The past couple of weeks have been filled with headlines of courtroom battles aimed at the National Association of REALTORS® (NAR) and several prominent real estate companies across the U.S.
From alleged anti-competitive practices to buyers and sellers taking issue with longstanding commission structure policies, one could argue that the industry faces an existential crisis that could yield potentially disastrous consequences.
It may be challenging to keep track of the most impactful lawsuits, so to save time, here are a few of the top court cases carrying significant implications.
Moehrl v. The National Association of REALTORS®
Arguably one of the most prominent lawsuits against NAR, the Moehrl case has helped kickstart a list of lawsuits targeting NAR’s Buyer Broker Commission Rule—also known as the Participation Rule.
The lawsuit claims that NAR conspired with four major franchisors to inflate commissions through its MLS policy. Experts and industry pundits have speculated that this lawsuit could harm the real estate commission structure as the legal battle continues to brew.
As the case persists, a recent court order filed on May 11 opened the door for plaintiffs in this case to use briefs and exhibits submitted in the Sitzer/Burnett v. National Association of REALTORS® case, which was recently made into a class action lawsuit.
What we know
- The case was filed in March 2019 by Christopher Moehrl on behalf of himself and home sellers who paid a broker commission since March 6, 2015 and listed on one of 20 MLSs.
- The lawsuit also names Realogy, HomeServices of America, Keller Williams and RE/MAX as defendants.
- The lawsuit challenges the Buyer Broker Commission Rule—also known as the Participation Rule, alleging it’s anti-competitive.
- The rule requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation when listing a property on a Multiple Listing Service (MLS).
- The case is currently in the “discovery and briefing” phase, as both sides gather testimony and evidence to support their claims.
- Plaintiffs are currently seeking a class certification—class action lawsuit designation.
- MLSs named in the case are:
- The Bright MLS (including the metropolitan areas of Baltimore, Maryland; Philadelphia, Pennsylvania; Richmond, Virginia; Washington, D.C.)
- My Florida Regional MLS (including the metropolitan areas of Tampa, Orlando and Sarasota)
- Five MLSs in the Midwest covering Cleveland, Ohio; Columbus, Ohio; Detroit, Michigan; Milwaukee, Wisconsin; Minneapolis, Minnesota
- Six MLSs in the Southwest covering Austin, Texas; Dallas, Texas; Houston, Texas; Las Vegas, Nevada; Phoenix, Arizona; San Antonio, Texas
- Three MLSs in the Mountain West that cover Colorado Springs, Colorado; Denver, Colorado; Salt Lake City, Utah
- Four MLSs in the Southeast that cover Fort Myers, Florida; Miami, Florida; Charlotte, North Carolina; and Raleigh, North Carolina
- Aside from damages, the plaintiffs seek “a permanent injunction” stopping NAR from requiring “sellers to pay the buyer broker and from continuing to restrict competition among buyer brokers.”
What’s at stake?
“Listing brokers making offers of compensation to buyer brokers gives first-time, minority and low/middle-income homebuyers a better shot at affording a home and professional representation,” said NAR President Leslie Rouda Smith.
“If buyers were forced to pay their brokers directly out of pocket, they would have to come up with significant amounts of additional cash at closing, which would inevitably make first-time homeownership more difficult. Paying out of pocket would also increase the racial and economic disparities in homeownership that currently exist due to systemic differences in family income and wealth.”
“The industry’s infrastructure as we know it is at stake,” says Robert Hahn, managing partner of 7DS Associates.
“Depending on how dire you think it’s going to get, you could see 70% to 80% of the agents no longer being in the business, or we could see buy-side agencies go completely away.”
“It also means the end of the MLS and REALTOR® associations. It could be a complete asteroid hitting and extinction of dinosaurs type of event.”
“The slightly less paranoid take is that it’s not going to be that bad. However, the case comes out, NAR lobbies are probably hard at work now to make sure that buyer commissions can append to the mortgage or something along those lines.”
Burnett/Sitzer et al. v. National Association of REALTORS® et al.
While this is another courtroom battle pitting home sellers against NAR and several top real estate franchisors, a court decision designating it as a class-action lawsuit has moved the needle forward for the Burnett v. NAR case—formerly Sitzer v. NAR.
