At the annual Association Executive Institute (AEI) event, there was an underlying vibration of curiosity leading up to the legal update over lunch. While a handful of people were cheerfully humming along to a Beatles song being played in the massive ballroom, the majority were whispering about the class action lawsuit recently lobbed at the industry like an irrationally thrown surprise molotov cocktail.
Filed by Minnesota home seller, Christopher Moehrl, the suit claims there is a “conspiracy” to price fix broker compensation in the 2.5-3% range, naming the National Association of Realtors (NAR), Realogy, HomeServices of America, RE/MAX, and Keller Williams (with more to be named, inevitably). The complaint intimates that by requiring brokers to offer buyer broker compensation when listing a property on the MLS, fees are “fixed” and inflated, violating anti-trust laws. In short, they believe buyer’s agents shouldn’t be paid because buyers can find their home online now.
NAR has been sued before. All major brokers have been sued for similar “conspiracies,” and agents know the drill. The industry has been sued before. It’s one of the most litigious lines of work in America. And everyone in the industry agrees the claims are outlandish and untrue. And frankly, worthy of an exaggerated eyeroll.
So why the palpable angst?
Because the suit is led by big scary attorneys that are famous for winning billions in class action lawsuits. Look at the final two pages of the suit – this isn’t just some random lawyer on a whim, it’s an overcrowded dais of dynamism.
Not to mention real estate consultant Rob Hahn’s observation that if the lawsuit is somehow successful, “REALTOR Associations evaporate, the MLS likely dies off, and the entire infrastructure of residential real estate in the United States has to be remade.”
Of course a room of over a thousand Association Executives (AEs) would wonder what NAR has to say next. NAR’s response leading up to this luncheon had been to publicly denounce the suit as “baseless,” noting that “The U.S. Courts have routinely found that multiple listing services are pro-competitive and benefit consumers by creating great efficiencies in the home-buying and selling process,” and that “NAR looks forward to obtaining a similar precedent regarding this filing.”
The lunch began with NAR General Counsel and Chief Member Experience Officer, Katie Johnson, updating eager eaters on insurance topics, and afterwards pondered that there was something else she was going to talk about… Oh, what was it? Oh yeah, the lawsuit! Her zinger was awarded with thunderous laughter and applause. The presentation behind her said in bold letters, “We’ve been sued… now what?”
Johnson described home seller Moehrl as a “standard transaction” that is in no way unique. She proclaimed that the industry would prevail. That this isn’t the first time they’ve been sued.
She asked the anxious audience to “step back 100 years,” noting that “it is important to understand and be able to articulate why our system today works.”
A century ago, before associations and licensing laws, it was “very chaotic” and not at all consumer oriented, with little to no consumer protections. A home seller would have a dozen brokers put signs in their yard, and not only did the seller have to give their personal financial information to multiple brokers, but had to also give physical access to all of those brokers. Mass confusion ensued – who actually has all of the details? Who represents the home?
And buyers had to know a broker with a sign in a yard in order to find a home to buy. Johnson called this time as one “shrouded in secrecy and was not transparent – it was not good for consumers.”
Thus, brokers began getting together and exchanging information. The idea was that a broker will list the home, and if another brings a buyer, they’ll be compensated. Agreeing to share inventory was what Johnson called a “wild sea change.” Consumers could give their private information and home access to one trusted broker, and that represented buyers were legitimate.
Buyers could come to one place (the association exchange) for the data, which opened the market to consumers. Many iterations of how the data has been shared include notecards, then books/binders, computers, and ultimately the internet.
“In the end,” said Johnson, “cooperation (sharing your listings and compensation), agreeing to pay the representative of a buyer who is going to ultimately sell your inventory is the basis of the MLS and is what is on attack.”
The class action suit claims that because the seller has to pay the buyer’s agent, commissions are inflated. The truth is that although it is NAR’s rule to require compensation, it could be as little as one cent, and Associations support all compensation models (flat-fee, discount, rebates, traditional 3% per side, and even higher on luxury listings).
And their “conspiracy” claims that buyer’s agents are unnecessary since listings can now be found online (but the suit fails to mention buyer’s agents’ fiduciary responsibility to protect their client and guide them through a convoluted process). And ultimately, they name “co-conspirators” as brokers who have conspired to violate anti-trust laws via their membership to an MLS.
Another flaw in the Moehrl case is that they argue that home buyers can find their home online without representation, ignoring that the converse argument would also therefore hold true – a homeowner can sell their own home without representation (and without paying commissions). The plaintiff saw the value of the MLS and cooperative marketing when buying and selling their home, and used representation rather than opting to list on their own on Zillow or a For Sale By Owner site, which they had every right to do.
And finally, there is a massive conflict of interest with these attorneys – it is essentially legal for attorneys to practice real estate (local laws vary), so why wouldn’t they collectively push against an industry they could theoretically take over with the bang of a lone judge’s gavel?
NAR has filed a motion to extend the time to respond, and will push for a dismissal. Johnson said, “we have really good legal standing,” noting that “anti-trust [laws are] complex, and not often won on a motion to dismiss,” and while they know it’s not often granted, she notes that it may take time, but, “we’re going to defend it and win.”
The session ended with shuffling plates and standard conference noise, but there were more people humming to the Beatles after the session than before. The fight was on, and the AEs appeared to stand taller, newly empowered by Johnson’s battle cry.