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Legal Implications of Commission Inflation in Manhattan Real Estate 
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Manhattan Real Estate Commission Inflation: Legal Implications Unveiled

In a significant development that could reshape the landscape of real estate transactions in Manhattan, a lawsuit has been filed accusing the Real Estate Board of New York (REBNY) and over twenty-five brokerages of conspiring to inflate commissions in the residential real estate sector. This legal action, echoing a recent Missouri federal jury verdict, brings into focus the longstanding practices of commission payments in real estate transactions. 

Key Points:

  • Antitrust Concerns and Violation of Competitive Market Principles: The lawsuit alleges that the Real Estate Board of New York (REBNY) and over twenty-five brokerages have conspired to artificially inflate commission rates in Manhattan’s residential real estate sector. If these allegations are proven, it could indicate a violation of free market competition principles, potentially raising serious antitrust concerns.
  • Financial Impact on Sellers and Buyers: The lawsuit brings to light the financial burden placed on sellers due to the inflated commissions, which have remained high (around 5% to 6%) despite soaring home prices. This could affect the affordability and attractiveness of the Manhattan real estate market, impacting both sellers and buyers.
  • Potential Changes in Commission Structures: In response to these allegations and growing scrutiny, REBNY plans to implement new policies from January 1, requiring sellers to directly pay any commissions to buyers’ brokers. This shift aims at promoting transparency and could significantly alter how real estate transactions are conducted and negotiated in Manhattan.
  • Precedent-Setting Nature of the Case: The lawsuit in Manhattan follows a similar and significant federal jury verdict in Missouri against the National Association of Realtors and several brokerages, where home sellers were awarded $1.78 billion. The outcomes of these cases could set precedents for real estate transactions nationwide, influencing future practices and legal standards in the industry.
  • Broader Scrutiny of Real Estate Commission Structures: This lawsuit is part of a wider scrutiny of real estate commission structures across the United States, reflecting a growing discontent among consumers and a push for more transparent and competitive practices in the industry. The legal proceedings in this case will likely have far-reaching implications, not only for the parties involved but also for the national real estate sector, emphasizing the need for fairness and transparency in the market.

The plaintiff, Monty March, alleges that the commissions in Manhattan have remained disproportionately high, hovering around 5% to 6%, despite soaring home prices. For example, the average apartment price in Manhattan exceeded $2 million by early 2022. In contrast, in more competitive markets like Brooklyn, commissions are negotiated separately and average around 1%. 

This lawsuit follows an October 31 verdict in Missouri, where a federal jury awarded home sellers $1.78 billion in a similar case against the National Association of Realtors and several brokerages. This verdict, which may potentially be tripled, challenges the decades-old norm of sellers paying commissions to buyers’ brokers and has sparked similar class actions. 

The crux of the lawsuit lies in the alleged artificial inflation of commission rates, which could have several legal implications: 

  • Violation of Competitive Market Principles: If proven, the inflated commission rates could be seen as a violation of free market competition, raising antitrust concerns. 
  • Impact on Sellers and Buyers: The lawsuit highlights the financial burden on sellers who have had to pay elevated commissions, potentially affecting the affordability and attractiveness of the Manhattan real estate market. 
  • Changing Commission Structures: Beginning January 1, REBNY plans to require sellers to pay any commissions to buyers’ brokers directly, promoting transparency. This shift could have significant repercussions on how real estate transactions are conducted and negotiated. 

REBNY’s General Counsel, Carl Hum, has expressed confidence in their listing service’s adherence to all relevant laws. The organization’s stance indicates a firm belief in the legality and appropriateness of their practices. 

Monty March’s lawsuit is not an isolated incident but part of a broader scrutiny of real estate commission structures across the United States. The Missouri verdict and other proposed class actions indicate a growing discontent and a push for more transparent and competitive practices in the real estate industry. 

The lawsuit against REBNY and the numerous brokerages is a pivotal moment for Manhattan’s real estate sector. As the legal proceedings unfold, they will not only impact the parties involved but could also set a precedent for real estate transactions nationwide. This case underscores the need for transparency and fairness in the real estate market, aspects that are crucial for maintaining consumer confidence and a healthy market environment. 

Source: Reuters, “Manhattan real estate brokerages are sued for inflating commissions” by Jonathan Stempel, November 13, 2023. 

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