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Manhattan real estate brokerages are sued for inflating commissions

Published Nov 13, 2023 03:23PM ET Updated Nov 13, 2023 03:30PM ET
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© Reuters. FILE PHOTO: A man looks at advertisements for luxury apartments and homes in the window of a Douglas Elliman Real Estate sales business in Manhattan's Upper East Side neighborhood in New York City, New York, U.S. October 19, 2021. REUTERS/Mike Segar/File

By Jonathan Stempel

NEW YORK (Reuters) - A lawsuit filed on Monday accuses the Real Estate Board of New York (REBNY) and more than two dozen brokerages and companies of conspiring to artificially inflate commissions paid to agents who help sell residential real estate in Manhattan.

The proposed class action against the REBNY trade group, the Corcoran Group, Douglas Elliman and others followed 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 and several brokerages.

That verdict, which a judge can triple to more than $5.3 billion, could upend decades-old practices that require sellers to pay commissions to buyers' brokers. NAR faces at least two other similar proposed class actions.

In Monday's lawsuit in federal court in Manhattan, plaintiff Monty March said commissions on Manhattan residential sales remain a stable 5% to 6% even as home prices soar, with the average apartment price topping $2 million by early 2022.

March said sellers using REBNY's listing service should not pay 2.5% to 3% commissions to buyers' brokers given how commissions are lower in "fully competitive" markets such as Brooklyn, where they are negotiated separately and average 1%.

REBNY General Counsel Carl Hum said the group was reviewing the complaint with its lawyers, and was confident its listing service's practices and procedures "abide by all relevant laws."

Corcoran and Douglas Elliman did not immediately respond to requests for comment.

March said he paid inflated commissions when he recently sold property on Manhattan's Upper East Side. Property records show he sold an apartment there for $5.6 million in July 2022.

Starting on Jan. 1, REBNY will begin requiring sellers, not their brokers, to directly pay any commissions to buyers' brokers, to promote "transparency and consumer confidence in the residential marketplace."

March said it is unclear whether this would result in lower commissions, or 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.

Manhattan real estate brokerages are sued for inflating commissions

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