Industry Decoded: Commissions lawsuits could give portals an edge
The outcome of the Moehrl suit could affect countless buyer agents. Might Zillow and other portals become an Uber-style marketplace for those agents?
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It seems that the real estate industry might finally be starting to take notice of two class action lawsuits that could fundamentally alter the brokerage business. I first started writing about these cases back in 2019 when the larger of the two, the Moehrl case, was filed. Moehrl has nationwide ramifications while the other case, Sitzer, is limited to the state of Missouri.
For those just getting up to speed, the cases involve home sellers who have sued the National Association of Realtors (NAR) and several major real estate brokerages. They allege that the defendants engaged in anticompetitive practices that harmed home sellers by limiting their ability to market and sell their homes.
The plaintiffs believe that homebuyers should negotiate and pay directly for the services of their agents when they purchase a house, and that the current system — where the listing commission is split between the listing (seller) agent and the buyer agent — requires sellers to overpay for brokerage services that don't benefit them. Further, they allege that this system artificially inflates buyer agents' fees to the detriment of the home sellers who have paid these fees at closing.
A significant event occurred on March 29 when the judge in Moehrl certified the case as a class action (Sitzer was certified as a class action in April 2022). Plenty has been written about these cases and the money damages that could result. One of the experts in Moehrl has testified that the damages are close to $14 billion. To put that into perspective, the market cap of Anywhere (one of the named defendants, as Realogy) is around $650 million, or less than 5% of the claimed damages.
Why the class certification — and the certified classes — matter
The court's certification of Moehrl is important because it nearly guarantees the case will go to trial. The sheer amount of claimed damages makes a settlement highly unlikely. And a summary judgment in favor of the defendants also appears unlikely given the court's perspective on the case when it determined it justified class action status.
But also extremely important is that the Moehrl court certified three classes. Two involve past sellers who have been harmed by the alleged commission overpayments. The third class covers "[C]urrent and future owners of residential real estate in the covered jurisdictions who are presently listing or will in the future list their home for sale (in any one of the 20 covered MLSs)." That class is filed under a special rule for permanent injunctions in class actions and would prohibit the defendants from continuing to maintain the same system of compensation for all sellers who listed their homes for sale with them in the 20 covered MLSs — anytime in the future.
This third injunction class is important because it is separate from the class of past sellers, and the plaintiffs could conceivably prevail on their injunction claims even if they failed to prove significant money damages. Now, if plaintiffs were to prevail, lots of things could delay this injunction (e.g., an appeal — although that would likely come with the posting of a gigantic bond). At the same time, facing the possibility of more damages, I anticipate we would see some immediate voluntary changes by the industry.
If the plaintiffs win, buyer agents would lose a guarantee of compensation
The primary change I'd expect to see, should the plaintiffs prevail, is that buyer agent compensation would no longer be a mandatory part of MLS cooperation. To be clear, nothing in these cases would result in sellers being legally prohibited from compensating a buyer's agent. However, the MLS system of cooperation and compensation would change to a system of cooperation only. And because of that, buyer agents would no longer be guaranteed compensation by putting together a deal on a listed property. It would all be subject to negotiation, likely first with the buyer and then with the seller. But let's put a pin in that for the moment.
Unrelated to these cases, Zillow in January introduced an instant tour booking feature for renters on its platform. Prospective renters can book an in-person tour at a suitable time without having to contact an agent or a property manager directly. And it appears that Zillow has now extended this feature to for-sale listings in select markets. I could find no press on this, so they may be testing the concept, but extending it to resale homes is intriguing.
This got me thinking. In a world where compensation is guaranteed to buyer agents through MLS input, I could envision a lot of agents (especially in today's challenging market) who might love the opportunity to meet up with a prospective buyer to open a door. I don't know any details of this new program, but someone who wants to view a property in person is much further down the proverbial lead funnel than a random "buyer" wanting information off a listing display page.
So, will we see more agents waiting for the first opportunity to get connected to a tour and the potential for a new client relationship? That seems a bit far-fetched especially for those agents who are swinging to the other side of the spectrum and positioning themselves as financial advisors as opposed to door-openers. Then again, the average REALTOR member nets less than $50K annually, so maybe there's a market for this.
How portals could step in to provide connections, compensation
I then started thinking a bit further. What about a world where compensation is not guaranteed to a buyer's agent through the MLS offer of compensation? What if the plaintiffs in Moehrl win (yes, that is a possibility) and get their injunction, and buyer agents are faced with the prospect of negotiating their compensation in each and every buyer relationship? There are a lot of agents who are not equipped to have those conversations, and if the Moehrl plaintiffs' damage logic holds true, the actual amount of compensation to buyer agents will, on average, drop from current levels.
If this happens, Zillow (and other portals for that matter) could step in and give those buyer agents what they are looking for — a connection to a buyer accompanied by a compensation guarantee from the seller. Keep in mind that any injunction in Moehrl will apply only to the defendants (NAR and the named big brokerage firms and franchises). Zillow is none of these. While they function as a broker for purposes of their data feed, they are fundamentally a multi-sided online marketplace. Just like… Uber.
I have no inside baseball here, and I haven't thought through how this might actually happen, but here is what I do know: A decision in favor of the plaintiffs in Moehrl will ripple through our industry in fundamental ways yet to be understood. And there are hundreds of thousands of buyer agents who will find themselves trying to figure out how to get paid. Any company that's able to facilitate a solution to this challenge will find themselves in a very interesting and powerful place.
Yes, we can hope that the defendants will prevail in these cases and things remain status quo. The industry certainly has plenty to deal with besides this. At the same time, the smartest industry leaders will be looking to help the masses of agents who do not take a lot of listings by preparing them for a future where they may need to show buyers that they are far more than a door-opener.
Russ Cofano is the CEO of Collabra Technology, which operates the digital marketing platform SphereBuilder™. He has more than 30 years of senior leadership experience in brokerage, technology, MLS, associations and affiliated businesses. Previous roles include president and general counsel of eXp World Holdings and SVP of industry relations at Move, Inc. The views expressed in this column are solely those of the author.