‘The end of the evil real estate empire’: Lawsuit targets artificially inflated fees

A second federal class-action “copycat” lawsuit that has the potential to drastically change the residential real estate industry has been filed in Nevada.

Multiple real estate agents interviewed by the Las Vegas Review-Journal said Department of Justice officials were in Las Vegas on numerous occasions issuing subpoenas and interviewing brokers prior to the COVID-19 pandemic related to commissions charged by brokerages.

Las Vegas home seller Angela Boykin claims in a new lawsuit filed in the U.S. District Court of Nevada that there’s a “conspiracy” to artificially inflate commissions between valley real estate agents and the National Association of Realtors via the Multiple Listings Service — where virtually all properties are listed for sale. To get her home listed on the MLS, she claims she had to pay a combined 5 percent commission rate to her agent and the buyer’s agent.

The Feb. 16 lawsuit is similar to one filed in January in which Las Vegas Valley resident Nathaniel Whaley alleges he paid a “substantial” commission to the buyer’s broker of his house. Both lawsuits name dozens of brokerages from across the state and area trade association Las Vegas Realtors, which is affiliated with NAR.

The lawsuits are part of a wave of almost two dozen copycat lawsuits popping up across the country since a federal jury in Kansas City, Missouri, found NAR and several residential brokerages liable in October for $1.78 billion in damages for conspiring to artificially inflate commissions on residential home sales.

Las Vegas Realtors deferred comment on the lawsuits and a potential DOJ investigation to NAR, which didn’t respond by press time. NAR issued this statement after the January lawsuit: “The cooperative compensation practice makes efficient, transparent, and accessible marketplaces possible. 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.”

Larger impact

Chris Rasmussen, an attorney with Rasmussen Law in Las Vegas, said the jury ruling in Missouri has set a precedent for the entire industry in ruling the commission structure was against the law.

“I think we will see Nevada Realtors take steps to restructure how the fees are distributed,” he said. “Their control of the MLS listing system creates a secret communication and information system accessible by Realtors to decide which homes should be shown to buyers. Meaning, if someone offers the buyer’s agent less, those homes will likely not be shown.”

Rasmussen said the industry will have to adapt to a new reality of a “quantum merit” system in which commissions are not bound by NAR’s rules or risk becoming “extinct” much like travel agents.

Currently, NAR — which has more than 1.2 million individual members — controls the MLS and has a Buyer Broker Commission Rule, which requires all home sellers to use an agent and agree to their nonnegotiable commission to list a property on the MLS.

In most developed countries, such as the United Kingdom, Germany, Israel, Australia and New Zealand, broker commissions run somewhere between 1 and 4 percent. In the U.S., the average broker fee is usually between 5 and 6 percent.

The U.S. Justice Department recently weighed in on a recent ruling in Boston, asking a federal judge to reject a settlement in a similarly worded lawsuit in which a class-action plaintiff said Realtors conspired to inflate fees through a closed system of listings they control, signaling the department is paying close attention to the issue.

A Las Vegas real estate agent, who has worked in the industry for decades and is one of the top-selling brokers in the valley, spoke to the Review-Journal under the condition of anonymity and said these lawsuits have the entire industry in a state of panic. The agent said the Department of Justice appears to be rekindling a federal case around the same issue that was paused because of the pandemic, which could further compound the issue brought forth by the wave of lawsuits.

The agent said if real estate brokers are decoupled from NAR’s commission structure because of legal ramifications by either continuous class-action lawsuit rulings, a multi-jurisdictional ruling, or a federal case, as much as 80 percent of the industry nationwide may find themselves out of the job.

“This is the end of the real estate empire,” the agent said. “Or to put it more accurately, this is the end of the evil real estate empire.”

The Department of Justice offered a “no comment” on a request for information about a potential federal case surrounding the issue in an email response to the Review-Journal. In 2020, NAR settled an antitrust complaint with the Justice Department, agreeing to make the cost of its brokers’ commissions more transparent as part of the settlement.

Some agents say the lawsuits are an unfair attack on the real estate industry.

“These attorneys are trying to create a problem so they can solve it where a problem hasn’t existed in 100 years, all out of their own greed and for their 15 minutes of fame,” Jonathan Catalano, a real estate agent with ERA Brokers Consolidated in Las Vegas, said in an email response to the Review-Journal. “This idea that there is a standard 6 percent model is not true, it does not exist. … The idea that Realtor fees are inflating home values is simply ludicrous. The only thing affecting home values, just like anything else, is purely supply versus demand.”

Michael Vestuto, a real estate agent with Vestuto Realty Group, said that part of the issue stems around the term “discount broker” in referring to real estate agents who don’t comply with NAR’s commission rules and operate outside of the alleged closed system and that the industry needs to address the issue of potential blacklisting.

“I have mentioned the real estate industry needs more transparency and disclosure to the consumer when it comes to compensation for many years now,” he said in an email response to the Las Vegas Review-Journal. “One major concern I brought up to NAR and LVR was pertaining to the term ‘discount broker’ and why our industry uses this terminology so often. The term implies there is a standard industry practice and those that don’t comply are considered ‘discount brokers.’”

Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.