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Manhattan Brokerages Face Lawsuit Over Commission Inflation

Manhattan Brokerages Face Lawsuit Over Commission Inflation

A lawsuit filed on Monday alleges a conspiracy involving the Real Estate Board of New York (REBNY) and over two dozen brokerages and companies to artificially inflate commissions paid to agents facilitating residential real estate sales in Manhattan. This proposed class action, which targets entities such as the Corcoran Group and Douglas Elliman, follows an Oct. 31 verdict by a federal jury in Missouri awarding home sellers $1.78 billion in a similar case against the National Association of Realtors (NAR) and several brokerages. The verdict, subject to potential tripling by a judge to over $5.3 billion, has the potential to disrupt longstanding commission practices, leading to additional proposed class actions against NAR.

In the Manhattan lawsuit filed on Monday in federal court, plaintiff Monty March contends that commissions on Manhattan residential sales, set at 5% to 6%, remain stable despite soaring home prices, questioning the upcoming REBNY requirement for sellers to directly pay buyer brokers’ commissions starting January 1, 2024. Monty March argues that sellers using REBNY’s listing service should not pay 2.5% to 3% commissions to buyers’ brokers, especially when compared to the lower negotiated commissions in “fully competitive” markets such as Brooklyn, where they average 1%. REBNY General Counsel Carl Hum expressed confidence that the group’s listing service practices comply with all relevant laws.

March, the plaintiff, alleges he paid inflated commissions when he recently sold property on Manhattan’s Upper East Side, with property records indicating the sale of an apartment for $5.6 million in July 2022. Starting on Jan. 1, REBNY will mandate sellers, not their brokers, to directly pay any commissions to buyers’ brokers, aiming to promote “transparency and consumer confidence in the residential marketplace.” March highlights uncertainty regarding whether this change would result in lower commissions or potentially delay sales while buyers’ brokers negotiate with sellers. The lawsuit seeks damages for sellers of Manhattan residential property in the last four years who paid buyer brokers’ commissions under REBNY rules. The case is March v. Real Estate Board of New York et al, U.S. District Court, Southern District of New York, No. 23-09995.

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