As these Antitrust Lawsuits continue to dominate the minds of real estate professionals, we wanted to take time to dive in and fully understand the claims the plaintiffs made and to acknowledge or debunk them as needed.   

What does this accomplish for you? It helps you understand the minds of your buyers and sellers, as well as reaffirm the value that you have as an agent. 

The Question of Collusion 

One of the big points in this lawsuit was about how brokers and agents all got together to collude on commission rates, breaking antitrust laws. It might be like if Coca-Cola and Pepsi got together and decided, “We’re the biggest game in town when it comes to soda, so we should charge $5 for a 2 Liter bottle, and because we’re the biggest game in town, people have to buy from us, so they’ll have to pay it.” That’s colluding on price, and it’s against established antitrust laws.   

Essentially, what these attorneys suggested that 1.6 million real estate agents got together in a room (can’t imagine how big that would have to be) and had a conversation about fixing the prices of commission rates. It’s silly to think about, isn’t it? Obviously, agents didn’t do that, but they are claiming that they did through training, websites, and so on.   

This got us thinking. 

Taking a Closer Look 

Let’s take a look at these attorneys for a minute. The plaintiffs’ attorneys get paid in one of two ways. They get their hourly flat fee, whatever the rate they bill out to their clients, or they work on contingency, so the more they win for the client, the more money the attorneys get. Essentially, it’s a commission. They call it a contingency, but it’s the exact same thing as a commission.   

Now, there are a lot of attorneys involved in these cases, and they aren’t cheap, particularly if they work on contingency, as most do. We did a little digging, and the going rate for contingency fee deals is 33 – 40%. One of these antitrust cases is currently in the billions of dollars, and should they win (for easy math), the commission of 33-40% on a billion dollars is $400 million. In this Sitzer | Burnett case the jury awarded $1.785 billion. Not a bad payday for the lawyers, right?

However, if a contingency is exactly the same as a commission, it brings up the question, are the plaintiff’s attorneys violating antitrust laws?   

The Truth About Contingency Fees 

We did some digging, and found the New York City Bar Association’s site. They discuss what contingency fees are. Here’s what it says: “a contingency fee is one that is only paid when a certain event occurs. When a lawyer works on a contingent basis on a personal injury case, you don’t pay the lawyer upfront or hourly for the services. Payment is contingent on you recovering for your injuries.” So, what the plaintiffs actually have to prove is that the real estate industry has injured their client AND the justify the amount they are suing for the injuries.  

Why is that important? Because if the plaintiffs were to win, they’re going to create MORE injury for buyers who want to purchase a home.  

If a contingency fee is the same as a commission, these attorneys are trying to get as much money as they can, which is why they are suing for such a large number. The more money they get for the clients, the more money they make. Just like a real estate professional, the more we can sell a house for, the more money we make because it’s a percentage, not a flat fee that we charge.   

However, here is what they are saying: the difference is that in addition to their fee of 33-40%, their client also has to pay any fees or disbursements. In real estate, this would be similar to when we pay our dues, pay to put something into the MLS, pay the photographer, and any other items that are a part of our overhead. So, that 40% commission can go even higher, and that is a lot of money going into the pockets of these attorneys.   

Are Attorneys Price-Fixing? 

Getting back to the concerns about price fixing, the New York City Bar Association says the ordinary percentage is 33%, but it could be less. So, while this might be a sliding scale, the key thing here is that there is an established percentage that is the norm. This means that all of these attorneys are charging an ordinary commission amount, which is exactly what the plaintiff’s attorneys are saying real estate professionals and the whole industry do. On the part of the attorneys, this isn’t just a “maybe”; it’s published on the internet and established as a rule.   

But wait, there’s more! 

We went to the American Bar Association to see what they said, and throughout the Fees and Expenses section, it was stated that the customary recovery is typically 33-40%. Even looking at several other bar association websites, they all state that the commission rate for an attorney is a standard 33-40% rate. The thing is, they claim it’s not a violation of the antitrust laws or collusion of attorney fees, even though we did not come across a single instance where it said this was flexible or negotiable.   

The attorneys are in the right, and the real estate industry is in the wrong for doing the exact same thing.  

Sounds like it’s the pot calling the kettle black.   

The Takeaway 

There is a clear similarity between what the attorneys are doing versus what they are accusing real estate professionals of doing, and while we aren’t going to hold our breath that the attorneys’ pricing structure will change any time soon, the hypocritical optics of this issue of supposed price-fixing a violation of antitrust laws on behalf of the agents seems to be a moot point. 

COMMISSION DISCLAIMER: The commission examples provided are for illustration only and do not represent actual rates. Real estate commissions are negotiable and not set by law. Professionals should independently determine appropriate commissions based on services provided and their marketplace. Professionals have sole responsibility for transparently communicating their fee structures to clients in compliance with applicable laws and regulations. These examples do not constitute financial, legal or real estate advice. 

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