North Bay lawsuit claims real estate companies inflate commissions

Landmark real estate ruling may lead to lower home prices in California

2024 could be the year that brings a long-awaited shake up to the real estate industry as lawsuits claiming conspiracy among real estate companies to inflate commission are being heard in court. 

"We think the way commission works as it stands today will be completely different by the end of next year," Aalto CEO and founder Nick Narodny told CBS News Bay Area. 

He says it's a potential change home buyers and sellers may see in their pockets. 

"There is a lot of evidence that commissions are being kept artificially high right by the industry at large," he explained. "We've seen this kind of thing personally in our own experience and our consumers feel it too." 

That evidence was seen in a recent lawsuit filed in Missouri by a group of homeowners and buyers claiming major real estate brokerages artificially inflated commission rates, making it more expensive for people to buy or sell their homes. 

"I didn't understand why I was paying for someone who I've never met, will never meet and wasn't doing anything for me," Jeron Breit, the plaintiff in the Missouri case, told CBS News. 

It's a sentiment felt across the country amid skyrocketing home prices. 

In the Bay Area, with an average home price of over $1,000,000, commission fees tend to be 5% of the home's selling price. This amounts to at least $50,000 on average split between the buyers and seller's agents and some say the high commission fees can inflate a home's listing price. 

"The problem with that is that, again, that's a big percentage; which hasn't changed in 100 years," Narodny said. "And even if you adjusted for inflation, it's still three to five times higher. And the agent's job has gotten easier."

After a Missouri court ordered nearly $1.8 billion in damages, a similar lawsuit was brought in the North Bay this month aimed at the National Association of Realtors, Bay Area Real Estate Information Services and several real estate brokerages. 

Narodny says bursting the commission bubble could lead to a surge in home listings. 

"We could make much more American dreams happen if commissions were lower, right? Because that fee is baked into the price of the home every time a home sells," he explained. "That fee is 5% or 6% which is just crazy. It adds up really, really quickly. And we believe that if you actually lower that fee, you decrease the friction to buy a home or sell a home, more homes can change hands."

CBS News Bay Area contacted the plaintiffs in the North Bay case as well as several defendants — all of whom declined to comment. 

For Narodny, he's staying ahead of the curve by working off pre-set fees. He thinks this could be an option for agents down the road. 

"Our best bet is that buyers will have to negotiate their fees with their own agent," he explained. "So I'm hiring you to do a job and we talk about what I'm going to pay you so much like if tiles being installed are a lot of other services that you get versus a fixed fee, no matter the service level, no matter the person."

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