An Update on California's Broker Fee Class Action Antitrust Lawsuits

Elisha Yang, Hanson Bridgett LLP

In March of 2024, the National Association of Realtors (NAR) agreed to a settle its high profile antitrust lawsuit (the "NAR Settlement"), which includes the payment of approximately $418 million in damages and adjustments to its rules and policies governing commission payments to its brokers and agents. Prior to the announcement of this settlement, several similar lawsuits were filed against NAR and/or real estate brokerage firms and related organizations across the nation, two of which were filed in California.  In both of these California lawsuits, plaintiffs claim that the named defendants engaged in anticompetitive practices to keep real estate commissions high in violation of state and federal antitrust regulations.

 

Grace v. BAREIS 

The first lawsuit was filed in the U.S. District Court's Northern District of California's San Francisco Division in December of 2023 and names as defendants a mix of associations and brokerages of the San Francisco Bay Area.1  In this class action, the plaintiff alleges that the prevailing compensation scheme by which the seller of a home bears the cost of commission payments for both seller's broker and buyer's broker is unfair and forces sellers to pay inflated broker commissions to buyers' real estate agents.  Plaintiff points to two particular rules established by BAREIS – Rule 11.22 and Rule 11.5.3  The court recently dismissed this lawsuit, holding that BAREIS' rules do not require the listing broker to share compensation with the buyer broker. 

Fierro v. NAR 

The second lawsuit was filed in California's Central District Court in January of 2024 and names a total of 36 defendants made up of mostly national associations and brokerages with a few local brokerages of Southern California.4  In this action, the plaintiff alleges that the defendants engaged or collaborated in anticompetitive practices by establishing rules that compel home sellers to pay an inflated fee to buyer brokers, thus violating federal and state antitrust regulations.  The plaintiff also alleges that NAR is at the core of the conspiracy and focuses on NAR's "Mandatory Offer of Compensation Rule," which requires homeowners to pay a non-negotiated fee to the broker for the buyer in exchange for listing their home on a multiple listing service (MLS).  This lawsuit is still pending before the court. 

What Changes Can Buyer Brokers Expect Following the NAR Settlement? 

Under the NAR Settlement, the terms of which are set to take effect next month, a homeowner, as the seller, will no longer be required to pay the buyer's broker as a condition of using an MLS.  The seller can still offer a commission to the buyer's broker, if they so desire.  Broker commissions, especially for the broker representing the buyer, will be subject to more negotiation, with the possibility of fixed-fee arrangements and significant discounted rates to attract clients, depending on the housing market.  Purchasers of homes can expect to negotiate buyer's broker fees through a buyer representation agreement as part of their process in selecting an agent.  Many of the changes coming out of the NAR Settlement could potentially lower the cost of purchasing and selling a home.  

(1) Grace v. Bay Area Real Estate Information Services, Inc. et al., 23-cv-06352

(2) This rule has been modified, effective August 1, 2023, to include the following: “This offer of compensation, if any, is also made to members of organizations that are parties to the Cross Pollination Agreement.”

(3) Bareis MLS Rules

(4) Gael Fierro et al v National Association of Realtors et al , 2:24-cv-00449