‘Earthquake’ in housing industry: Home sellers win NAR case

The National Association of Realtors and two brokerage firms were ordered to pay nearly $1.8 billion in damages to about half a million home sellers after a federal jury found they conspired to artificially inflate commissions paid to real estate agents.

The New York Times reported that the decision could radically change the home buying process in the United States, potentially restructuring the entire real estate industry, and lowering the cost of moving homes by cutting commissions.

A jury in Missouri on Tuesday sided with the plaintiffs in the class action lawsuit, awarding them total damages of $1.78 billion. The lawsuit alleged that the organizations, including the National Association of Realtors, Keller Williams and HomeServices of America, violated the law by conspiring to inflate commission rates.

Under the National Association of Realtors rule, a home seller must pay commissions to the buyer’s agent, which the sellers claimed in the lawsuit forced them to overpay agents.

One plaintiff, Holly Ellis, a Missouri homeowner and daughter of a longtime Realtor who said she has sold four homes and bought five in her lifetime, took the stand last Wednesday and said she was paid a total commission of 6% on the sale of the home at issue in the case. . Plaintiff’s attorney Michael Ketchmark said the buyer’s agent’s share added up to 20.55% of the net equity, so the commissions for both agents accounted for 40% of the property’s equity, Inman said.

“It was hard to accept that we would walk away with so little,” Ellis said, adding that she did not think it was a “fair practice” to be forced to pay both buyer and seller agents. .

Initially, the lawsuit was filed by nearly half a million home sellers in Missouri against the National Association of Realtors, Keller Williams, Anywhere, RE/MAX, and HomeServices of America. Before heading to trial, Re/Max and Anywhere opted to settle, with RE/MAX paying $55 million and Anywhere paying $83.5 million in damages, the New York Times reported. Those who did not settle went to trial.

While the defendants were ordered to pay $1.78 billion, the ruling also allows the court to award treble damages, meaning they could amount to three times as much as $5 billion, according to the New York Times.

The National Association of Realtors said it plans to appeal the ruling.

“The NAR rules prioritize consumers, support market-driven pricing and promote business competition,” the association said in a statement. “This matter is not close to being final, as we will appeal the jury’s verdict.”

In that case, the association responded that consumers “are better off and business competition is able to thrive because of MLS rules and how well local brokerage markets operate,” the National Association of Realtors said Tuesday.

“NAR’s Cooperative Compensation Rule ensures efficient, transparent, and fair domestic brokerage markets,” the post continues. “Sellers can sell their homes for more and see more buyers for their homes, while buyers have more options for homes and can afford representation. NAR also argued that Realtors are everyday Americans who are experts in helping consumers navigate the complexities of home buying, as well as Advocating for fair housing and building wealth for all.

While the case could take years to resolve, the New York Times reported that it is clear that the ruling and the massive size of the awards “suggest a shift in the way agent commissions are now paid.”

Even if the judge “doesn’t need structural change, structural change is coming,” said Glenn Kellman, CEO of Redfin, which earlier this month split from the National Association of Realtors.

“It may take days or weeks for the judge to decide what structural changes will be included in the jury’s verdict. “There will also be years of appeals over the legal standard used in the case and other issues,” Kellman wrote in a post Tuesday. “For now, the initial size of damages alone will ensure A big change has occurred. In the weeks leading up to the ruling, the National Association of Realtors had already updated its guidelines to allow agents to list homes for sale that do not offer a commission to the buyer’s agent.

Kellman also said that traditional brokers “will no doubt now train their agents to welcome conversations about fees, just as Redfin has done for years, especially when advising sellers on what fees to offer to buyers’ agents. Instead of saying a 2% or 3% buyer’s agent fee % is a customary or recommended fee. Agents will say that a buyers agent fee, if offered at all, is entirely up to the seller. That’s the way it should be.”

Lance Lambert is a former housing market reporter at Fortune who recently founded a new housing news and research outlet ResiClubwrote in a post on Tuesday that although the U.S. District Judge still needs to weigh in, the jury’s decision is “an earthquake already being felt in the industry.”

“This is just one case, and it already appears that the defendants will appeal the ruling. However, this is clearly an earthquake in the real estate industry, and will likely lead to years of legal battles and additional lawsuits.” The big question hanging over here is whether today was an earthquake. “Small, or is this first earthquake something much bigger?”