With more than 1,000 Inman posts, Bernice Ross is a long-time contributor whose weekly column on real estate trends, luxury, marketing and other best practices publishes every Monday.
The filing of the Christopher Moehrl class action lawsuit against the National Association of Realtors (NAR), four major real estate brands — Realogy, HomeServices of America, RE/MAX and Keller Williams — and a number of multiple listing services (MLSs) controlled by local associations is an attempt to eviscerate the commission sharing aspect of the MLS.
After reviewing the allegations in the complaint, NAR’s Handbook on Multiple Listing Policy, NAR’s Code of Ethics and numerous other sources, I believe a substantial proportion of the arguments presented are simply not supported by the facts.
Part 1 of this series outlined serious issues with the Moehrl complaint, including:
- Factually incorrect statements that show a lack of knowledge about the industry: “Brokers license individual agents,” and “brokers are required to list all properties on the MLS,” even though MLSs have had policies for Exempt Listings for decades.
- The argument that, “the seller’s inflated commission offer cannot be reduced by buyers or their brokers, as Defendants also prohibit buyer brokers from making home purchase offers contingent on the reduction of the buyer broker commission,” which, if buyer’s agent were able to make these changes regarding the commission in the Exclusive Right to Sell, would constitute “tortious interference.”
- Reliance on NAR’s Handbook on Multiple Listing Policy and NAR’s Code of Ethics without regard to the extensive amount of local, state and federal legislation and regulations that govern price fixing and commissions.
Effects of the conspiracy
The allegations below — found on page 19 of the complaint — assert the current commission structure in the U.S. is inflated because commissions are much less in other countries:
There is substantial economic evidence that Defendants’ conspiracy has resulted in buyer broker commissions and total commissions paid by home sellers that are inflated well above a competitive level nationwide, including in the areas in which the Covered MLSs operate.
Total broker commissions (i.e., the aggregate commission paid to the seller broker and buyer broker) in the areas in which the Covered MLSs operate average between five and six percent. This figure is substantially higher than in countries with competitive markets for residential real estate brokerage services.
The complaint goes on to state:
Ultimately, the economists concluded that, “based on global data, the [total] US residential brokerage fees should run closer to 3.0%.”
What is the basis for this “substantial economic evidence?” A single study done by two economists in 2002 when the internet was still in its infancy and there were no portals that allowed agents to market their properties online.
The complaint also asserts on pages 4 and 5:
In more competitive foreign markets, home buyers pay their brokers if they choose to use one, and they pay less than half the rate paid to buyer brokers in the United States. In comparable international markets without a rule like the Buyer Broker Commission Rule, such as the United Kingdom, Germany, Israel, Australia, and New Zealand, buyer brokers, when they are used, are paid directly by home buyers, rather than by home sellers.
This another statement that is misleading at best. Comparing the U.S. and Canadian systems of selling real estate to the rest of the world is not an apples-to-apples comparison.
According to the Huffington Post:
In most of the world, there’s no such thing as a Multiple Listing Service (MLS). “Running comps,” as any would-be real estate buyer would do when shopping in the United States, depends on referencing an MLS. But, again, no such organized, computerized, easily accessible database of properties on the market exists in most of the world. With limited exceptions, the MLS is a U.S. market phenomenon, an indispensable tool that, somehow, the rest of the world’s real estate markets manage to survive without.
To illustrate this point, typical agent fees in Australia currently range from a low of 2.07 percent (South Australia) to a high of 3.26 percent (Tasmania).
In New Zealand, the fees are typically 4 percent up to the first $300,000 of the sales price, and then 2 percent above that.
Commissions are less in these two countries because:
- There is no multiple listing service, hence no cooperation among firms and virtually no buyer agents.
- Up to 50 percent of the listings are sold at auctions.
- In Australia, sellers pay for all the advertising and marketing expenses.
Exclusive listings dramatically improve the customer experience
What differentiates the U.S. and Canadian real estate from other places in the world is our use of Exclusive Right to Sell Agreements where the listing broker is compensated, regardless of who brings the offer.
In a chapter titled, “Global portals redefine global real estate,” The 2016 Swanepoel Trends Report explains the primary distinction between MLSs and portals:
The primary purpose of the MLS is to provide listing brokers a way to provide a unilateral offer of compensation to other MLS members who may sell their listings. The offer of compensation is a contractual obligation that can be negotiated between the listing broker and the broker representing the buyer.
Portals differ in that they are consumer facing and are never used by brokers to share compensation. Their fee structures emerged from the traditional classified or Internet advertising models.
In the same chapter, Daniel Mancini, the REA’s group general manager for international expansion, describes what happens in the absence of exclusive listings:
The sellers not only market the property themselves; they also sign the equivalent of an open listing with 3-4 agents. This results in duplicate listings, conflicting descriptions, and sometimes even different price points. It also means that listing agents only provide the general area where the property is located rather than the actual address. Furthermore, because competing agents will scrape the photos from other agents’ listings, little money is spent on marketing and photos. This scenario poses difficulties for consumers and the portals alike. Exclusive listings, in contrast, eliminate all these issues. They also improve the consumer’s search experience dramatically.
MLSs can’t exist without an Exclusive Right to Sell Agreement
The Swanepoel Trends Report also explains that:
Without commission sharing, there is no opportunity for a MLS. However, in countries such as France, Greece, Italy, and Spain where approximately 10-15 percent of their listings are exclusive, MLSs have started to spring up…Exclusive listings also translate into more accurate data, better marketing and exposure, and often a better price for the seller.
When there are no exclusives, there is no broker cooperation. This is why the plaintiff’s argument that other countries have lower commissions due to having buyer brokers, as noted above, is simply wrong. No cooperation means no buyer brokers to be paid by buyers.
There are no pro-competitive effects of the defendant’s conspiracy
The complaint further asserts on page 19:
Plaintiffs are not aware of any pro-competitive effects of Defendants’ conspiracy. But if there are any, they are substantially outweighed by the conspiracy’s anticompetitive effects.
A Huffington Post article outlines a number of benefits the MLS provides to consumers:
- Speed of search: Within minutes, you can identify virtually all of the properties of a certain type and in a specified price range.
- Real estate agents can tell you about other listings. Without the MLS, buyers would have to search out the various properties for sale, one at a time, by meeting with each listing agent individually.
- Because there are no exclusives, properties are often listed with more than one agent, often at different prices.
- Buyers are unable to determine what properties should cost because there are no comparable sales.
According to EstateAgentToday, “When Americans come to the U.K. they are amazed that there is no co-brokerage facility and that when they walk into an estate agent they can only have a meaningful discussion about a tiny sub-set of the available properties in the area.”
The article goes on to say that U.K. agents are embracing the notion of having a multi-list system because they’re seeing the following benefits:
- Higher offers on their properties as compared to properties that are not on the multi-list.
- Sellers were buying into paying higher fees for the premium service MLS brings for main agents to reach larger buyer and tenant pools via subagents.
Mantill Williams, NAR’s vice president of public relations and communications strategy, said: “The complaint is baseless and contains an abundance of false claims.”
Based upon the issues cited above, the complaint may not be baseless, but it certainly has a number of false claims.
Don’t expect this highly successful group of powerhouse class action attorneys to go down without a fight. If they were to prevail, this change would probably be the most disruptive and injurious to the real estate industry ever.
Bernice Ross, President and CEO of BrokerageUP (brokerageup.com) and RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles. Learn about her broker/manager training programs designed for women, by women, at BrokerageUp.com and her new agent sales training at RealEstateCoach.com/newagent.
