Latest Homeseller Suits In Arizona, New York Target Commission Rules

Key Takeaways:

– Lawsuits have been filed in Arizona and New York alleging that real estate companies and trade groups violated antitrust laws by conspiring to inflate broker commissions.
– The New York lawsuit, filed by Robert Friedman, claims that major residential real estate firms in Brooklyn conspired to not compete over broker commissions, resulting in artificially inflated prices for real estate broker services.
– The Arizona lawsuit, filed by Joseph Masiello, alleges that defendants conspired to require sellers to pay inflated commissions for services provided by buyer brokers, fix and maintain buyer-broker compensation at non-competitive levels, and impede entry and market success by lower-cost real estate brokerage services.
– Both lawsuits challenge trade group rules that require listing brokers to share commissions with buyer brokers in order to submit a listing to a trade group-affiliated multiple listing service.
– The defendants in the New York lawsuit include REBNY, Douglas Elliman, Christie’s, Corcoran, Sotheby’s, and Compass, among others. In the Arizona lawsuit, the defendants include the Arizona Association of Realtors, HomeSmart, Christie’s, Realty Executives, and Long Realty, among others.
– The National Association of Realtors and major real estate franchisors were previously found guilty of conspiring to inflate commissions in a separate case, resulting in potential damages of nearly $5.4 billion.
– The Arizona Association of Realtors and the Scottsdale Area Association of Realtors defend the practice of cooperative compensation, stating that it makes efficient and transparent marketplaces possible.
– The defendants are reviewing the complaints and are confident in their compliance with relevant laws. They look forward to their day in court.

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Homesellers in Arizona and New York are the latest to file lawsuits alleging real estate companies and trade groups violated antitrust laws by conspiring to inflate broker commissions.

On Friday, Dec. 29, New York resident Robert Friedman filed a complaint seeking class-action status on behalf of anyone who, from December 29, 2019 through the present, sold residential real estate in the Brooklyn area covered by the Real Estate Board of New York (REBNY) using the services of a broker defendant and paid a buyer broker commission in accordance with REBNY’s rules.

The suit was filed in the U.S. District Court for the Eastern District of New York and the defendants include REBNY, Douglas Elliman, Christie’s, Corcoran, Sotheby’s, Brown Harris Stevens, Serhant, Compass, Nest Seekers, The Agency, Engel & Volkers, and Anywhere (formerly, Realogy), among others. The complaint was amended on Jan. 9 with some minor changes.

“This lawsuit arises out of a horizontal antitrust conspiracy among major residential real estate firms not to compete over broker commissions in Brooklyn’s most expensive neighborhoods,” the amended complaint says.

“As REBNY members, Defendants devised and agreed in writing to a set of rules … requiring a real estate broker representing a home seller (the ‘Seller Broker’) to split the commission from a real estate transaction equally with the broker representing the home buyer (the ‘Buyer Broker’) — a commission that must be paid by the home seller.”

The complaint adds that the rules caused homesellers to pay artificially inflated prices for real estate broker services, noting that in a different Brooklyn listing service than the one owned by REBNY, median buyer broker commissions are just 1 percent, rather than the 2.5-3 percent in REBNY’s RLS.

“Residential listings in those neighborhoods are dominated by another group of real estate brokers that owns and operates a different listing service, Brooklyn MLS, which, in contrast to REBNY, does not require a Seller Broker to offer any compensation to the Buyer Broker,” the complaint says.

A week after the Friedman suit was filed, on the other side of the country, Arizona resident Joseph Masiello filed a Jan. 5 complaint seeking class-action status on behalf of anyone who, from January 5, 2020 through the present, used any brokerage defendant to list a home on an Arizona multiple listing service and who paid a commission to the buyer’s broker in connection with the sale of the home.

The suit was filed in the U.S. District Court for the District of Arizona and the defendants include the Arizona Association of Realtors, local Realtor associations, HomeSmart, Realty One Group, Christie’s, Realty Executives, and Long Realty, among others.

“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,” the complaint says.

These are the latest suits to generally attack the practice of requiring listing brokers to share commissions with buyer brokers in the wake of an Oct. 31 verdict in a case known as Sitzer | Burnett in which a Kansas City jury found the National Association of Realtors and major real estate franchisors conspired to inflate commissions and awarded damages that may end up costing the defendants nearly $5.4 billion.

Both Friedman and Masiello allege violation of the federal Sherman Antitrust Act and state antitrust laws. Like their predecessors, the suits challenge trade group rules that require listing brokers to offer compensation to buyer brokers in order to submit a listing to a trade group-affiliated multiple listing service. In the Arizona suit, the rule is a NAR rule, called the Cooperative Compensation Rule or the Participation Rule, and NAR is named as a co-conspirator but not a defendant.

“The National Association of Realtors maintains, and we agree, that the practice of cooperative compensation makes efficient, transparent, and accessible marketplaces possible,” Justin Liggin, spokesperson for the Arizona Association of Realtors, told Inman in a statement.

“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.”

In the New York suit, the rule comes from the non-Realtor-affiliated Real Estate Board of New York (REBNY), which is named as a defendant.

“We are reviewing the complaint and remain confident that RLS rules comply with all relevant laws,” REBNY spokesperson Christopher Santarelli told Inman in a statement.

“We look forward to our day in court.”

