Massachusetts’ main multiple listings service is the target of a class action lawsuit claiming the longstanding buyer-broker commission rule is driving up home prices.
Few consumers are enamored with how real estate agents do business, especially when it comes to shelling out as much as 5 to 6 percent in commissions after the sale of a home.
But does the residential real estate business really need to be targeted by a budding class action lawsuit in federal court, as if it were Big Tech, Big Oil or – heavens forbid – Big Tobacco?
Such appears to be the aim of a trio of aggrieved home sellers, whose legal assault on the home sales industry is making its way through federal district court in Boston.
The lawsuit takes on the local industry online listing service, Pinergy, previously known as MLS Property Information Network, accusing of the company and the brokerages that list homes on the site “anti-competitive practices” that are “substantially inflating” the cost of selling a home.
A loss in court could result in Pinergy and brokerage firms having to shell out millions, if not tens of millions of dollars, to compensate home sellers, while potentially crippling the online listing service’s business model.
“It has put a cloud over the whole industry,” said Gordon McGinnis, one of Pinergy’s original shareholders who, along with his wife, recently retired after running his own residential real estate company for many years on the South Shore.
‘Conspiracy’ Claimed
For its part, the lawsuit takes aim at a key part of Pinergy’s requirement that home sellers, in order to have their homes included in the online listing service, agree to pay a commission that will be used to compensate both brokers involved in the deal.
In particular, the home sellers – Gary Bauman, Mary Jane Bauman and Jennifer Nosalek – object to the requirement that effectively has them paying a commission not just to their own real estate agent, but to the broker who brought the buyer to the table.
It could certainly be enough to put force some buyers to put their dreams of homeownership on hold.
Under longstanding industry practice, the seller pays the entire commission, whether it’s 5 or 6 percent, to his broker. The broker for the seller, in turn, is then effectively obligated to split the proceeds with the buyer’s agent.
On the sale of a $500,000 home, that could amount to as much as $15,000 for the agent representing the buyer.
No legal spitball, the lawsuit, first filed in 2020 and but never reported in the local media, is quite serious, having survived efforts by Pinergy’s owners, a mix of real estate agencies and Realtor groups to dismiss it.
In fact, Pinergy has suspended dividends to individual shareholders for two years now as it apparently seeks to conserve money in case of an adverse judgment. That amounts to tens of thousands of dollars in lost income for each one.
The holding companies for major real estate brokerage firms like RE/MAX and Keller Williams, are also named as defendants in the lawsuit.
Suit Is No Laughing Matter
The so-called “buyer-broker commission rule” is “anticompetitive and causes sellers to pay artificially inflated, supra-competitive commission rates,” the lawsuit contends.
Of course, the legalese is even more dramatic. Apparently, this is far more than a battle over real estate commission, but something far more sinister.
“Broker Defendants have joined the conspiracy and have played a central role in its implementation and enforcement,” the complaint contends, in one of the many instances where the word “conspiracy” is brandished.
And you thought Uncle Dick was just selling a few homes during his golden years.
But while I am making light of things here, the federal courts and antitrust regulators, who typically battle price-fixing schemes involving giant corporations, are taking these complaints quite seriously.
Not alone, similar class-action lawsuits have been filed in other parts of the country by home sellers and their lawyers against their local multiple listing services, including in Missouri.
The U.S. Department of Justice has also been tangling with the National Association of Realtors in court over what appears to be the same bucket of issues.
DOJ officials have been probing the “anti-competitive effects” of the NAR’s policies on how sales commissions are structured and how agents can market properties.
Pinergy and the brokerage firms listed as defendants have systematically denied the various and sundry charges put forth in the lawsuit.
A spokesperson for Pinergy said the company does not comment on ongoing litigation.
Buyers, Beware
If the lawsuit succeeds, homeowners might theoretically pocket a few more dollars when it comes time to sell, but how much is anyone’s guess.
Sure, homebuyers would now have to pick up half of the commissions typically paid by the sellers, but the brokers representing the buyers still have get paid.
That would put buyers on the hook for covering the cost. Maybe competition would lead, in turn, to lower commissions though, at the end of the day, buyers’ brokers have to pay their bills as well.
It’s hard to see a silver lining for buyers here, especially anyone trying to land a home within 30 miles of Boston.
Scott Van Voorhis
Already struggling to find something – anything – they can afford to buy, they will suddenly find themselves having shell out, say, an additional $32,000 for that $800,000 1950s colonial in Natick.
Combined with surging interest rates and prices that have been going up by double digits over the past two years, that could certainly be enough to put force some buyers to put their dreams of homeownership on hold.
Maybe, I am missing the point and should feel sorry for all those sellers out there, who could be pocketing $400,000 from the sale of their $800,000 abode, instead of settling for $384,000 as they would under the current rules.
But sorry to say, I don’t.
Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.
