Dozens of Texas real estate companies and associations have been targeted by home sellers in a new lawsuit aiming to dismantle an alleged conspiracy to inflate commissions paid to real estate agents and to drive up the cost of buying a home.
“This case is filed on behalf of Texas consumers who we believe are the victims of price fixing,” Julie Pettit of The Pettit Firm in Dallas told The Lawbook. “We think it’s time for the broker commission structure to change here in Texas, and we’re hopeful we can accomplish that.”
The proposed class action, filed in the Eastern District of Texas on Monday, brings claims for violations of the Sherman Antitrust Act and Texas Deceptive Trade Practices Act and comes weeks after a similar lawsuit netted a $1.78 billion jury verdict for home sellers in Missouri, Kansas and Illinois. The Texas suit points to the National Association of Realtors as the creator and enforcer of the alleged conspiracy, citing its “considerable influence in shaping the real estate landscape” but does not name NAR as a defendant.
Michael Hurst of Lynn Pinker Hurst & Schwegmann, who also represents the plaintiffs, told The Lawbook there’s a good reason why NAR isn’t a defendant.
“We view the National Association of Realtors as the mother of creation of this conspiracy, but what we are most concerned about is protecting the consumers in the state of Texas,” he said. “We know there are other lawsuits against NAR, but as far as protecting the citizens of Texas, we think we’ve named the defendants that are largely the culprits of the theft.”
Some of the defendants are the Dave Perry-Miller Company, Keller Williams Realty, Ebby Halliday Real Estate and the Texas Association of Realtors.
In particular, the suit takes issue with an NAR-imposed rule that requires every home seller make a “sweeping, non-negotiable offer of compensation to buyer brokers” in order to get their home listed on what’s called a “multiple listing service” database.
For a home seller, being able to list their property on the database is important because it ensures the most visibility and increases the likelihood of fetching a higher sale price.
“These anticompetitive measures favor the defendants by enabling brokers to impose charges on home sellers beyond competitive thresholds and thwarting competition from innovative or lower-cost alternatives,” the suit alleges. “The alleged conspiracy compels home sellers to bear a cost that, in a competitive market and in the absence of the defendants’ anticompetitive restraint, would typically be borne by the homebuyer.”
The plaintiff home sellers, QJ Team and Five Points Holdings, allege that this practice has spawned another problem called “steering,” which pressures homeowners “into accepting inflated or stabilized rates out of fear that buyer brokers will not show their home to prospective buyers.”
Without the mandatory offer of compensation rule, the sellers allege, buyer brokers would be encouraged to compete for business by offering lower commission rates.
Pettit has first-hand knowledge of how the industry works, having bought and sold 50 investment properties to pay for law school. She called the system in place “antiquated,” noting many potential buyers today use websites to find the home they want to purchase without the help of a real estate agent showing them multiple properties first.
“Now, the buyer has done all that work, so the buyer’s agent isn’t doing what they used to do,” she said. “Yet, because of the way that we’ve got commission structures fixed, sellers are still forced to pay this fee.”
Other named defendants include the Austin Board of Realtors, San Antonio Board of Realtors, MetroTex Association of Realtors, Houston Association of Realtors, ABA Management, PenFed Realty, Heyl Group Holdings, The Loken Group, Hexagon Group, DMTX, Keller Willis San Antonio, San Antonio Legacy Group, Fathom Realty, Grace Realty Group, Side, CitiQuest Properties, HomeServices of America, JP Piccinini Real Estate Services, Team Burns, ABRE Capital, Realty Austin, ATX WIR, The Michael Group, Square MB, Mark Anthony Dimas, Greenwood King Properties II and Turner Mangum.
The lawsuit also notes that the Department of Justice is investigating the residential real estate brokerage sector’s commission practices.
“If you think about stockbrokers and what their commissions were once upon a time, there was no real regulation,” Hurst said. “And there were lawsuits and multiple federal statutory enactments that said you can’t do this. You can’t have unbridled, uncompetitive commissions for consumers that happen to be buying securities. This is just the real estate world [doing the same thing] many, many years later.”
The proposed class would include anyone who has listed their home on an MLS and paid a buyer broker commission since Nov. 13, 2019. Two plaintiffs are currently named in the suit, but Pettit and Hurst said they have been in talks with more potential plaintiffs and that the suit is likely to expand.
Counsel for the defendants had not made an appearance as of Wednesday. The case has been assigned to U.S. District Judge Sean D. Jordan.
QJ Team and Five Points Holdings are also represented by David Urteago of The Pettit Law Firm; Christopher Schwegmann and Yaman Dasai of Lynn Pinker Hurst & Schwegmann and Laurence D. King, Frederic S. Fox, Jeffrey P. Campisi and Matthew P. McCahill of Kaplan Fox & Kilsheimer.
The case number is 4:23-cv-01013.