The Next Wave of Possible Realtor® Lawsuits

The myriad of cases accusing the real estate industry of collusion and price fixing are expected to bring about dramatic changes to the industry. For instance, DeLeon Realty has already taken many listings where sellers opt to offer buyer’s agent commissions of $10,000 or $20,000, significantly lower than historical averages. Nevertheless, these DeLeon listings have still attracted many offers and achieved notably high sales prices. This success raises questions about why some other local brokerages are hesitant to change their approach, especially in light of a multibillion-dollar verdict in a landmark lawsuit and ongoing legal actions addressing similar issues that are still pending against some brokerages and were recently settled by Compass, NAR, Keller Williams, and the parent of Coldwell Banker, among others.

The initial explanation for their reluctance is straightforward − it would lead to a substantial loss in commission revenue. However, a deeper analysis is necessary. DeLeon Realty stands out as the only major local brokerage offering a no-commission option for buyers interested in our listings. Buyers know that they can confidently come to us if another agent refuses to submit an offer on their behalf. Consequently, we have not encountered the decrease in interest that might arise if a lesser-known listing agent were to deviate from the traditional approach. In fact, and perhaps counterintuitively, we have seen an increase in the interest in our listings despite the lower commission paid by our sellers.

The reason for this is that many buyers are currently being asked to pay their own buyer’s agent commission. As a result, numerous buyers are gravitating towards DeLeon listings because they know that they can purchase them without any buyer-side commission being paid by them or the seller.

For months, it seemed inevitable that other brokerages would follow DeLeon Realty’s lead and stop suggesting that sellers offer a 2.5% commission to the buyer’s agent. Now, following a $418 million settlement by the National Association of Realtors on March 15, 2024, sellers will no longer be allowed offer commission inducements to buyer’s agents in the MLS after July. However, even after the industry stops telling sellers to pay commission to agents representing the opposing party in negotiations (i.e., the buyers), it will not have reached the end of its legal troubles.

Given the immense size of the verdict(s) against the industry and the relative ease of identifying evidence of malfeasance, the entire real estate industry is under heightened scrutiny. There may be further legal repercussions; namely class-action plaintiffs’ attorneys will likely target the substantial damages incurred by sellers due to the practice of selling homes off-market (a.k.a., “pocket listings”), which results in limited exposure and reduced competition.

What Are Pocket Listings?

For years, many local agents and brokerages have persuaded some home sellers to grant them a period of exclusivity, during which only the clients of that agent or brokerage are granted early access to the property. While this limited exposure reduces competition by excluding numerous potential buyers, it significantly increases the likelihood of the listing agent (or listing brokerage) earning commission from both sides of the transaction. This situation can create a serious conflict of interest and a breach of the agent’s fiduciary duty.

As an illustration, a few years ago a major local brokerage launched an advertising campaign touting that they were the number one brokerage in certain cities (e.g., Palo Alto). They encouraged buyers interested in purchasing homes in those cities to work with their buyer’s agents, promising exclusive and early access to hundreds of homes before anyone else. Implicit in this advertising was the notion that buyers working with their agents would pay less for the property due to reduced competition. While this claim was probably accurate from the buyer’s perspective, it came at significant cost to the brokerage’s sellers that trusted them.

The Clear Cooperation Rule

In the past, some agents would list a property and promote it as “coming soon.” Unfortunately, interested buyers could only obtain information about the listing by directly contacting the listing agent, as other agents lacked access to any details. This tactic allowed the agent to keep the commission from both sides, once again, to the possible detriment of the seller.

In an attempt to combat this inequity, the Clear Cooperation rule was enacted, mandating that any home marketed to the public must be listed on the MLS within 24 hours of the first public-facing advertisement. This rule had one major flaw: it allowed agents and/or brokerages to market homes to their clients without listing them on the MLS, while prohibiting agents from sharing details with agents at other brokerages that might have interested buyers. This situation once again increased the likelihood of the brokerage keeping the commission from both sides, usually to the detriment of sellers.

Additionally, the MLS created a new category known as the “Member’s Only” section to comply with the technical requirement of the Clear Cooperation rule, which requires listing on the MLS. However, this section restricts the sharing of information with qualified and interested buyers who are not working with a local Realtor®. Importantly, it denies popular consumer-facing websites, such as Zillow, Redfin, Trulia, and from accessing and sharing this information.

Realtor’s Insight Regarding Off-Market Sales

Many local real estate agents, including Ken DeLeon, have witnessed countless homes selling off-market at prices significantly lower than what one of their buyers would have paid. This stands to reason − after all, what are the odds that the listing agent coincidentally knew the buyer willing to pay the highest price for the home? Further, even if the listing agent did know such a buyer, wouldn’t that buyer be willing to pay the same or an even higher amount if they were aware of possible competing offers?

Although plaintiff attorneys may face challenges in quantifying damages, the potential damage awards related to these off-market sales could be astronomical once established. It is just a matter of time before this questionable practice comes under scrutiny by aggressive class action attorneys.

by Michael Repka, Esq.


Michael Repka | Tel: 650.405.4631