A new collective legal action is aimed at real estate agents and the tools they use to do business, and real estate observers say it could revolutionize the way Americans buy and sell the greatest good they will own.
The lawsuit was filed in Chicago on behalf of anyone who sold a home through one of the country's 20 largest listing services over the past five years. It is assumed that the powerful national association of real estate agents based in Washington, as well as the four largest national real estate brokers, and the multiple listing services used, have conspired to demand that anyone selling a house pay the commission of the property. Intermediary representing their purchaser "at an inflated amount", in violation of the federal antitrust law.
Homeowners who are ready to sell their properties usually hire a real estate agent to represent them by staging the home, photographing it, adding it to the MLS, marketing it and showing it to potential buyers. Sellers agree to pay that person a commission on the selling price of the home. That commission has traditionally been known as "6%", but it's a bit more complicated than that.
Sellers can really only negotiate with the agent they have hired, while agents representing buyers are generally guaranteed by a standard 3% commission. This means that the agent of a seller who is willing to negotiate, or the one who works for a discount brokerage like Redfin
RDFN, + 3.28%
, less than one buyer's agent will be paid.
Buyers can choose to be represented by an agent or to do without one, but in any case, all monetary fees for both sides of the deal are always paid by the seller, thanks to a rule of the 1996 NAR note as "Buyer's brokerage commission" Rule. "
To list a property on one of the many regional databases known as Multiple Listing Services, agents must comply with the buyer broker rule. The listing on the MLS is essential to make a sale and most MLSs are controlled by local NAR associations.
"The conspiracy has saddled sellers at home with a cost that would have been borne by the buyer in a competitive market," says the lawsuit. "Furthermore, since most buyer brokers will not show their clients' homes where the seller offers a lower buyer broker commission, or will show houses with higher commissions first, sellers will be incentivized when they do the ; covered, non-negotiable offer required to procure the cooperation of buyer brokers by offering a high commission. "
As previously reported by MarketWatch, many housing observers call real estate agents a "signpost" for the way they purposefully route customers to transactions where traditional methods of doing business are observed.
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Rob Hahn is founder and managing partner of 7DS Associates, a real estate consulting firm. In a blog published shortly after the filing of the complaint, Hahn called a potential "nuclear bomb on the industry". And in an interview with MarketWatch, he claimed to take it "very seriously".
For the most part, this is due to the weight of the law firms behind the lawsuit. Both Cohen Milstein Sellers & Toll and Hagens Berman Sobol Shapiro have a long history of prevalence on important entities like Volkswagen, for its emissions scandal, Apple, for the collusion of e-books and Exxon, after the Valdez spill.
In response to a request for comment, NAR said: "The complaint is unfounded and contains an abundance of false claims. The US courts have regularly found that multiple listing services are pro-competitive and benefit consumers by creating large efficiencies in the home buying and selling process. NAR does not see the time to get a similar precedent for this deposit. "
However, as Hahn has stated, past causes have mostly been dismissed by what he calls "ambulance hunters", not companies behind some of the largest civilian settlements in American history.
This view is shared by Cohen Milstein's partner, Daniel Small, who defined how realtors do "a long-standing problem". What is different now, said Small MarketWatch, is that the law firms have made a "substantial investigation" that convinced them that there was money to be taken to hire the entities named in the suit. The companies have filed the lawsuit to seek compensation from the injured people who were affected by this behavior to make sure it does not happen again.
Piccolo refused to elaborate on what had prompted the investigation in the first place. It is worth noting, however, that the lawsuit was filed about four months after the expiry of a decree of consent from the Department of Justice against the National Association of Realtors. This agreement was reached in 2008 after the federal government spent several years trying in vain to rein in what it called an anti-competitive behavior by the NAR, which felt under attack from the Internet.
To read: Real estate agents will soon be free from the 10-year Justice Department decree – so what happens to homes now?
Hahn thinks it's ironic that an innovation that sought to protect buyers by providing them with a complex and deeply emotional transaction has sharpened the market so badly. Many housing industry observers have long argued that real estate services should be paid a la carte, or in a downward pricing structure, rather than a flat fee, whether it's 6% or 1%. But, Hahn said, "there is no chance that the industry will go that way voluntarily".
What is more likely, he thinks, is that the American system will resemble real estate markets in Australia or England, where sellers and buyers each pay their own broker – or not. After all, buyers are usually "short on money," noted Hahn: saving every nickel for a down payment, closing costs and moving expenses. While the entrenched interests in the American real estate sector argue that it is not favorable to the consumer, Hahn says he has "never seen a study that says buyers screw up" without representation.
A former lawyer himself, Hahn is not sure how to hinder this case. But if he prevails, he thinks that huge changes are in store for the industry. The ranks of buyer brokers will probably be decimated and also the infrastructure behind the MLS and local associations will vanish.
A spokesman for Realogy
he said: "We believe this case has no merit and will not comment further."
A spokesman for Keller Williams said: "It is not our policy to comment on pending cases". A spokesman for RE / MAX Holdings
declined to comment, and a request for comment by Berkshire Hathaway
HomeServices of America, Inc. has not been returned.
"This is an important case for many reasons," said Daniel Small. "Among them is that this is the biggest transaction in most people's lives. It is very much at stake."
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