Lawsuit could shake the landscape for buyer’s agents
With billions of dollars at stake, a judge’s ruling this week poses challenges to the residential real estate commission system.
- The Moehrl case is now a class action covering thousands of home sellers across the country.
- Some industry observers think buyer’s agent commissions will shrink, if not disappear entirely.
- Zillow and other portals could benefit from a need for additional promotion of listings.
What are buyer's agents worth? And how should they be paid?
These questions are at the heart of the multibillion-dollar lawsuit that took a huge step toward trial — and grew massively in its potential impact — this week.
Chicago-based District Judge Andrea Wood ruled on Wednesday that the Moehrl vs. NAR, et al, lawsuit is a class action that will include 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, not just the handful who initially filed suit in 2019.
In her 54-page ruling, the judge laid out the process for buying and selling residential property in the United States: Most people use agents, the vast majority of homes are listed on an MLS, and there are rules requiring listings to include "a blanket unilateral offer of compensation to the broker who finds a buyer for the home … expressed as either a fixed percentage of the home's gross sales price or a definite dollar amount."
Which is why plaintiffs are seeking more than $13 billion in damages. They say those rules, perpetuated by NAR and others, forced them to pay buyer's agent commissions that would have been paid by homebuyers in a truly competitive market.
Some industry observers go further, saying homebuyers would choose not to engage agents at all.
NAR calls the current compensation structure a win for consumers, saving sellers time and creating a larger pool of buyers with professional representation.
The judge acknowledged this perspective while calling out NAR rules that "prohibit MLS participants from displaying buyer broker commission offers to consumers" and, until 2020, allowed buyer's agents to advertise their services as free even if they got compensation from another source, such as home sellers, for their services.
A defendant motion to exclude testimony from Harvard Law professor Einer Elhauge and Dr. Nicholas Economides, an economics professor at NYU Stern, was denied by the judge in similarly detailed fashion.
Elhauge, the ruling states, "notes that buyers can find homes without the assistance of a buyer-broker through websites like Zillow" and how "in more competitive markets the increasing use of the internet has reduced consumer costs" in other industries, but real estate commissions have "increased in the face of technological advances."
Ultimately, a jury will decide the case.
The Moehrl suit lists NAR, Realogy (now Anywhere), HomeServices of America, RE/MAX and Keller Williams as defendants. Twenty MLSs, including some of the country's largest (most notably Bright MLS and Stellar MLS) are alleged to be "co-conspirators."
While this case does not cover every seller or every market, it includes hundreds of thousands of agents and millions of transactions across the country worth billions of dollars.
Its impacts are expected to be felt across the entire industry.
Rob Hahn, real estate consultant and managing partner of 7DS Associates, believes the "buy-side commission is going away," with a 2030-ish timeframe. And in the meantime, MLSs, associations and brokerages "will get sued to oblivion."
Raymond "RJ" Jones, a veteran executive at companies including Zillow, eXp, Keller Williams and, currently, Similarweb, is a bit more optimistic. Jones says the likelihood of buyer's agent commissions decreasing — or disappearing entirely — "is high." But that doesn't mean buyers would go it alone.
"Smart buyers would feel like, 'Hey, representation of some kind is to my benefit whether it's a buyer's agent or or an attorney.' But the comparison will be like, 'Well, what is the price of that supposed to be?' So ultimately I feel it'll be some form of negotiated fee, which in all likelihood is lower than the current commission rate as it is today," Jones said.
And the support may be more focused on the mechanics of the deal, rather than connecting buyers with listing agents. That's where Zillow and other portals would step in — and sell advertising, Jones said.
"Listing agents have got to promote the property," Jones said. "What used to be the buyer's agent commission will be spent on that."
Correction: An earlier version of this article mischaracterized the role of MLSs. They are alleged "co-conspirators," not defendants.