A new real estate agent commission lawsuit is afoot: QJ Team LLC and Five Points Holdings LLC v. Texas Association of Realtors Inc.
This one is Texas-specific.
Who’s Getting Sued?
Twenty-nine named defendants… and counting. All of them handle real estate business in the state.
Some are powerhouses. Keller Williams, HomeServices of America, and Penfed Realty are among them.
And then there’s the slew of Texas-based real estate groups. Some affiliates of the National Association of REALTORS® are named defendants. These include the Texas Association of REALTORS®, the MetroTex Association of REALTORS®, and the Houston Association of REALTORS®.
Who Is Suing?
Two major home builders/sellers — the QJ Team and Five Points Holdings — allege that sellers in general pay unfairly high agent fees. Home sellers must pay for their buyer’s agent. If they don’t, the buyer agents will likely steer clear of their listings rather than show them to clients.
This could turn into a sprawling class-action suit, as it’s filed on behalf of anyone who listed a Texas home with a broker named in the lawsuit — any time since November 2019.
Why Are They Suing—And Why Texas?
The plaintiffs object to commissions that people pay in order to get homes listed for sale, and shown to buyers. The parties could negotiate these commissions, yes. But in most real-world transactions — because the buyer isn’t paying upfront for what ultimately goes into the price of a home — negotiations don’t happen. And that, of course, benefits the industry, not the parties to the transaction.
The lawsuit claims that the real estate groups, under the influence of rules set forth by the National Association of REALTORS®, are taking part in “unconscionable action.”
They point to multiple sections of the Texas Deceptive Trade Practices Act. And their case will play out in the anti-trust division of the U.S. District Court for the Eastern District of Texas. This case has a special importance in Texas, where homes’ sale prices aren’t a matter of public record. To check prices, people get agents with access to the Multiple Listing Service (MLS). And the National Association of REALTORS® is the de facto gatekeeper of the key MLS system.
So, NAR’s in the Thick of It?
Yes. A big presence in this case — although it’s not a named defendant — is the National Association of REALTORS®. The lawsuit claims NAR, Anywhere Real Estate (formerly Realogy), and RE/MAX are conspiring in price-fixing.
As we’ve noted, the issue in this case is a listing system run by NAR. Sellers’ agents routinely promise compensation to buyers’ agents. That’s the only way to list homes on the MLS. And that’s the way the “Clear Cooperation” system works, since 1996, under a system NAR set up.
It’s all because of this rule that your agent typically expects 3% from a transaction when you’re buying or selling a home.
But Shouldn’t Real Estate Agents Get Paid?
Absolutely. Good agents are skilled negotiators. They let their clients know when some aspect of a deal could be better for their client. They know the good inspectors, and can get them on the phone. They answer tons of questions. They keep everything on an even keel whenever there’s a glitch on the way to closing.
The suit isn’t trying to stop agents’ commissions. It’s asking that the parties have a fair opportunity to negotiate the commissions.
The suit says sellers shouldn’t have to agree to blanket commissions covering both sides’ agents. Only in real estate, they observe, does one party have to pay for the other side’s representative.
If NAR’s System Gets Outlawed, How Will Agents Be Paid?
If NAR’s rule gets struck down, whether in Texas or nationwide, buyers will be in the position to negotiate their agents’ fees. And the agents will then have to set their rates accordingly, to compete for a buyer’s business.
The lawsuit essentially claims that asking the seller to pay the buyer’s agent is unfair. So, the question is this: Can’t the buyer’s agent be paid by the buyer?
Buyers wouldn’t necessarily be paying for their agents upfront. They could have their agent’s commission folded into their mortgage payments. Perhaps that would become legal.
The law needs to change to make this work. We’ll be watching for this to happen.
What Else Could Change on Account of This Case?
The plaintiffs say they want sellers to be charged fairly. They say they want no more steering to agents who participate in the industry’s system. They say they want to spur innovation. They say they want new, lower-cost real estate services to come into the field.
After all, the plaintiffs say: In this day when so much data is online and clients do so much legwork themselves, a blanket commission rule tied to the MLS is obsolete. So, the plaintiffs think that there should be cheaper alternatives to the MLS. The envision new ways for home sellers to communicate their properties’ availability on the market.
And more buyers and sellers might just handle their own transactions. More buyers could decide to directly hire a lawyer, and title and mortgage professionals. This could save some buyers a great deal of cash.
All of this could bring down agents’ rates. Some people might not jump into being real estate agents; those agents who remain would accept a more competitive field.
Is This a Lawsuit Whose Time Has Come?
Yes, it fits the mood of our times. In October, a federal jury in Missouri found that industry players had conspired to keep commissions high. The $1.8 billion bombshell verdict in that case could ultimately reshape the homebuying process, and how real estate agents are paid.
The real estate industry is in the throes of major change. Find out why REALTORS® are reeling from Sitzer/Burnett vs. NAR Verdict right here at Deeds.com.
This Texas case could be seen as part of a ripple effect.
Watch this space. The industry’s dominant payment structure currently faces scrutiny by both the U.S. Department of Justice and the Federal Trade Commission.
For Now, What’s the Takeaway?
Like the Sitzer/Burnett case highlighted above, this Texas case will reshape the way agents talk with buyers and sellers. Look for agents to clearly say their commissions are negotiable. Expect them to lay out just what the agent does in return for their pay.
Bottom line, keeping clients in the dark won’t be OK.
Supporting References
QJ Team LLC and Five Points Holdings LLC v. Texas Association of Realtors Inc., 4:23-CV-01013 (filed Nov. 13, 2023).
Brandon Sams for TheRealDeal.comTM, part of Korangy Publishing Inc. (New York): Lawyers Behind Texas Realtor Associations Lawsuit Discuss Changing The Industry (Nov. 22, 2023). TheRealDeal.comTM interviewed the plaintiffs’ attorneys, and is the source of key insights for this piece.
Madison Iszler for the San Antonio Express-News, a part of Hearst Newspapers, LLC: Amid Lawsuits Challenging Real Estate Practices, San Antonio Agents Wait to See if Industry Changes (Nov. 22, 2023).
Brooklee Han for HousingWire, via Yahoo Finance: Texas Commission Lawsuit Names Real Estate Teams and Individual Broker as Defendants (Nov. 14, 2023).
And as linked.