Litigation Involving Commissions: Practical Tips to Avoid Claims

In Moehrl, one of the primary open issues is the definition of the “class” of plaintiffs that would potentially be entitled to damages if the suit were successful. The proposed “Monetary Damages Class” would include home sellers who paid a commission between March 6, 2015, and December 31, 2020, to a brokerage affiliated with certain defendants in connection with the sale of residential real estate listed on certain MLSs in certain jurisdictions (not less than 20) across the country, but not any MLS located in Louisiana. The suit also includes a request for injunction that would prohibit the practice of having sellers pay the buyer broker and would seek to enjoin activity that restricts competition among buyer brokers. The final determination as to who will be part of the “class” has not been finalized but they are seeking to include thousands of people who had their property listed on one of the “Covered MLSs” during a period of more than five (5) years. Those people would potentially be entitled to damages if the suit is successful. 

The Sitzer/Burnett v. NAR case is similar to the Moehrl case. This lawsuit features the same allegations and some of the same defendants as Moehrl, but are focused on Missouri only while Moehrl covers multiple states. Recently, the federal judge in the Sitzer/Burnett case granted class certification. This means that the suit can proceed as a class action. The class of plaintiffs has been established to include people who sold a home after April 29, 2014, via the MLSs in Columbia, MO; Springfield, MO; St. Louis and Kansas City (or after April 29, 2015, in Kansas and Illinois) and that paid a broker commission in connection with the sale of residential real estate listed on one of four MLSs previously listed. 

From a general perspective, it is important to recognize that brokers’ commissions incentivize participation in local real estate marketplaces and create a vast, accessible and accurate source of housing information available to consumers. That levels the playing field among brokerages, allowing small brokerages to compete with large ones, and provides for robust competition among brokers, including different service and pricing models. That is a benefit to the consumer (home seller/home buyer) because competition results in the best possible situation for the consumer – choices, options, flexibility, reduced prices, negotiating power.

There are currently no pending suits that affect MLSs and/or brokers in Louisiana that are similar to the suits described above. While no one can control whether such a suit is filed in Louisiana, you must always be mindful of the ways in which your actions are perceived by consumers, both individually and as an industry. 

While these details regarding the suits are important so that members of the Louisiana REALTORS® are fully informed, what’s most important is the steps you can take to minimize the risk that such suits are filed and avoid any behavior that would be the subject of a similar suit. 

Often consumers don’t understand how commissions work when buying or selling a home.  This is partly because agents assume how commissions work is common knowledge and therefore do not always clearly communicate this information to consumers. 

Also, some point out that agents can see the commission split offered for each home on MLS but home buyers cannot, and, there are allegations that this may result in buyers’ agents trying to “steer” clients to homes they have listed so as to receive a higher commission. 

It is important to be mindful of these types of misunderstandings and misconceptions by consumers. By understanding these concerns, you can be better prepared to educate your clients on the facts about how commissions work.

We have tried to provide some practical tips to help you with your efforts. In short, it is good practice to explain clearly to clients how commissions are paid and to also explain the reasoning and benefits of this arrangement to the consumer. Set forth below are a few more details to help illustrate that idea.

• NAR encourages the continued use of Buyer Representation Agreements to formalize a working relationship between buyers and brokers, including details on what services are provided by the broker and what the broker expects from the client.  

• Any Buyer Representation Agreement should be in writing and include a clear statement establishing that a commission may be paid by a cooperating broker and/or that you may pay a commission to a cooperating broker.

• Always inform and remind clients that commissions are negotiable at any point in the transaction. Commissions are not fixed. Be open to alternative commission arrangements that are reasonable. 

• Avoid making any statements or representations indicating that commissions “are always done this way”, that this is a “standard commission” or similar statements.
          The free market organically establishes commission costs within local real estate markets based on service, consumer preference and what the market can bear.

• Disclose all commission payments prior to closing and do so as far in advance of closing as possible. 

        While the settlement statement circulated shortly before closing will include commission payments, bring those payments to your client’s attention in advance and make sure that the inclusion of those commission payments on the settlement statement are explained.

• If representing a buyer, provide all listings that fit your client’s needs, not just those offering a higher commission. Ask your buyer if they want to see homes that may have a lower commission but be clear about what commission will be owed to you by the buyer (if any) based on your agreement with the buyer. 

• Avoid misunderstandings by being clear about payment of commissions, including payments from cooperating brokers. 

• Keep in mind the misunderstandings explained above and understand that consumers are not typically in the real estate industry – how commissions are determined may be completely foreign to a consumer. 

• Do your best to ensure that clients understand.

And, finally, inform your clients that REALTORS® are bound by the NAR’s Code of Ethics in the home buying process and are always bound to further their clients' best interests, including showing homes that meet buyers’ needs regardless of commissions offered. Make sure that clients are aware of your ethical duties, and make sure you comply with those ethical duties.