As powerful lobbies go, few have more clout than the Realtors. But the cartel faces a major legal challenge on Monday when a federal jury trial begins in a class action against its rules that raise the cost of buying and selling homes (Burnett v. National Association of Realtors).

The National Association of Realtors requires its 1.5 million or so members to comply with numerous rules that inflate their pay. Missouri home sellers are arguing in the lawsuit that a rule requiring them to make a blanket offer of compensation to any potential buyer’s broker violates the Sherman Antitrust Act.

The Realtors require this offer if a seller wants the home listed on an affiliated multiple-listing service, which is a database of homes for sale that serves the same purpose as a stock exchange. While innovation and competition have slashed stockbroker commissions, the commission on home sales has stayed basically flat for decades at 6%, split evenly between the buyer and seller agents.

In other developed countries, buyer brokers are far less common and get paid by their clients, on average about 1.5%. This makes sense since the buyer broker is supposed to negotiate for his client against the seller. Having the seller pay the buyer broker creates a conflict of interest. It also prevents a buyer from paying his broker based on performance.

That means there’s little incentive for buyer brokers to negotiate better deals for clients, especially since they earn bigger commissions on higher-priced homes. The Realtors claim in defense that their code of ethics requires agents to “protect and promote the interests of the client.” But buyers might not know they are getting a raw deal.

It’s clear from the evidence presented by the plaintiffs that the Realtors’ primary interest is ensuring buyer brokers make a 3 percent commission no matter what. Brokerage firms train agents to set overall commission rates at 6%, split evenly between the buyer and seller agents. “Once you start cutting commissions, you can never stop,” one firm’s training document said. “Charge everyone the same and let them know it.” Ninety percent of transactions offer buyer agent commissions of exactly 3%.

The Realtors deny that buyer brokers “steer” their clients away from homes that offer lower commissions, but a study published last week provides contrary evidence. Lower commission listings receive fewer page views on real-estate listing Redfin ‘s website and take significantly longer to sell because brokers are less likely to forward them to clients.

The Realtors also claim their rules benefit consumers by giving them “access to the largest database of properties available” and reducing out-of-pocket costs. But commissions get baked into home prices. If not for the Realtors’ rule, many buyers wouldn’t use brokers or would negotiate lower commissions. Home prices would likely fall.

Sellers could decide they want to pay the buyer broker. But the Realtors’ requirement that they do so looks like a quintessential trade practice that the Sherman Act prohibits. The rule’s harmful effects are compounded by other anti-competitive Realtor rules, such as one that requires members who list properties in an alternative database to list them as well on a multiple-listing service (MLS).

This rule is being challenged under the Sherman Act in two other lawsuits. In one case, the real-estate start-up PLS.com sought to provide brokers an alternative platform to “pocket list” homes. Pocket-listing is when seller agents distribute information about homes to a small network of buyers outside an MLS. It’s similar to trading stocks over the counter.

Some sellers prefer not to list their homes on an MLS because they don’t wish to share all of the information that the Realtors’ databases require. Sellers that pocket-list also don’t have to pay a commission to the buyer broker. As demand for pocket listings soared last decade, PLS.com gained 20,000 members and started to threaten the MLSs.

The Realtors’ response? Require agents who post listings on PLS.com to also publish those listing on an MLS. Agents who don’t comply face penalties, including fines and suspension from the MLS. After the Realtors adopted this policy, agents dropped their listings from PLS in part because home sellers didn’t want their information shared on the MLS.

A Ninth Circuit Court of Appeals panel last year overruled a lower court’s dismissal of PLS.com’s lawsuit against the Realtors. Its policy “shares all the hallmarks of a group boycott” and impaired PLS.com’s ability to compete “on almost any dimension” by requiring seller brokers to supply MLSs “even if PLS’s product is better on the merits,” wrote Judge Milan Smith.

We’re no fans of most antitrust suits, but the evidence is strong that Realtors’ practices are classic antitrust violations that harm consumers. The Realtors may own the U.S. Congress, but perhaps independent courts won’t be so intimidated.

The Wall Street Journal