Two class-action lawsuits filed within the last month echo the Sitzer V. Burnett case decided in Kansas City in 2023, wherein a jury ruled on behalf of plaintiffs that the National Association of REALTORS®’ (NAR) buyer-broker commission rule constitutes a conspiracy to inflate commissions.
Both Friedman v. Real Estate Board of New York and Masiello v. Arizona Association of REALTORS® are brought by a class of recent homesellers in their respective jurisdictions. Plaintiffs in both cases are demanding jury trials, aimed at recuperating compensation from the defendants.
Since the Burnett ruling, NAR has sought to have the verdict overturned, but similar class action lawsuits focusing on supposed “conspiracies” to set commission prices have materialized. These two new cases fit into this trend.
Friedman v. Real Estate Board of New York
First filed on December 29, 2023, with the U.S. District Court for the Eastern District of New York (Senior Judge Frederic Block as presiding judge), the complaint takes aim at the Real Estate Board of New York (REBNY) for its buyer broker commission rules (i.e. that sellers must pay the commission rate to the buyer broker) and the companies that enforce it. The complaint argues that the rule is a “horizontal conspiracy” between brokerages to not compete over commission prices, thereby inflating them (to the usual 5-6% rate).
These are, namely, the brokerages that operate in “REBNY Brooklyn,” neighborhoods where listings are included on the REBNY Residential Listing Service (“RLS”). Parties named as defendants include REBNY, Douglas Elliman, Brown Harris Stevens, Sotheby’s, Compass and Anywhere.
Plaintiff Robert Friedman is a class representative, the class being anyone who sold residential real estate in REBNY’s Brooklyn areas from December 29, 2019, to the present and thus paid a buyer-broker commission. Friedman himself paid a 5.5% commission for a sale on May 28, 2021.
The complaint says that the defendants’ alleged conspiracy violates state and federal antitrust laws, including Section 1 of the Sherman Antitrust Act of 1890, and sellers pay “supra-competitive prices” for broker services as a result.
The plaintiffs are represented by Daniel Z. Goldman of Bienert Katzman Littrell Williams LLP and Steven Lev Groopman Berman Tabacco. Neither attorney immediately responded to RISMedia’s request for comment.
REBNY General Counsel Carl Hum told RISMedia: “We are reviewing the complaint and remain confident that RLS rules comply with all relevant laws. We look forward to our day in court.”
Brown Harris Stevens declined a request for comment by RISMedia. Other defendant brokerages have not responded to requests for comment at press time.
“Buyer brokers have no reason to compete on price when seeking to represent buyers, who are indifferent to the amount of commission paid to the buyer brokers, given that it is paid by sellers,” the complaint alleges, arguing that real estate professionals who do not abide by the REBNY Buyer Broker Commission Rule lose access to the RLS (and thus listings), while brokers have incentive to “steer” their clients towards listings with higher commissions.
“In a competitive market, buyers, not sellers, would negotiate and pay buyer broker fees,” the complaint claims.
In support of its argument, the complaint mentions both the ruling against NAR in the Sitzer/Burnett case and REBNY’s own recent changes to its compensation rules.
“Starting on January 1, 2024, offers of compensation to the buy-side broker must come directly from the sellers and/or owners of the exclusive property. Listing brokers will no longer be permitted to make the offer of compensation to the buy-side broker—even if it is on the seller’s or owner’s behalf. Additionally, listing brokers will no longer pay the buy-side compensation,” the REBNY website explains.
Masiello v. Arizona Association of REALTORS®
Filed on January 5, 2024, with the United States District Court District of Arizona (John Z. Boyle as presiding judge), Masiello v. Arizona Association of REALTORS® is another class action suit where commissions are the centerpiece. As in the New York case, the Arizona plaintiff class alleges that buyer broker compensation rules prevent competition and inflate commissions to the disadvantage of home sellers.
The complaint alleges that statewide associations (such as the Arizona Association of REALTORS®) and brokerages affiliated with them (named companies include Christie’s and Realty One Group Arizona Incorporated) have “conspired” to inflate their commissions. The introduction of the complaint mentions the national Buyer-Broker Commission Rule set by NAR, “implemented and enforced by defendants in Arizona.” Indeed, NAR is named by the plaintiffs’ complaint as a co-conspirator, but not a defendant.
When asked for comment, The Arizona Association of REALTORS® replied they stand with NAR on the virtues of cooperative compensation.
“Sellers can sell their home for more and have their home seen by a larger pool of potential buyers, while buyers have more choices of homes and can afford representation.”
Fellow association defendant the Phoenix Association of REALTORS® told RISMedia: “This is an ongoing legal issue and Phoenix REALTORS® will respond to the matter through due legal process.” The association added that its primary concern is continuing to support its members.
The class consists of those who have sold residential real estate through the Arizona MLS and one of the named brokerage defendants. Joseph Masiello is the class representative; he sold a home in October 2021 with HomeSmart and paid a 2.5% ($10,250) commission rate to the buyer broker.
The arguments laid forth in the complaint are largely the same as Friedman v. Real Estate Board of New York, just with different locations and players involved. The plaintiffs summed up their argument for conspiracy with three interrelated points:
“In short, Defendants’ conspiracy: (a) requires sellers to pay inflated commissions for services provided by buyer-brokers; (b) raises, fixes and maintains buyer-broker compensation at levels that would not exist in a competitive marketplace; and (c) encourages and facilitates steering and other actions that impede entry and market success by lower-cost real estate brokerage services.”
These suits could be understood, in effect, as Sitzer V. Burnett on a local level.
Attorneys representing the plaintiff class did not immediately respond to requests for comment by RISMedia. Per filings, the defendant companies and associations have not retained counsel yet.
Stay tuned to RISMedia for ongoing updates on the antitrust lawsuits against NAR and the wider industry.
So basically the listing Broker is not allowed to pay anyone they want?