The lawsuit features the same allegations and defendants as Moerhl v. NAR, but its scope centers around Missouri. Moerhl extends across multiple states.
Nevertheless, the case could send ripples throughout the industry as the plaintiffs look for the court to do away with the Participation Rule and prohibit the creation of similar policies. The recent class-action designation also opens the door for “hundreds of thousands” of home sellers to join in on the lawsuit if they paid a broker commission in transactions involving a listing featured on one of four local MLS.
What we know
- The lawsuit was initially filed in April 2019 by Joshua Sitzer and Amy Winger.
- Scott and Rhonda Burnett joined the lawsuit after the initial filing and several other home sellers.
- Defendants named are NAR, Realogy, RE/MAX, Keller Williams, and HomeServices of America—including its subsidiaries BHH Affiliates and HSF Affiliates.
- The lawsuit also targets Heartland MLS, Columbia Board of REALTORS® (CBOR) MLS, Mid America Regional Information System (MARIS) or the Southern Missouri Regional MLS.
- The “Participation Rule” or “Buyer Broker Commission Rule” is at issue.
- U.S. District Court Judge Stephen R. Bough is presiding over the case.
- Plaintiffs allege that the defendants conspired to inflate commissions by requiring all seller brokers to “make a blanket, unilateral and effectively non-negotiable offer of buyer broker compensation.”
- That lawsuit argues that buyers’ agents wouldn’t show clients a listing based on the commission offered.
- The lawsuit also claims the alleged “conspiracy forces home sellers to pay a cost that, in a competitive market and were it not for Defendants’ anticompetitive restraint, would be paid by the buyer.”
- Plaintiffs filed the lawsuit as a class action on behalf of home sellers who paid a broker commission in the last four years in connection with the sale of residential real estate listed on one of four MLSs listed above.
- Plaintiffs are seeking payment for damages and the court to restrict NAR and company from “requiring that sellers pay the buyer broker.”
What’s at stake?
“In April, a federal judge in Missouri granted class certification in the Sitzer/Burnett suit. We are still awaiting a decision in Moehrl, but this in no way reflects on the actual or perceived merits of their claims,” said a NAR spokesperson.
“The ruling was procedural, and the effect of the ruling is limited in that it now allows others who have allegedly been affected to join the litigation as plaintiffs. As is common and expected, at this point, class action attorneys begin to recruit members of the “class” even before the validity of the case has been decided. While we understand this can be jarring, it in no way changes the facts of the case or our confidence that we will win in what is yet to be a lengthy process.”
Real Estate Exchange Inc. (REX) v. Zillow and the National Association of REALTORS® et. al.
While some industry pundits may think this case isn’t as problematic as others on the list, the legal battle pitting NAR and Zillow against Real Estate Exchange (REX) offers a mix of potential impacts that real estate professionals can’t ignore.
Since filing the lawsuit last year, the Texas-based discount brokerage has maintained—and fervently advertised—its claims that NAR and Zillow have been colluding to steer house hunters toward listings connected to NAR.
Conversely, NAR has also maintained that the allegations made in REX’s lawsuit are “without merit,” going as far as filing a counterclaim, alleging that the startup has been deceiving consumers with false advertisements and misleading statements about its services and NAR.
NAR’s counterclaim was recently dismissed by U.S. District Court Judge Thomas S. Zilly, who claimed NAR failed to support its claims that REX alleged false statements harmed NAR’s reputation.
What we know
- REX initially filed the lawsuit in March 2021 against Zillow, Trulia and NAR, alleging that the online real estate marketplaces were giving preferential treatment to NAR broker listings.
- The lawsuit takes issue with a website change that Zillow implemented last year, claiming it segregates, conceals and demotes listings that aren’t from the MLS.
- The website change implements two tabs included in its listing search feature to include “agent listings” and “other listings.” The latter tab includes for-sale-by-owner listings or coming soon listings, not on the MLS.
- The lawsuit is aimed at NAR co-mingling policy which lets local associations choose whether non-MLS content can appear with theirs or whether it has to be posted separately.
- The rule reads: MLSs cannot prohibit participants from downloading and displaying or framing other brokers’ listings obtained from other sources, e.g., other MLSs, non-participating brokers, etc., but can, as a matter of local option, require that listings obtained through IDX feeds from REALTOR® Association MLSs be searched separately from listings obtained from other sources.
