How NYC Sticks Out In The Battle Over Broker Commissions

When a federal panel of judges last week declined to consolidate a slew of class-action cases over broker commissions, the Real Estate Board of New York claimed a win.

In a memo to members this week, New York City’s reigning real estate authority called it “an important development” and said it, along with the brokerages named as defendants, can “directly address the specific allegations” in two lawsuits with similar claims as those in the national wave of legal action over broker commissions.

The group assured members its Residential Listing Service would operate as normal.

“As the nationwide landscape involving residential real estate transactions continues to change, REBNY is committed to supporting your work,” the memo read.

The latest complaint was filed last month in the Southern District Court of New York against the city’s residential real estate authority, NAR and seven residential brokerages.

It was the third to hit the trade group and a handful of brokerages headquartered in New York City: The first commission lawsuit filed in New York landed in November, listing the trade group and 26 member brokerages as defendants. A second suit was filed — and withdrawn — in January.

The claims place New York City’s residential scene in good company amid the wave of complaints filed in markets across the country that sparked a $418 million settlement and a key rule change from NAR. But the city’s residential authority can claim some key characteristics — and a well-timed rule change — that set it apart in the turbulent time for broker rules.

New York as a notable exception

In the hours, day and weeks after NAR, HomeSellers of America and Keller Williams suffered a blow in the landmark Sitzer/Burnett case, copycat suits sprang up to seize on the momentum of the jury’s verdict the firms had colluded to inflate commissions.

At the center of the lion’s share of these complaints was NAR’s “participation rule,” which mandates listing brokers make offers of compensation to buyer brokers on the trade group’s multiple listing services, or MLS.

NAR was a target in most of the country as homebuyers and sellers took aim at its web of MLSes that helped establish its long-held authority in the industry.

But in New York City, slight wording differences between the commission rules established by the two trade groups could make all the difference in how the standing cases against REBNY are decided.

“The issue at hand was a set of NAR rules, the blanket offer of compensation that required a seller to pay a buyer’s agent,” said Ryan Serhant, the founder of an eponymous New York City-based brokerage that’s also a defendant in the November lawsuit. “In New York City, we don’t have that.”

In exchange for access to the MLS, agents agreed to NAR’s rule requiring coupled commissions. But there’s no MLS in New York City. There is an RLS operated by REBNY, which previously required commissions be coupled.

REBNY changed its commissions rule to require sellers after Jan. 1 to negotiate directly with buyers’ agents regarding their compensation, a decision that’s already changing the way real estate in New York City is transacted.

In the case of a sale of an exclusive property by way of a buyer procured by a co-broker, and with no alternative agreement in place, the “Exclusive Broker and the Co-Broker shall each be paid an equal share of the commission as specified in the Exclusive Listing.”

That’s in contrast to NAR rules, which required at least some — but an unspecified share of — compensation be offered to the buyer’s agent.

“[The plaintiffs] are trying to draw a parallel between the NAR rule with the MLSs and this one REBNY rule, but they’re just not the same,” Serhant said. “The REBNY language states in the event there’s no compensation agreed to, and there are two agents and compensation, you’re agreeing you’ll split that 50/50.”

REBNY’s rules also leave open the possibility of de-coupled or negotiated commissions.

Because most sellers are not REBNY members, they aren’t covered by the organization’s arbitration rules. As a result, in some cases of commission disputes, sellers could find themselves sued by buyers’ brokers.

To prevent that, REBNY has issued guidelines to agents and brokerages to update their listing agreements to include a clause in which the seller agrees to resolving those disputes in REBNY arbitration.

What’s to come

The trade group said in a statement said it would respond in court to the most recent complaint filed in New York, which also includes Compass, HomeServices of America, eXp Realty, Brown Harris Stevens and Douglas Elliman among the defendants.

Many New York City brokerages are not NAR members, with the exception of membership through parent companies or firms that do business in other markets. So that means the remaining action is likely to happen elsewhere, but will include some familiar names to the Big Apple’s residential scene.

Given that NAR’s deal only applies to legal action brought by homesellers, it still faces lawsuits from homebuyers, including Batton I and Batton 2. Previous suits filed against the trade group also sparked scrutiny from the Department of Justice, which said its rule changes around commission offers ahead of the trial didn’t go far enough.

Compass struck a nationwide $58 million settlement to resolve the class-action lawsuits it was facing in several states. A company representative said that if approved by a judge, the settlement would resolve all claims against the company.