UK estate agents have often cited how reasonable their fees are when compared to those charged by realtors in the United States. Whilst sub 1% fees are not uncommon here, 6% commission is the going rate over the Pond. That fee is split between the vendors’ selling broker and the home buyers’ broker.

But that huge commission percentage is coming under threat from a serious legal challenge currently under way in an antitrust lawsuit against the National Association of Realtors (NAR) in Missouri.

Burnett et al v. National Association of Realtors et al started last week and is a class action alleging that the National Association of Realtors has anticompetitive rules that require home sellers to pay commission to the home buyer’s broker.

The Plaintiffs allege that the Defendants: Home Services of America, Inc.; BHH Affiliates, LLC; HSF Affiliates, LLC; Keller Williams Realty, Inc.; Realogy Holdings Corp.; and RE/MAX, LLC enforce those rules through anticompetitive practices.

The Plaintiffs are challenging rules in both the National Association of Realtors Handbook, and Code of Ethics, that allegedly require home sellers to make a blanket offer of compensation to any potential buyer’s broker as a condition of listing their home on the multiple listing services: Heartland Multiple Listing Service, Columbia Board of Realtors, Mid America Regional Information System, and Southern Missouri Regional Multiple Listing Service.

The Plaintiffs allege commission rates are too high, with buyer brokers are being paid too much, and the NAR’s Code of Ethics and MLS Handbook, along with the corporate defendants’ practices, lead to set pricing. The case covers the Kansas City, Mo.; St. Louis; Springfield, Mo.; and Columbia, Mo., markets.

“NAR fundamentally disagrees with how class action attorneys are characterizing our rules,” said Katie Johnson, the association’s chief legal officer and chief member experience officer. “NAR’s rules and local MLS broker marketplaces very much benefit consumers and allow business competition to thrive.”

The Wall Street Journal (WSJ), reporting just prior to the commencement of the action, said: “As powerful lobbies go, few have more clout than the Realtors. But the cartel faces a major legal challenge on Monday when a federal jury trial begins in a class action against its rules that raise the cost of buying and selling homes.”

The National Association of Realtors requires its 1.5 million or so members to comply with numerous rules. Missouri home sellers are arguing in the lawsuit that a rule requiring them to make a blanket offer of compensation to any potential buyer’s broker violates the Sherman Antitrust Act.

Commission on home sales has stayed at the same level for decades at 6%, split evenly between the buyer and seller agents.

The WSJ says that in other developed countries, buyer brokers are far less common and get paid by their clients, on average about 1.5%. Having the seller pay the buyer broker creates a conflict of interest. It also prevents a buyer from paying his broker based on performance. That means there’s little incentive for buyer brokers to negotiate better deals for clients, especially since they earn bigger commissions on higher-priced homes.

The WSJ goes on to say that it’s clear from the evidence presented by the plaintiffs that the Realtors’ primary interest is in ensuring buyer brokers make a 3% commission no matter what. Brokerage firms train agents to set overall commission rates at 6%, split evenly between the buyer and seller agents.

They quote one firm’s training document as saying: “Once you start cutting commissions, you can never stop. Charge everyone the same and let them know it.”

Ninety percent of transactions offer buyer agent commissions of exactly 3%.

The Wall Street Journal summarises the case by saying: “We’re no fans of most antitrust suits, but the evidence is strong that Realtors’ practices are classic antitrust violations that harm consumers. The Realtors may own the U.S. Congress, but perhaps independent courts won’t be so intimidated.”

A decision in the case is expected on November 10th and could have very far reaching consequences if upheld.

The system in the UK is of course very different to that in the USA but there is one takeaway from that reported training document that should strike a chord with many British estate agents: “Once you start cutting commissions, you can never stop.”