On March 6th 2019 an antitrust class action lawsuit was filed on behalf of home sellers who sold their homes on 21 of the largest Multiple Listing Systems (the computer system that Realtors use to share listings and cooperate on their sale) against the National Association of Realtors (NAR) and 4 of the largest Brokerage firms (Remax, Realogy Holdings, Home Services of America, and Keller Williams). The case is Moerhl v National Association Realtors.
Although relatively unknown to the general public, this has been the shot heard round the world in the Real Estate community as the Brokerage Firms, and Multiple Listing Services (MLS) try to figure out where this could lead and how to get ahead of it.
The lawsuit posits that MLS’s requirement that the seller pays the buyer’s broker a pre-determined and unnegotiable fee is unjust and that MLS is conspiring to establish and maintain commissions for the buyer brokers that is higher than if buyers were able to negotiate that fee. The suit also argues that the fee paid to the buyer’s broker may not be justifiable given that buyers are now doing more of the work involved in buying a home since they have access to the inventory.
When the Realtors decided to convert “the Book” (a telephone directory-like tome that was published every two weeks, with all the available homes for sale) to a digital format and make it available to the public, many Realtors thought it would be the demise of our industry because they believed that all we had to offer was access to the inventory. Not only did the representation of buyers by Realtors not go away once buyers had direct access to inventory listings, but it also flourished. As Real Estate transactions became more complex, both consumers and Realtors realized that Realtors had a lot more to offer than a list of addresses.
I have long felt that how we get paid could be more transparent. I’m in favor of anything that unbundles the costs and clarifies how we get paid. By unbundling, I mean that there should be a way that sellers pay Realtors to list their property and buyers pay Realtors to help them buy a property.
Separating these costs is difficult in practice because many buyers don’t have the cash to pay their broker, so the cost of the broker gets bundled with the price of the property. Allowing buyers to finance the cost of being represented by a broker is one possible way to address this issue.
Although this lawsuit is fascinating to me–and I think it will lead to more honest conversations about how we get paid–it does not address the inherent conflict of interest of basing the buyer broker’s pay (their commission) on the buyer’s purchase of a home at a certain price. The current model can encourage agents to pressure buyers into making decisions based on their desire to get paid versus doing what’s in the buyer’s best interest. Alternative ways to pay buyer's brokers could be an hourly wage, or a non-contingent flat fee paid upfront.
I’m not sure the market is ready for either of those ideas yet, but I believe it could be the next step towards consumer empowerment.