Moehrl v. NAR — Will this Shakeup the Industry?
In today’s economy there is one constant: change. Self-driving vehicles. Uber. Amazon. The same is true for the real estate industry. Disruptors like Redfin, Purple Bricks and OpenDoor are seeking to change the way Realtors operate, and how they get paid. Today’s Blog article will examine another attack on the industry – by plaintiffs lawyers – seeking to change the way commissions are negotiated between buyer and seller.
As always, if you have any questions about your real estate, business, estate planning, or any other legal issue, please let us know by e-mailing me at kbdunnagan@bpelaw.com.
Also, remember that we do legal presentations for business and community organizations. If your group would like to schedule a presentation related to estate planning, please contact me to setup a date and time.
MOEHRL v. THE NATIONAL ASSOCIATION OF REALTORS
A Serious Shakeup for the Industry?
By: Alexander W. Munn, Esq.
In March of 2019, a class action lawsuit was filed in Federal Court in Chicago against the National Association of Realtors, Reology Holdings (Coldwell Banker, Century 21) HomeServices of America (Berkshire Hathaway) ReMax and Keller Williams, seeking to undo the Buyers Broker Commission Rule. If this lawsuit is successful, it will change the commission structure dramatically.
The suit covers all home sales since 2015 and includes some of the largest MLS’s in the country stretching from Baltimore, Florida, the Mid-West, Texas, Las Vegas, Phoenix and Colorado. The territory is huge — with hundreds of thousands of agents and millions of transactions over the past four years.
The Complaint alleges that NAR and the brokers have conspired to require home sellers to pay the buyer’s broker commission, at an inflated price. The conspiracy centers around NAR’s rule which requires all brokers to pay a blanket, non-negotiable offer of buyer broker commission (The Buyer Broker Commission Rule) when listing a property for sale on the MLS.
Normally, the commission is 5%, which is set by the selling agent, with 2.5% of the blanket commission going to the buyers broker. The suit alleges that using this method, there is no opportunity for negotiation of the buyers commission, resulting in inflated home prices to cover the commission. They also argue that in many other countries, the buyer pays the broker commission, not the seller. As a result, buyers brokers often negotiate a far smaller commission, sometimes as low as less than 1%.
The plaintiff seeks a permanent injunction against the NAR and Brokerages from the collection of buyers commissions from the seller, and damages. If the lawsuit is successful, the buyer would pay the brokers commission – it would no longer come from the seller. Most homebuyers are already stretched thin financially with down payment requirements, mortgage payments and home improvements. This additional cost will certainly act as a deterrence and will likely impact the housing market.
Potential damages are massive: using an average sales price of $300,000, a 3% buyer commission equals $9,000 per transaction, multiplied by 2 million transactions equals $18 billion dollars, which could be tripled under anti-trust laws, which means total damages could be $54 BILLION in damages. Why is this important? Because with damages this great, the case will likely not settle as the NAR and brokerages don’t have anywhere near a few billion dollars to make the lawyers go away. And the plaintiff’s lawyers are well funded – they have collectively won hundreds of billions of dollars against some of the world’s largest corporations, which means they are well-funded to go the distance on this case, even to the Supreme Court.
What does this mean for California brokerages? They operate on the same principles and use the Buyers Brokers Commission rules. If the plaintiffs in this case are successful — it is only a matter of time before the same or other lawyers sue in MLS regions that include California.
Bob Dylan said it best – The Times They Are A Changin’.
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The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at kbdunnagan@bpelaw.com. Our flat fee consult for new clients may get you the answers you need for the questions you have.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal adv
In today’s economy there is one constant: change. Self-driving vehicles. Uber. Amazon. The same is true for the real estate industry. Disruptors like Redfin, Purple Bricks and OpenDoor are seeking to change the way Realtors operate, and how they get paid. Today’s Blog article will examine another attack on the industry – by plaintiffs lawyers – seeking to change the way commissions are negotiated between buyer and seller.
As always, if you have any questions about your real estate, business, estate planning, or any other legal issue, please let us know by e-mailing me at kbdunnagan@bpelaw.com.
Also, remember that we do legal presentations for business and community organizations. If your group would like to schedule a presentation related to estate planning, please contact me to setup a date and time.
MOEHRL v. THE NATIONAL ASSOCIATION OF REALTORS
A Serious Shakeup for the Industry?
By: Alexander W. Munn, Esq.
In March of 2019, a class action lawsuit was filed in Federal Court in Chicago against the National Association of Realtors, Reology Holdings (Coldwell Banker, Century 21) HomeServices of America (Berkshire Hathaway) ReMax and Keller Williams, seeking to undo the Buyers Broker Commission Rule. If this lawsuit is successful, it will change the commission structure dramatically.
The suit covers all home sales since 2015 and includes some of the largest MLS’s in the country stretching from Baltimore, Florida, the Mid-West, Texas, Las Vegas, Phoenix and Colorado. The territory is huge — with hundreds of thousands of agents and millions of transactions over the past four years.
The Complaint alleges that NAR and the brokers have conspired to require home sellers to pay the buyer’s broker commission, at an inflated price. The conspiracy centers around NAR’s rule which requires all brokers to pay a blanket, non-negotiable offer of buyer broker commission (The Buyer Broker Commission Rule) when listing a property for sale on the MLS.
Normally, the commission is 5%, which is set by the selling agent, with 2.5% of the blanket commission going to the buyers broker. The suit alleges that using this method, there is no opportunity for negotiation of the buyers commission, resulting in inflated home prices to cover the commission. They also argue that in many other countries, the buyer pays the broker commission, not the seller. As a result, buyers brokers often negotiate a far smaller commission, sometimes as low as less than 1%.
The plaintiff seeks a permanent injunction against the NAR and Brokerages from the collection of buyers commissions from the seller, and damages. If the lawsuit is successful, the buyer would pay the brokers commission – it would no longer come from the seller. Most homebuyers are already stretched thin financially with down payment requirements, mortgage payments and home improvements. This additional cost will certainly act as a deterrence and will likely impact the housing market.
Potential damages are massive: using an average sales price of $300,000, a 3% buyer commission equals $9,000 per transaction, multiplied by 2 million transactions equals $18 billion dollars, which could be tripled under anti-trust laws, which means total damages could be $54 BILLION in damages. Why is this important? Because with damages this great, the case will likely not settle as the NAR and brokerages don’t have anywhere near a few billion dollars to make the lawyers go away. And the plaintiff’s lawyers are well funded – they have collectively won hundreds of billions of dollars against some of the world’s largest corporations, which means they are well-funded to go the distance on this case, even to the Supreme Court.
What does this mean for California brokerages? They operate on the same principles and use the Buyers Brokers Commission rules. If the plaintiffs in this case are successful — it is only a matter of time before the same or other lawyers sue in MLS regions that include California.
Bob Dylan said it best – The Times They Are A Changin’.
——————————————————————————————————————
The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at kbdunnagan@bpelaw.com. Our flat fee consult for new clients may get you the answers you need for the questions you have.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal adv