Baltimore home sellers could benefit from real estate settlement

A nationwide settlement of several antitrust lawsuits against the real estate industry promises to reduce what Baltimore-area home sellers pay in commissions to brokers and potentially upend the business by injecting more competition.

Under an agreement with a nationwide class of home sellers, the National Association of Realtors said Friday it will change its rules used to determine commissions and pay $418 million to compensate sellers. Many observers expect the settlement could lead to homebuyers and sellers negotiating lower agent commissions.

The agreement ends five years of litigation by sellers who accused the Realtors and four national real estate franchisors of requiring sellers to pay buyer broker fees, at an inflated rate, in addition to their own brokers’ commissions. Plaintiffs had placed homes on one of 20 multiple listing services in five regions of the U.S., including the Baltimore metro area and its Bright MLS listing service.

Historically, sellers have paid commissions of 5% to 6% of the sales price that are split between their listing agent and the buyer’s agent.

One plaintiff, Daniel Umpa, 36, of Davidsonville, joined the 2019 class-action lawsuit to fight back against real estate agent commissions that the suit said are artificially inflated.

“I’m ecstatic about the sweeping changes that are coming down the line as the result of this,” said Umpa, owner of a gym opening this summer in Virginia called USA Ninja Challenge, in an interview Friday.

The Realtor rule changes are set to go into effect in mid-July, pending court approval.

“It may take some time for the changes to impact the marketplace, but our hope and expectation is that this will put a downward pressure on the cost of hiring a real estate broker,” said Robby Braun, an attorney in the 2019 federal lawsuit brought in Chicago on behalf of millions of home sellers.

The Realtors new rule would prohibit agents who list a home for sale from using the listing service to offer compensation to agents representing potential homebuyers, whether a flat fee or portion of the selling agent’s commission. Instead, home sellers can negotiate with a buyer’s agent outside the listing platform.

“This is a very big change for our industry in the way that agents are compensated,” said Sarah Rayne, CEO of the Howard County Association of Realtors.

The lawsuit had argued against making buyer agent compensation offers on the listing service, saying that some buyer agents would “steer” clients away from properties offering lower commission.

But the real estate industry continues to advocate for a system in which sellers, instead of buyers, pay commissions to the buyer’s broker. The National Association of Realtors argued in its announcement Friday that when sellers shoulder the burden, they “increase fair housing opportunities, and increase the potential buyer pool.”

“The biggest impact is really for first-time home buyers, low-income or middle-income buyers who may not have a lot of liquid assets,”  to pay for a broker’s representation, said Brian McGeehan, president of the Greater Baltimore Board of Realtors and an associate broker with Cummings & Co. Realtors.

“This forces them into a position potentially of deciding, ‘Do I want representation through what is likely one of the largest purchases of my life, or do I forgo that because of the cost that I may not be able to recover from a seller?’” McGeehan said. “That’s what’s going to be the thing to watch, how that plays out.”

Under Friday’s agreement, a buyer can ask for a specific payment for their agent as a condition of their offer.

“It moves it from being something that is known and not negotiable into a negotiation, the same as an inspection, or any other seller concession a buyer might request,” McGeehan said. “It becomes part of the negotiation process.”

Besides the listing service rule change, the National Association of Realtors agreed to a rule requiring buyers agents to enter into written agreements with their clients that will outline compensation paid by the buyer to that agent. Maryland already requires a similar document.

The Realtors association denied any wrongdoing in connection with its current listing service rule, which started in the 1990s to ensure representation for buyers.

“It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible,” said Nykia Wright, the association’s interim CEO, in a news release Friday. “This settlement achieves both of those goals.”

Currently, total broker compensation in the United States is typically 5% to 6% of the home sales price, according to case information from Cohen Milstein, one of the firms representing buyers in the 2019 case. About half that amount or sometimes more goes to the buyer broker.

The lawsuit said commissions for buyer brokers have remained in the 2% to 3% range for years despite their diminishing roles as buyers find homes themselves online.

Mantill Williams, a spokesman for the National Association of Realtors, said Friday that it’s a misconception that the trade group sets commissions.

“They are negotiable,” Williams said. “The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation. That offer can be any amount, including zero.”

The Realtors association faced multiple lawsuits over the way agent commissions are set. In late October, a federal jury in Missouri found that the association and several large real estate brokerages conspired to require that home sellers pay homebuyers’ agent commissions in violation of federal antitrust law.

The jury ordered the defendants to pay almost $1.8 billion in damages — and potentially more than $5 billion if the court ended up awarding the plaintiffs treble damages.

“Ultimately, continuing to litigate would have hurt members and their small businesses,” Wright said in her statement. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”

The settlement, if approved by the court, resolves that and similar suits faced by the Realtors association. It covers over one million of the association’s members, its affiliated Multiple Listing Services and all brokerages with an association member as a principal that had a residential transaction volume in 2022 of $2 billion or less.

Umpa, the plaintiff in the 2019 class action, also filed a case last December as sole plaintiff involving an Edgewater home he sold in November and an Ohio home he sold in 2021. In the Maryland and Ohio home sales, Umpa’s suit says, “he paid a substantial buyer-broker compensation.”

His suit, which is pending, listed the Realtors association and a number of real-estate brokerages as defendants and alleges that they imposed “anticompetitive restraints that cause home sellers to pay inflated commissions on the sale of their homes, in violation of federal antitrust law.”

The suit specifically challenged the association rule requiring agents listing homes for sale to offer compensation to buyers’ agents.

The rule “creates tremendous pressure on sellers to offer a high commission that has long been maintained in this industry so that buyer brokers will not ‘steer’ buyers away from their property and to properties offering higher buyer broker commissions,” the suit said.

The Associated Press contributed to this story.