Several clients of a prominent Ohio real estate brokerage, who claimed they were cheated by having to pay both a percentage-based commission and a $225 administrative fee, recently lost their effort to certify a class action. The ruling offers other real estate businesses valuable guidance about avoiding potential class liability.
In the case, Cantlin v. Smythe Cramer Co., two home buyers and a home seller sued the brokerage, which operates under the name Howard Hanna Smythe Cramer, over the $225 fee. They argued that the percentage-based commission fully compensated the broker for its services and that, therefore, the extra administrative charge was for nothing. The consumers asserted that this practice allowed Howard Hanna to avoid the public perception that it was increasing its commission rates “while at the same time pocketing additional funds from customers for services already charged.” Interestingly, all of the named plaintiffs’ transactions occurred in 2009, before the 2010 revisions to HUD-1 settlement statements that enabled brokers to differentiate percentage and flat-fee aspects of their commissions.
The trial court granted the consumers’ motion for class certification, but the appellate court reversed that ruling. The main problem, the appellate court held, was that different forms were used by class members, some of which showed a hybrid commission and others of which simply showed a separate $225 fee. That variation among putative class members defeated the plaintiffs’ ability to achieve a classwide result.
Cantlin presents two main takeaways for real estate companies. First, listing administrative fees as being part of a broker’s overall commission can help avoid these types of lawsuits. Second, real estate businesses should always be mindful of their ability to justify separate charges for each specific item appearing on a HUD-1 statement. Plaintiffs’ lawyers are constantly looking for ways to sue over iterative charges.