Redfin in crosshairs as new lawsuit targets buyer-broker commissions – Inman
The moment has arrived — the moment to take charge. This summer, at Inman Connect Las Vegas, July 30-Aug 1, 2024, experience the complete reinvention of the most important event in real estate. Join your peers and the industry’s best as we shape the future — together. Learn more.
A California homeseller has filed a third antitrust commission suit in the Golden State, but only on behalf of those who paid a buyer-broker commission to Redfin.
On Monday, Feb. 26, Andrea Freedlund, a resident of Aliso Viejo, California, filed a complaint seeking class-action status on behalf of anyone in the state “who paid a buyer’s broker commission, directly or indirectly, to Redfin or a Redfin buyer’s agent in connection with the sale of residential real property between October 2, 2019 and October 2, 2023.” The complaint estimated the number of class members to be in the “tens of thousands.” The defendants are the National Association of Realtors, the California Association of Realtors, and Redfin.
TAKE THE FEBRUARY INMAN INTEL INDEX SURVEY NOW
October 2, 2023 is when Redfin announced it was leaving NAR and requiring its agents and brokers to do so where Realtor membership is not required to access multiple listing services, lockboxes, or standard contracts. In a message to employees signed by eight executives, Redfin CEO Glenn Kelman cited the 1.56-million member trade group’s sexual harassment scandal and commission structure as the main reasons for the company’s call for as many as 1,800 brokers and agents to cancel their membership immediately.
According to the complaint, Freedlund sold a home in Laguna Niguel, California in September 2021 through a Redfin agent to a buyer who was also represented by a Redfin agent. The buyer’s agent’s commission was 2 percent of sale price.
The Freedlund suit was filed in the U.S. District Court for the Central District of California. This is the same court where another California commission suit, known as Fierro for its lead plaintiff, was lodged in January. Both suits name NAR and C.A.R. as defendants, but the Fierro suit also names a host of brokerages and other trade groups as defendants while the Freedlund suit only has one additional defendant: Redfin.
The complaint accuses Redfin, NAR, and C.A.R. of forming a “cartel” to inflate the cost of real estate brokerage services for homesellers and alleges that the cartel is ongoing as to the association defendants.
“Defendant’s illegal collusion has the inevitable effect of forcing home sellers like Plaintiff to bear a cost — buyer’s side commissions — that in a competitive marketplace lacking Defendants’ collusion would be borne by the buyer, if at all,” the complaint says.
“Buyers are obviously better placed and incentivized to exert downward pressure on commissions as they are the ones actually receiving and benefitting from the service and so are incentivized to spend according to their needs. In such a sane system, buyer’s brokers would be in competition with one another, including price competition.
“Thus, another anticompetitive effect of the rules challenged in this action is the sheer fact that sellers are required to compensate buyers’ agents at all.”
The suit challenges a NAR rule that requires listing brokers to offer compensation to buyer brokers in order to submit a listing to a Realtor-affiliated MLS, known as the Participation Rule or the Cooperative Compensation Rule.
“Upon listing a property on the MLS, and as a condition of such listing, sellers’ agents are required to make ‘blanket’ ‘unilateral’ offers of compensation and cooperation to any buyer’s agent that is involved in the sale,” the complaint says.
“This is despite the fact that, in the modern age of the internet, buyers’ agents simply do not do much work to earn a commission — far less the typical 2-3% of total sale price that they earn under these unlawful agreements — such that the requirement of unilateral offers of cooperation is essentially a boondoggle for realtors who receive handsome compensation (that grows with the inexorable rise in housing prices) for minimal effort (that shrinks as more and more realtor functions, such as showing a list of homes, are completed by buyers using technology such as Zillow).”
The idea that buyer agents “do not do much work to earn a commission” is hotly contested by many in the real estate industry. A “blanket” offer means that the commission does not depend on the amount or quality of the work done by the agent who brings a buyer.
Mantill Williams
“The cooperative compensation practice makes efficient, transparent, and accessible marketplaces possible,” NAR spokesperson Mantill Williams told Inman in a statement.
“Sellers can sell their home for more and have their home seen by more buyers while buyers have more choices of homes and can afford representation. The National Association of Realtors will respond to this complaint in court.”
This is the latest suit to generally attack the practice of requiring listing brokers to share commissions with buyer brokers in the wake of an Oct. 31 verdict in a case known as Sitzer | Burnett in which a Kansas City jury found NAR and major real estate franchisors conspired to inflate commissions and awarded damages that may end up costing the defendants nearly $5.4 billion.
The Freedlund complaint, like the Fierro complaint, alleges the defendants violated the federal Sherman Antitrust Act, the California Cartwright Act and the California Unfair Competition Law. The complaint demands a jury trial and seeks awards for damages, costs of the suit, and a permanent injunction invalidating the rules being challenged in the suit and any agreement between NAR and C.A.R. to agree to the rules.
The suit also points to “co-conspirators” who have participated in the alleged conspiracy, including local Realtor associations, local MLSs, and local Realtors who have allegedly “participated in, and followed the dictates of, the Challenged Rules in their local area, including through engaging in steering behaviors, reporting violations of the Challenged Rules to local associations and/or CAR and NAR, and failing to advertise pricing.”
“Defendants are jointly and severally liable for the acts of their co-conspirators whether named or unnamed as defendants in this Complaint,” the complaint adds.
June Barlow
In a statement, C.A.R. General Counsel June Barlow told Inman, “C.A.R. has retained highly experienced antitrust defense counsel to defend the Association, and C.A.R. will be well prepared to present its arguments in court.” That law firm is Munger, Tolles & Olson LLP, according to the trade group.
Inman has reached out to Redfin and will update this story if and when a response is received.
Read the complaint:
