SALT LAKE CITY — A federal class-action lawsuit filed in Illinois last week against numerous real estate brokers, including some operating in Utah, as well as the National Association of Realtors, claims the defendants have been "conspiring to require home sellers to pay the broker representing the buyer of their homes, and to pay at an inflated amount, in violation of federal antitrust law."
The complaint is seeking to both recover damages, potentially in the tens of billions of dollars, as well as change Realtor rules that the suit says "requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation … when listing a property on a multiple listing service."
One Utah resident who said he and his wife were harassed by real estate agents after listing their home for sale without an offer of a commission for the buyer's agent said the action is "absolutely understandable" after the experience they went through.
The Salt Lake City Multiple Listing Service is one of 20 such services identified in the lawsuit in which plaintiffs' attorneys are signing class participants, which they indicate are any persons who paid a broker commission since March 6, 2015, on the sale of a residential property in the listed areas.
In addition to the Realtors group, other defendants include Realogy Holdings Corp., which includes Better Homes and Gardens Real Estate, Century 21, Coldwell Banker, ERA and Sotheby’s; HomeServices of America Inc., which includes Berkshire Hathaway, RealtySouth, Long & Foster, Edina Realty and others; RE/MAX Holdings Inc.; and Keller Williams Realty.
A web posting by plaintiffs' law firm Hagens Berman said the brokerage companies "conspired with the National Association of Realtors and others to cheat home sellers out of thousands of dollars by illegally fixing real estate broker commissions."
"The National Association of Realtors has worked with these franchises to eliminate competition over business, implementing rules that prevent offering lower commissions and negotiation of buyer broker commission, and serve no other purpose for home sellers," the posting reads. "Total broker commissions in affected areas average between 5 and 6 percent, a substantially higher figure than in countries with competitive markets for real estate brokers."
The firm also said the Realtors association is the largest political lobbying group in the country and worked with the real estate franchises "to boycott and punish any buyer brokers who offered to accept a lower commission."
The Realtors association responded to a Deseret News request for comment on the suit with a statement from Mantill Williams, the group's vice president of public relations and communications.
"The complaint is baseless and contains an abundance of false claims," Williams said. "The U.S. courts have routinely found that multiple listing services are pro-competitive and benefit consumers by creating great efficiencies in the home-buying and selling process.
"(The National Association of Realtors) looks forward to obtaining a similar precedent regarding this filing."
Rob Hahn, founder and managing partner of real estate consultancy firm 7DS Associates, wrote in a blog posting that the case "could be a nuclear bomb on the industry." While the National Association of Realtors spokesman's weigh-in on the suit predicted similar court findings, in favor of real estate brokers, as in past cases, Hahn warned this action is distinctive in that plaintiffs' attorneys are heavy hitters with deep pockets, extensive experience and notable rulings on behalf of plaintiffs.
"The two lead law firms in this case are Cohen Milstein Sellers & Toll and Hagens Berman Sobol & Shapiro," Hahn wrote. "These are two of the most successful class action plaintiffs' law firms in the country. They both appear on the list of Law 360's 'Most Feared Plaintiffs Firms' with some significant victories over really significant companies."
Those victories, Hahn noted, include hundreds of billions in settlements, some against companies with names like Apple and Toyota. He estimated damages in the case against the National Association of Realtors and brokers could easily top $50 billion, but also underscored the more significant impacts to the industry that could come from the permanent injunction plaintiffs are seeking against the practice of a guaranteed percentage for buyer agents, paid by the sellers.
"What the plaintiffs want here is an end to cooperation and compensation," Hahn wrote. "That destroys the MLS, and if the MLS gets destroyed, it kills the Realtor associations.
"It might kill off a whole lot of brokerages as well, if their agents now have to try to get the buyers to pay them directly."
The experience Sandy resident Chase Wagstaff and his wife had selling their home last summer might reflect issues raised by the plaintiffs' attorneys in the case.
Wagstaff said he chose, instead of selling through a traditional agent, to use Utah-based Homie, which uses a web-based service that charges a flat fee of $1,500 to help owners sell their homes. Wagstaff said he and his wife put over $100,000 into improving the home they purchased in 2012 and didn't believe that paying nearly $20,000 to a buyer's agent seemed fair, so they chose to list the home without the offer of a buyer's agent commission. What happened next, Wagstaff said, was shocking.
"I'm absent most of the summer due to work, so my wife took on the task of showing the house and dealing with Realtors," Wagstaff said. "After we listed, my wife started getting two to three calls a day from agents who were really pissed off and abusive saying, 'Who do you think you are?' and 'Do you know how much work it takes to draft up contracts?'
"And, almost every one of them said, 'I'm not showing your house to my clients without the 3 percent (commission).'"
Wagstaff said his wife didn't want to answer any more calls, so they consulted their Homie representative, who suggested they offer a 1.5 percent commission on the home, which was listed for around $500,000. The commission, at that rate, worked out to about $8,500 for the buyer's agent, Wagstaff said.
"The calls kept coming and (the agents) still said, 'Are you kidding me,'" Wagstaff said. "They were arrogant and rude and still demanding the full 3 percent."
Eventually, they found a buyer who had an agent that accepted the $8,500 paycheck for the deal, but Wagstaff noted that numerous other potential deals fell through, not because of the issues with the buyers, but simply due to agents' insistence that they deserved, and wanted, their full cut.
"It was literally the worst experience we ever had," Wagstaff said. "And the only reason it worked out is the person who ended up buying our house had a mom who was an agent. And even then, the mom gave us a hard time about (the commission.)"
Homie co-founder and CEO Johnny Hanna said that regardless of whether plaintiffs in the suit are successful or not, he believes the action could help educate buyers and sellers about what's really going on in traditional residential real estate transactions.
"From our standpoint, this just shines a bright light on the broken commission problem that exists in this industry," Hanna said. "This is why for sale by owner doesn't work.
"Consumers just aren't aware that, in so many instances, when you sell your home you're paying out an additional 3 percent … and now there will be that awareness."
The Salt Lake Board of Realtors did not respond to Deseret News requests for comments for this story.
Correction: An earlier version misquoted Chase Wagstaff as saying, "I'm not showing your house to my clients with the 3 percent (commission)." The actual quote was, "I'm not showing your house to my clients without the 3 percent (commission)."