The lawsuits filed by home sellers, known as Moehrl and Sitzer/Burnett, claim that the National Association of Realtors (NAR), major real estate franchisors like Realogy Corporation and Keller Williams Realty, RE/MAX, and HomeServices of America have conspired to keep the amount agents receive for selling homes high. The plaintiffs in these cases argue that these commissions are negotiable, and set by the market for the value provided by agents. Defendants claim that these commissions are negotiable and set by the market—not them—for the value provided by agents.
In a five-part series, we explore the high stakes and potential impact of two closely watched federal lawsuits that directly target how homebuyers pay commissions.
The lawsuit argues that commissions paid to real estate agents should be lowered, and it uses commission data from the 20 nationwide multiple listings services that the lawsuit singles out in its application for class action status, as well as other data sets on each side. Both parties in the larger two antitrust cases—Moehrl—use these types of data to support their arguments about why the real estate commission system is broken and should be reformed.
If the court allows the suit to become a class action, it could allow millions of homebuyers across the country to seek damages for commissions they paid to buyer agents between 2015 and 2020.
“Commissions Have Risen Sharply.”
“In a competitive market, economics predicts that the price of a service should be related to the costs of providing that service as well as to the value of that service to its consumers,” Harvard law professor Einer Elhauge wrote in an expert report for the plaintiffs.
The plaintiffs in the class action lawsuit against Realtor-affiliated multiple listing services argue that the MLSs mandate that listing brokers offer the same preset commission to buyer agents regardless of qualifications or service.
According to Elhauge, the average commission charged by a buyer’s agent in the 20 most populous metropolitan areas has risen 32 per cent from 2013 to 2020, when adjusted for inflation.
Source: Einer Elhauge expert report in the Moehrl request for class certification
In addition, even though the U.S. population grew by about 27% and home sales grew by about 47% during that time period, the number of real estate agents increased some 100% between 1993 and 2020, to 1.4 million NAR members. That disproportionate increase in agents should result in downward pressure on commissions, according to Elhauge.
Agent Income Keeps Pace with Statewide Income
Meanwhile, defendants’ expert Dr. Lauren Stiroh countered that commissions have not outpaced median income in the state because agent income has kept pace. Additionally, she wrote, Elhauge did not provide evidence that technology has decreased the value of buyer broker services.
Source: Stiroh report in Moehrl defendants’ filing opposing motion for class certification
Commissions are Relatively Higher in the U.S.
NYU economics professor Nicholas Economides, who testified on behalf of the plaintiffs, argued that lower buyer broker commission rates and usages in certain comparable benchmark countries—Australia, the Netherlands and the United Kingdom—confirm that the rules at issue in the case inflate buyer broker commissions.
In all twenty of the MLSs covered in this study, the median buyer-broker rate was 2.7%, which is much higher than the median buyer-broker rates in those benchmark countries: 1.55% in Australia, 1.3% in the Netherlands, and 1.42% in the U.K.
Source: Elhauge report in Moehrl plaintiffs’ motion for class certification
As soon as the requirement was lifted, commissions remained unchanged.
For the defense, a better benchmark for comparison is available domestically. The Northwest MLS eliminated its requirement that listing brokers offer buyer brokers a commission to submit a listing to the MLS in 2019. Despite this change, 99.2% of NWMLS listings continued to offer a buyer broker commission (flat from 99.3% before the rule was eliminated). Virtually all—94.5%—offered a cooperative commission above 2%.
In the end, we can all agree that lawyers and economists have different ways of looking at the law, and they often make different arguments based on those differences.
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