In a groundbreaking decision that has sent shockwaves through the real estate industry, the United States’ premier real estate brokerage firms have been held responsible for a staggering $1.8 billion in damages. This verdict comes after allegations of a seven-year conspiracy to compel homeowners to pay substantial commissions to the brokers representing buyers, resulting in a significant drop in related stock prices.
The National Association of Realtors (NAR), representing over 1.5 million agents, along with industry giants such as several subsidiaries of Berkshire Hathaway and Keller Williams Realty, were found liable on Tuesday. The trial, held in Missouri, scrutinized the industry’s adoption of anti-competitive regulations, which mandated sellers to allocate 3% of a property’s sale price to the buyer’s brokers. These rules were applied to listings on the Multiple Listing Service platform, a database for home sales managed by local NAR associations.
Legal representatives for sellers of upwards of 260,000 homes argued that without these regulations, buyer broker commissions would be the responsibility of home buyers, fostering a competitive environment for brokers to lower their commission rates. The complaint highlighted that broker fees in the U.S. typically range from 5-6% of the sale price, with about half of that going to the buyer’s broker.
“In competitive foreign markets, home buyers pay their brokers, if they choose to use one, and they pay less than half the rate paid to buyer brokers in the United States,” stated the plaintiffs’ lawyers.
The jury, consisting of eight members, sided with the plaintiffs, dealing a significant blow to the real estate sector. Following the verdict, shares in Zillow plummeted by 6.9%, Compass fell by 6.2%, and Redfin Corp saw a decrease of 5.7%.
A study by the American Action Forum, a conservative think-tank, recently estimated that a competitive market for commission rates could have saved consumers close to $72bn in commission payments in 2022 alone.
NAR president Tracy Kasper responded to the verdict, stating, “We stand by the fact that NAR rules serve the best interests of consumers, support market-driven pricing and advance business competition.” She emphasized that the case is “not close to being final” and assured that an appeal is forthcoming.
Darryl Frost, a spokesperson for Keller Williams, expressed the company’s disagreement with the verdict, claiming that there was the exclusion of crucial evidence. He stated, “We will consider all options as we assess the verdict and trial record, including avenues of appeal.”
HomeServices of America, a subsidiary of Berkshire Hathaway, also expressed disappointment and plans to appeal. The company warned that the decision could create additional hurdles in an already challenging real estate market and potentially deter homebuyers from seeking professional assistance during crucial financial transactions.
This case is one of two high-profile antitrust class actions targeting the U.S. real estate industry over broker fees. In a related development, Re/Max agreed to contribute $55mn to a settlement fund for both complaints earlier this month, while another firm, formerly known as Realogy Holdings Corp, agreed to provide $83.5mn in monetary relief to claimants, with neither admitting liability.
Reports also indicate that the Department of Justice is contemplating an antitrust action against NAR concerning broker fees.