The Real Estate Commission Settlement – What Does It Mean Other for Commission-Based Industries?

A Kansas City jury recently awarded a class of approximately 500,000 Missouri home sellers a verdict of $1.78 billion against the National Association of Realtors (NAR) and the four largest real estate broker franchises, finding the real estate entities conspired to require home sellers to pay an inflated brokerage commission in violation of antitrust laws. In Sitzer, et al., v. National Association of Realtors et al., Plaintiffs alleged that if a home seller did not agree to pay a set commission (usually 5-6%), his/her property would not be included on the “Multiple Listing Service” or MLS, thus decreasing its visibility to prospective buyers. The jury agreed that the real estate organizations conspired to inflate commissions paid by home sellers and as a result, home sellers paid more than they would have absent the conspiracy. In essence, the jury found that if there was no conspiracy, then buyer’s agents would have to compete by offering lower rates. There are now dozens of copycat lawsuits across the country. Other real estate companies agreed to make changes and settled their cases. Those changes include no minimum commission requirements, disclosure that commissions are negotiable, and various changes requiring visibility for properties regardless of the commission. The Plaintiffs were eligible for up to $5 billion if the Court tripled damages which it was likely to due under the antitrust statute. The case ultimately settled for $418 million and the Defendants agreed to similar industry changes.

The case raises an important question: what other industries could be subject to a similar collusion attack? The entire commission-based industry should have raised eyebrows. For example, consider a pharmaceutical sales representative or a medical device sales representative. Is it possible that the manufacturers could collude to not sell one product in the market? Or collude to pay a higher commission on certain products? Or only have a residual commission on certain products? If a product does not have a high commission incentive, is the sales representative going to spend as much time and effort on marketing and selling the product? Will other commission-based industries see similar suits?

In the coming months, we expect to see similar litigation. The results may be different because the real estate commission conspiracy was largely based on placing the home on the MLS. However, other industries may have similar lynchpins for their products. For example, do certain travel destinations/packages only show up on a travel agent’s options if they engage in a quid pro quo? We will be monitoring this new area of Plaintiff litigation.