A class action lawsuit filed in a Georgia federal court that’s modeled on one that resulted in a huge judgment against brokers in Missouri threatens to shake up the local housing market, mainly by revamping the way that real estate agents for homebuyers are paid.
In the Georgia suit, plaintiffs argue that Realtors groups and brokers have forced “excessive costs” and “inflated commissions” on home sellers in an alleged scheme that is “artificially and anticompetitively maintained.”
They ask the court to declare current real estate practices illegal, violating federal and state law, and award them damages. While not specifying a figure, the suit says plaintiffs have lost “millions of dollars in overcharges and damages.”
Filed Nov. 22 in U.S. District Court for the Northern District of Georgia, the effort is modeled on a suit by home sellers in Missouri that led to a $1.8 billion judgment against the National Association of Realtors and two brokerage firms. The Missouri case already has sent shockwaves through the real estate world where agents say their livelihoods are on the line.
If the Missouri decision stands — and is replicated in Georgia and other states — the long-established system of payments to brokers will be radically reshaped, said John Ryan, chief marketing officer of the Georgia Multiple Listing Services, which manages home listings and tracks sales across the state.
“This could be an industry-changing thing,” he said.
Officials at the National Association of Realtors, which represents 1.5 million agents who have a special certification and a code of ethics, have said they will appeal the Missouri decision. But with Georgia just one of the states in which “copycat” suits have been filed, the issue seems destined to have national repercussions.
Georgia MLS is not a defendant in the suit, but it is integral to process, since it carries the vast majority of listings of for-sale homes and requires home sellers to commit to payment, Ryan said.
“But we just say that there has to be compensation,” he said. “We leave that up to brokerages and selling agents what they are willing to offer.”
The argument revolves around the commissions paid to the brokers who help sellers and those who help buyers, agents who are part of most residential transactions and are typically paid a share of the purchase price.
Like those in Missouri, the plaintiffs in Georgia argue that sellers of homes are being forced to pay those commissions as a condition for the homes being listed for sale. The current practice is typically for that commission — usually around 6% of the sales price — to be split with the agent for the buyer.
The Georgia suit calls the commissions “overcharges,” and says there is “no correlation to the volume or caliber of services provided… by the buyer brokers who receive the commissions.”
Plaintiffs argue that in a competitive market, buyers would negotiate the fee with the brokers they use up-front, and would likely pay less. The filing calls the commissions “veiled surcharges,” that “illegally warps the real estate market.”
But Michael Fischer, president of the 14,500-member Atlanta Realtors Association, rejects the notion that the system is either unfair or the result of collusion.
Both sellers and buyers can negotiate terms with their brokers, he said. “My experience is that there is not a vast conspiracy to set commissions at a certain place.”
Buyers already are required to pay a series of fees, including inspections, appraisals and a down payment, so defenders of the current system say adding another separate payment will only discourage transactions and dampen the market. Some consumer advocates say if the plaintiffs are successful, it could lower housing prices.
The Georgia plaintiffs are Janet Phillips, who sold a house in Savannah; Joseph Hunt and Edith Ann Hunt, who sold a home in Atlanta; Penny Scheetz and Benjamin Aune, who sold a home in Brookhaven; and Parkwood Living, a company that sold properties in Atlanta.
Lawyers for the plaintiffs said in the suit that they are also filing “on behalf of all Georgia sellers who have been harmed by the NAR’s anticompetitive collusion and the brokerages that dutifully toe the line.”
As defendants, the suit names the National Association of Realtors, along with a number of real estate brokers, including HomeServices of America, Harry Norman Realtors, Keller Williams, Re/Max, Compass, Ansley Atlanta and Christie’s International, Southeby’s, Engel & Volkers, Coldwell Banker, Century 21.
The commissions, which account for most of the income paid brokers, are embedded in the fabric of most housing sales and are a somewhat sensitive subject.
The Atlanta Journal-Constitution contacted a number of the parties in the suit. Most either declined to comment or did not respond to the request. Bryan Knight, the lead attorney for the plaintiffs, also declined to comment.
Darryl Frost, a spokesperson for Keller Williams, said the firm has “followed the law regarding cooperative compensation and will vigorously defend ourselves against this lawsuit.” Frost said Georgia’s compensation practices have existed for decades and the complaint, the company contends, “ignores this law as well as the benefits home sellers and buyers have received as a result of it.”
Keller Williams is also a defendant in the Missouri case and said it has “strong grounds for appeal.”
One of the other defendants in Georgia, Re/Max, was initially named in the Missouri suit before agreeing to an out-of-court settlement also involving a brokerage known as Anywhere Real Estate. The two agreed to pay a combined $140 million.
In a statement to The Atlanta Journal-Constitution, Re/Max did not directly address how it will handle the Georgia action, saying only that it was not a party to the Missouri action and expects its settlement to be approved.
The stakes are significant. In October alone, statewide home sales amounted to $3.18 billion and 6% of that was about $191 million.
Given the adamant opposition by the national groups and the need to litigate through so many jurisdictions, the legal questions seem likely to linger for months or even years. But the longstanding practice seems destined for some kind of change, said Ryan of the Georgia MLS.
“We believe it will get worked out, but it will change the way compensation is paid,” he said. “How that happens has yet to be determined. There’s a lot of muddy water in front of us.”
