A pair of new class action lawsuits filed this week are intensifying scrutiny of the real estate industry’s long-standing practices around buyer broker commissions.
The lawsuits allege that major brokerages conspired to inflate commissions paid by home sellers, harming both sellers and buyers in violation of antitrust laws.
The new complaints come on the heels of a landmark $1.8 billion verdict last week in a Kansas City federal court. In that case, a class of home sellers sued brokerages including RE/MAX and Keller Williams, claiming commissions charged to sellers were artificially inflated.
New Lawsuit Takes Aim at Buyer Broker Commissions
One of the new lawsuits was filed Thursday in federal court in Chicago. The prospective class action suit accuses prominent real estate companies including Douglas Elliman, Compass, eXp World Holdings and Redfin of conspiring to require home sellers to pay inflated commissions to brokers representing buyers.
The suit alleges this practice has unfairly increased costs for home buyers across the country. It seeks damages on behalf of home buyers nationwide over the last four years.
According to plaintiffs’ attorney Steve Berman, “By perpetuating an anti-competitive scheme that inflates profits by billions of dollars each year, the largest real estate brokers and franchisors have abused the trust placed in them by American home buyers and violated federal antitrust laws.”
Second New Lawsuit Filed in Kansas City
On the same day as the Chicago case, the law firms behind last week’s $1.8 billion verdict in Kansas City filed a similar nationwide class action against major brokerages. Douglas Elliman, Redfin, Compass and eXp World Holdings were named as defendants.
According to lead attorney Michael Ketchmark, “Our goal is to take the message from the state of Missouri and take it nationwide so that homeowners in our country can finally reap the benefits of technology and get these corporate real estate giants’ hands out of the homeowners’ equity.”
The Kansas City suit makes similar claims to the Chicago case regarding inflated buyer broker fees resulting in overcharges for home purchasers. It seeks to build on the success of the recent verdict against brokerages like RE/MAX on behalf of home sellers.
Longstanding Industry Practice Challenged
Both new lawsuits take aim at the standard industry practice of requiring home sellers to pay the commission for the broker representing the buyer, typically between 5-6% of the home sales price.
The suits argue this practice inflates fees charged to sellers, who pass on the overcharges to home buyers in the form of higher home prices. They allege the defendant brokerages conspired to maintain these high commission fees and resist disruptive lower-cost alternatives.
While most sellers work with a listing broker who markets the home, the commission paid to the buyer’s broker has long been negotiated behind closed doors between brokers. Critics argue a lack of transparency allows fees to remain inflated.
Defendants Dispute Claims
In statements, Douglas Elliman and eXp World Holdings said they are committed to fair and transparent practices that comply with the law. Redfin’s CEO recently said the company has “campaigned tirelessly for lower fees, commission transparency, and broader consumer access.”
Still, other major brokers named as defendants – including Compass and Weichert Realtors – did not provide comments on the new litigation.
The claims will likely be fiercely contested by the real estate industry. After last week’s multi-billion dollar verdict, the National Association of Realtors vowed to appeal the decision, denying any wrongdoing related to commissions.
Impact on Buyers and Sellers
If the new lawsuits succeed, analysts say the impact could be profound across the housing industry. More transparent, lower buyer broker fees could translate to significant savings for home purchasers.
At the same time, lower commissions paid by sellers would make it less expensive for homeowners to sell. This could encourage more existing homeowners to list their properties, potentially cooling some overheated housing markets.
While the cases wind through courts, the litigation is putting added scrutiny on longstanding real estate practices. The recent flurry of lawsuits and record verdict suggest growing legal momentum to shake up the way real estate commissions are determined.