system where they pay a commission that is split between buyer and seller agents. The plaintiffs believe this system has led to inflated buyer agent fees to the detriment of home sellers, and they argue that homebuyers should pay for their own agents.
The Sitzer/Burnett case is scheduled for trial in October in the U.S. District Court for the Western District of Missouri. The Moehrl case is expected to go to trial in 2024.
The same brokerage companies named in the Moehrl and Sitzer/Burnett cases, as well as several subsidiaries, are also defendants in Nosalek vs. MLS PIN, et al — but the settlement agreement filed Friday does not include them. NAR, meanwhile, is not a defendant in the MLS PIN case. That's because MLS PIN is a broker-owned MLS, which means it may operate with the same rules as association-owned MLSs — NAR's rules — but it is not required to.
What is the impact if the plaintiffs win?
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.
Strategies to move forward may include a greater emphasis on signed buyer broker agreements, where the compensation is negotiated directly between the buyer and the buyer broker. Additionally, providing documentation to the seller that clearly points out that the listing brokerage, is who the seller pays for services, which may include an offer to work with other companies and split the marketing fee.
It is going to get worse!
Live CE classes are better than Correspondence, particularly for this issue, although we have added the discussion and suggested strategies to reduce your risk to our DCE courses. It was exciting to see the networking, partnerships and strategic partnerships, team building recruiting and resource sharing that happened at our last live classes. You can't get those benefits sitting at home taking a correspondence class in isolation.
You should seriously consider signing up for our next live classes, Nov 11-12, 2023 or Nov 13-14, 2023 where we will give you tools to reduce your risk for the class action lawsuits that are likely heading our way. We will have workshops and role plays to refine your commission discussion to reduce your risk.
You can't get that same level of protection and training in a correspondence class. But hurry to register, these classes have limited slots available and will sell out.
Jerry Royse, ITI