- In June 2021, Judge Zilly ruled that REX did not adequately support its claim that there was any deception injuring a substantial portion of the purchasing public.
- On September 3, Zilly denied NAR and Zillow’s motions to dismiss the lawsuit after finding that REX “adequately pleaded” that it was harmed by alleged anti-competitive aspects of NAR and Zillow’s actions.
What’s at stake?
“We are disappointed with the Court’s recent decision to dismiss the suit, but it is important to note that the Court did not address NAR’s allegations that REX made false and misleading statements comparing REX’s services to those provided by brokers who are also REALTORS®,” said a NAR spokesperson. “And, a win in and of itself, REX has discontinued making the false claims on places such as its website since we filed this claim.”
“What it is, is another nail in the coffin,” said Hahn. “It’s another case where NAR is defending itself from claims of being anti-competitive, and judges, courts and clerks all talk to each other. They all read each other’s opinions, so it’s almost on a steady drumbeat.”
“We continue to maintain that the claims made in REX’s lawsuit are without merit,” said Viet Shelton, a Zillow spokesperson. “REX voluntarily chose to use Zillow’s services to advertise their for-sale properties on Zillow—for free. We also continue to encourage REX to join Zillow in advocating for industry rule changes that would allow their for-sale listings displayed on Zillow to appear the way they were in the past.”
PLS.com v. NAR
The lawsuit between PLS.com, an agent-only pocket listing service, and NAR serves as an example that some issues don’t just end when a judge dismisses a case.
In late April, a three-judge U.S. 9th Circuit Court of Appeals panel reversed a lower court’s dismissal of an antitrust lawsuit filed by PLS.com against the NAR’s Clear Cooperation Policy (CCP).
While the district court judge threw the case out because PLS didn’t “adequately allege” its antitrust injury, the Circuit court argued the contrary.
“At the outset, we hold that the district court erred when it held that PLS did not adequately allege antitrust injury because it did not allege harm to home buyers and sellers,” Circuit Judge Milan Smith Jr. wrote in a recent memorandum.
What we know
- PLS.com filed its lawsuit in May 2020, seeking monetary damages and “injunctive relief.”
- The lawsuit names NAR, Bright MLS, Midwest Real Estate Data, LLC. and California Regional Multiple Listing Service, Inc. as defendants.
- At issue is NAR’s Clear Cooperation Policy, which requires REALTORS® to add all of their off-MLS listings to their regional MLS within a business day.
- PLS was formed as the “Pocket Listing Service” that allowed real estate professionals privately share pocket listings with others in the industry outside of the NAR-affiliated MLSs.
- PLS alleges that NAR “eliminated the possibility of a more competitive future in the market” by establishing the CCP, harming consumers and their PLSs business.
- The case was dismissed by the U.S. District Court of California’s Western Division in February 2021.
- U.S. 9th Circuit Court of Appeals panel reversed the dismissal in April 2022.
- PLS is seeking monetary damages and for the court to permanently prohibit the Defendants from enforcing the CCP or any variant of that policy.
What’s at stake?
“The Clear Cooperation Policy was created to protect the best interest of consumers and promote equal opportunity for all,” said Rouda Smith. “Absent the CCP’s protections; a secondary market is possible where a small group of brokers could develop and limit consumers’ access to those listings.”
“If the judge sides with PLS, which I think the judge will, then it means the NAR rules around clear cooperation are held as anti-competitive, so NAR and the MLSes can no longer require their brokers and agents to submit listings to the MLS,” said Hahn. “What that will result in depends on how paranoid you are.
“With whatever inventory you have that comes to the market, if it’s halfway desirable, it’s gone within 48 to 72 hours, with multiple offers. In that situation, if I’m the listing agent, why would I want to put it in the MLS? NAR, MLSs, and industry pundits will say you should put it in the MLS because it’s best for your client and it’s the right thing to do, and I agree with all those facts.
“What happens if you take it to the extreme? The industry’s probably 10% of agents doing 85% of the business, so the Clear Cooperation Policy is gone if PLS wins. I think we can reasonably expect a giant number of transactions will be done off MLS. If we arrive at that stage, what’s that percentage look like?
“There’s a tipping point at which the value of MLS dramatically declines because the MLS is fundamentally a network effect.”