Across two in-depth reports totaling 332 pages, buyer plaintiffs in the massive Batton class-action commission case put forward expert arguments supporting the theory that homebuyers as well as sellers were harmed by National Association of Realtors® (NAR) policies, aiming to certify a national class with tens of billions in potential damages.
Dr. Rosa Abrantes-Metz, an economist who previously has provided testimony in high-profile antitrust cases including recent ones against Google and Apple, provided a detailed economic analysis in support of the theory, while Dr. Norman Miller, a professor of real estate at the University of San Diego, wrote that NAR rules fostered steering and decoupled commission rates from service quality.
“In short, my prior research and review of the record and data in this case leads me to conclude that buyer-agent commission rates in the U.S. have been disconnected from fundamental economic principles,” Miller wrote.
The Batton lawsuit, filed in 2020, names NAR, RE/MAX, Keller Williams and Anywhere, although separate, essentially identical lawsuits against other big companies are pending in other federal court districts. Plaintiffs have honed in on mostly the same rules targeted by Burnett—mostly the “participation rule” requiring mandatory offers of buyer compensation on the MLS, which has been repealed.
Most notably, according to Abrantes-Metz’s calculations, damages from transactions on just four MLSs (namely, Stellar MLS in Florida, Southwest MLS in New Mexico, Triad MLS in North Carolina and South-Central Kansas MLS in Kansas) would be over $3.6 billion, double that of the final judgment in Burnett.
The plaintiffs are seeking to certify a nationwide class, meaning damages would easily reach tens of billions, even with other mitigating factors, including whether sellers who were part of national class-action settlements can claim damages as buyers. Based on existing-home sales and data on MLS usage, the nationwide damages would be somewhere in the range of $75 billion.
At the same time, the total size of the class—and therefore total damages—potentially hinges on the decision of appellate judges in another district. In the Burnett case, Judge Stephen R. Bough ruled that sellers who also bought homes would be excluded from the potential class of buyers.
That means only buyers who didn’t also sell a home in the five-year time period would be eligible for damages. But the Batton plaintiffs appealed that ruling, where it is currently pending before the Eighth Circuit.
Abrantes-Metz calculated that in the four sample MLSs, 24% – 28% of potential homebuyer class members did not sell a home during the relevant time period, meaning if the Eighth Circuit upholds Bough’s rulings, damages would be reduced by almost three-quarters.
Judge LaShonda Hunt of the Northern District of Illinois will consider all these arguments and elements in the coming months as she weighs whether to certify a class and potentially move the case closer to trial. Defendants have the opportunity to present their own expert testimony opposing class certification.
In an emailed statement, an NAR spokesperson said that the organization “fosters a competitive, fair, and transparent real estate marketplace.”
“We will continue to advocate for our position as the case proceeds,” the spokesperson said.
By the numbers
Abrantes-Metz, relying on MLS and publicly available property data, compares commission rates in the United States with other “comparable” countries, as plaintiffs in Burnett did. Her theory focuses on how buyers allegedly paid higher prices due to “passthrough” effects, viewing the commission as a “tax” that is shared by both buyers and sellers, as well as increasing home prices.
“When sellers must price within established comparable ranges to achieve successful sales, they become constrained by the pricing outcomes of recent transactions, including any commission premiums that may have been embedded in those sale prices,” Abrantes-Metz wrote.
Miller, who has authored numerous studies over the past few decades providing critical analysis of real estate practices and commission rates, focused on how it was allegedly “impractical” for buyers to negotiate rates, and extensively cites the Department of Justice, the Federal Trade Commission and the seller class-action lawsuits.
He also notes that it is disingenuous to say that commission rates have stayed the same (or even fallen slightly) in the past decade, as a significant increase in home prices means that buyer agents are effectively making much more money now, despite advances in technology and other industry shifts.
“The increase in price in buyer agent services was inconsistent with core principles of economics. It was disconnected from costs, which decreased through the Class period as a result of efficiencies brought by the use of the internet and new technology,” Miller wrote. “It was disconnected from economic principles that govern compensation in the professional services industry, where experience, services provided, and the amount of hours expended is correlated with higher prices.”
More than 90% of MLSs that were studied saw home prices increase at double the rate of inflation or more, while average commission rates were flat or fell between 0.27% and 0.04%.
Abrantes-Metz followed a similar line of thinking, but applied it to the use of buyer agents at all.
“I would expect that the frequency and scope of use of buyer agents would be lower, since buyers would be able to perform some of the services offered by a buyer’s agent (i.e., locating desirable properties) themselves,” she wrote.
Analyzing data in the Netherlands, she found that in two cities in 2019, buyer agents were used in only a fraction of sales—37% in one more urban area, and 22% in a rural market. Average seller commission in the country is around 2%, she noted, and buyers pay their own agents.
“This evidence is consistent with the effects of the challenged conduct inflating commission rates and inducing buyers to use buyer’s agents more frequently than they otherwise would,” she wrote.
Back and forth
Comparisons to international markets were a foundational element of plaintiffs’ arguments in the Burnett trial, with a focus on Australia. It appears the buyer cases could hinge on this as well, assuming that Hunt certifies a class and the case moves forward.
But real estate incumbents have also pointed out that most international markets are characterized by fractured listing markets, misleading marketing and a lack of transparency. The availability of accurate and comprehensive listing data to consumers is something created by the modern MLS system, they argue, and creates a much more consumer-friendly real estate environment.
While that might resonate with the general public, in court, the case is about the rules and economics.
Abrantes-Metz cited a 2021 Realtor.com® article that claims “(w)hen the sellers set a listing price for the home, they usually take the real estate agent’s commission into account.”
She added that even if there was no passthrough to buyers based on “perfectly inelastic supply or infinitely elastic demand,” buyers still paid closing costs that are a function of the sales price—which is allegedly inflated by seller commissions, meaning buyers would still have suffered monetary damages.
Both Miller and Abrantes-Metz also argued that beyond the data, a long history of undisputed facts supports the theory that the industry is collusive in nature, noting that NAR (then known as the National Association of Real Estate Boards) openly sought to price-fix commission rates until 1950, with other local associations continuing on for decades.
“Past collusive conduct indicates that the market may have features that facilitate coordination,” Abrantes-Metz claimed.
Miller extensively cited depositions and information used in the Burnett case (though much is redacted) as he argued that so-called “steering,” where buyer agents avoid properties with lower commission offers, contributed to inflated buyer commissions. NAR has argued that the settlement agreement eliminated “theoretical steering.”
In fact, the practice of steering and the pressure to offer higher commissions is something Miller claimed to have personal experience with. He wrote that back in the 1970s, his own business was boycotted by other brokerages after he tried to offer rates “below the industry norm.”
“We heard buyer’s agents were not permitted to show our homes unless we agreed to align with customary commission-sharing practices,” Miller wrote. “Consequently, we had to close the business and reopen at full commission rates under a new name.”
The deadline for defendants to file their response is Dec. 23.
