A recent class action lawsuit filed against the Real Estate Board of New York (REBNY) and several real estate brokerages in New York City has brought attention to the brokerage commission system in residential real estate transactions. This lawsuit follows a similar case in Missouri against the National Association of Realtors (NAR) and other brokerage firms, where the jury ruled in favor of the plaintiffs.
The brokerage commission system is a common practice in residential real estate transactions across the United States. Typically, the seller pays a commission of 5-6% of the purchase price to the seller’s broker, which is then split between the seller’s broker and the buyer’s broker. This commission entitles brokers to access the Multiple Listing Service (MLS), a highly sought-after database used by reputable brokerage firms to market properties for sale.
However, consumer concerns have arisen around whether this practice truly serves their best interests. In the Missouri case, the jury found that NAR and the defendants colluded to inflate commissions, resulting in a verdict of $1.8 billion in damages. This ruling has the potential to significantly impact the commission system if upheld.
For now, the immediate impact on sellers and buyers may be minimal. The Sitzer ruling has been appealed, and it may take several years to reach a resolution. However, this case has opened the door to similar actions across the country, as seen in the recent March/REBNY lawsuit. The U.S. Justice Department is also monitoring these developments closely.
If the Sitzer ruling is upheld and more cases favor the plaintiffs, there could be a substantial shift in how commissions are negotiated and paid in residential real estate transactions. Sellers and buyers may see changes in the commission structure and potentially more transparency in the process.
Q: What is the brokerage commission system in residential real estate?
A: The brokerage commission system is the practice of sellers paying a commission to their brokers, which is then split between the seller’s broker and the buyer’s broker.
Q: What is the Multiple Listing Service (MLS)?
A: The Multiple Listing Service is a database used by brokerage firms to list and market properties for sale.
Q: How might the Sitzer ruling impact sellers and buyers?
A: If upheld and supported by other cases, the ruling could lead to changes in how commissions are negotiated and paid in residential real estate transactions. There may be increased transparency and potential modifications to the commission structure.