In the New York suit, the defendants are:

  • Real Estate Board of New York
  • Douglas Elliman
  • Christie’s International Real Estate
  • The Corcoran Group
  • Sotheby’s International Realty Affiliates
  • Brown Harris Stevens
  • Serhant
  • Compass
  • Nest Seekers
  • The Agency RE
  • Elegran
  • Engel & Volkers New York Real Estate
  • R New York
  • Anywhere Real Estate
  • Terra Holdings
  • Leslie J. Garfield & Co.

In the Arizona suit, the defendants are:

  • Arizona Association of Realtors
  • The Phoenix Association of Realtors
  • Scottsdale Area Association of Realtors
  • West and Southeast Realtors of the Valley, Inc.
  • Tucson Association of Realtors, Inc.
  • HomeSmart Holdings, Inc.
  • My Home Group, LLC
  • Realty One Group Arizona, Inc.
  • West USA Realty, Inc.
  • Hague Partners Holdings, LLC
  • Realty Executives, LLC
  • Arizona Best Real Estate
  • North&Co.
  • Silverleaf Realty, LLC
  • Retsy, LLC
  • Walt Danley Local Luxury, Christie’s International Real Estate
  • The Brokery
  • Long Realty
  • Tierra Antigua Realty, LLC

“The Masiello case, like the previous copycat cases over the past two months, is attempting to seize on a misguided verdict that stands in stark contradiction to the actual dynamics of today’s real estate transactions,” Chris Kelly, spokesperson for HomeServices of America, told Inman in a statement. HomeServices is the parent company of Long Realty.

“Unfortunately, this and other similar lawsuits in recent months risk undermining the interests of the very consumers they allege to represent. Our companies will continue to work to protect the buyers and sellers who rely on our services and guidance during the home buying and selling process – the most significant financial transaction for most of these consumers.

“We are also examining the filing of this case and determining whether it is in the appropriate forum based on agreements with the purported plaintiffs.”

In a statement, RETSY’s designated broker Matthew Morrison, told Inman the firm was aware of the class-action suit and its team of “experienced” agents is “committed to complete transparency in the buying and selling process.”

“At RETSY, commissions have been, and will always be negotiable and transparent,” Morrison said.

“This creates a more efficient marketplace, allowing sellers to reach the widest possible audience, buyers to have more choices when considering a home, and ensures that both parties’ interest are protected.

“Cooperative compensation helps to protect buyers who would otherwise elect to be unrepresented or pay for their own representation, leaving buyers vulnerable and exacerbating the growing wealth disparity between homeowners and non-homeowners. At the same time, however, it is the client’s decision whether to offer cooperative compensation.”

In a statement, Rebecca Grossman, CEO of the Scottsdale Area Association of Realtors, told Inman, “The Scottsdale Realtors association has no comment on pending court cases but does stand by the value of the professional expertise that our members provide to their clients.”

Inman has reached out to all of the defendants and will update this story with any responses they provide. Compass, Douglas Elliman, Christie’s International Real Estate, Terra Holdings, Brown Harris Stevens, and Leslie J. Garfield & Co. declined to comment.

Editor’s note: This story has been updated to reference the amended Friedman complaint; with comments from REBNY, HomeServices, the Arizona Association of Realtors, the Scottsdale Area Association of Realtors, and RETSY; and with declinations to comment from Christie’s International Real Estate, Terra Holdings, Brown Harris Stevens, and Leslie J. Garfield & Co.

Email Andrea V. Brambila.

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Property Chomp's Take:

The real estate industry is facing a new wave of lawsuits alleging antitrust violations and inflated broker commissions. Two recent class-action lawsuits filed in Arizona and New York claim that real estate companies and trade groups conspired to inflate broker commissions, causing homesellers to pay artificially inflated prices for real estate broker services.

In the first lawsuit, New York resident Robert Friedman filed a complaint on behalf of anyone who sold residential real estate in the Brooklyn area covered by the Real Estate Board of New York (REBNY) and paid a buyer broker commission in accordance with REBNY's rules. The defendants in this case include REBNY, Douglas Elliman, Christie's, Corcoran, Sotheby's, and other major residential real estate firms.

The second lawsuit, filed in Arizona by Joseph Masiello, represents anyone who used a brokerage defendant to list a home on an Arizona multiple listing service and paid a commission to the buyer's broker. The defendants in this case include the Arizona Association of Realtors, local Realtor associations, HomeSmart, Realty One Group, and other real estate companies.

Both lawsuits allege violation of the federal Sherman Antitrust Act and state antitrust laws. They challenge trade group rules that require listing brokers to share commissions with buyer brokers in order to submit a listing to a trade group-affiliated multiple listing service.

These lawsuits come on the heels of a recent verdict in a case known as Sitzer | Burnett, where a Kansas City jury found the National Association of Realtors and major real estate franchisors conspired to inflate commissions and awarded damages that may cost the defendants nearly $5.4 billion.

Trade groups and real estate companies named in the lawsuits have defended their practices, arguing that cooperative compensation makes efficient and transparent marketplaces possible. They argue that sellers benefit from reaching a larger pool of potential buyers, while buyers have more choices and can afford representation.

The outcome of these lawsuits could have significant implications for the real estate industry. If found guilty of antitrust violations, companies and trade groups may face substantial financial damages and potentially have to change their commission structures. The lawsuits also highlight the need for transparency and fair competition within the real estate market.

Inman Connect New York, taking place from January 23-25, will be an important event for industry professionals to discuss and address these market challenges. By coming together and sharing insights and strategies, real estate professionals can navigate the changing landscape and prepare for future opportunities.

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