A sequence of legal challenges is underway to challenge longstanding practices within the real estate industry regarding the determination of commissions for agents involved in home sales, and the allocation of associated costs. In a recent development, a federal jury has ordered the National Association of Realtors (NAR) and several major real estate brokerages to pay nearly $1.8 billion in damages. The verdict comes in response to allegations of artificially inflated commissions paid to real estate agents.
The class-action lawsuit, initiated in 2019 on behalf of 500,000 home sellers in Missouri and neighboring towns, asserts that the defendants engaged in a conspiracy that violated federal antitrust law. The specific claim is that they compelled home sellers to cover the commission for the broker representing the buyer of their homes. If treble damages are granted, the potential financial liability for the defendants could exceed $5 billion.
Mantill Williams, a spokesperson for the NAR, stated, “This matter is not close to being final as we will appeal the jury’s verdict. In the interim, we will ask the court to reduce the damages awarded by the jury.” Williams anticipates that several years may pass before the case reaches a resolution.
In the aftermath of the verdict in what has been known as the Burnett trial, similar lawsuits have been filed against additional real estate companies. Two cases, including the so-called Batton lawsuit, claim that NAR and major brokerages also conspired to inflate commissions, with the key difference being that Batton involves recent homebuyers instead of homesellers.
The lawsuits allege that buyers were discouraged from negotiating commissions, falsely informed that buyer agent services are free, and directed to properties with higher commission rates, leading to higher commission costs and inferior services.
The second Batton suit adds eight new real estate companies, expanding its scope from 17 states and territories to 25. Notably, it removes NAR from the list of defendants. If successful, these lawsuits could involve millions of transactions and potentially result in damages amounting to nearly $1 trillion. However, the likelihood of such astronomical damages is considered low, given the industry’s financial capacity.
The cases are still in early stages, with uncertainties about their progression, including a motion to dismiss in the original Batton case and the second case at an early stage. The lawsuits follow the Burnett verdict, which is under appeal, and the legal landscape is evolving with potential implications for the real estate industry.
Filed in the U.S. District Court for the Western District of Missouri, the new class-action lawsuit seeks nationwide coverage for anyone who has sold a home in the last five years. Michael Ketchmark, one of the attorneys involved, argues that the issue at stake is costing Americans approximately $60 billion in extra real estate commissions.
The focus of these legal actions centers around an NAR rule requiring home sellers to offer to pay the commission for the agent representing the homebuyer when advertising on a local Multiple Listings Service (MLS). This is in addition to covering the commission for their listing agent or broker. Plaintiffs argue that this rule artificially maintains high commissions for a homebuyer’s agent.
The NAR contends that its “Mandatory Offer of Compensation Rule” benefits consumers by providing the greatest number of buyers access to professional representation while also enabling sellers to reach the largest pool of buyers. The NAR’s spokesperson notes that their policies have always required an offer of agent compensation without specifying an amount, emphasizing that it could be as minimal as $1 or even a penny.
As the legal proceedings unfold, the real estate industry is closely watching the potential impact on the customary handling of agent commissions, which typically involve the home seller paying their listing agent. The NAR has vowed to appeal the recent verdict, and any immediate changes are unlikely. The outcome will not only influence how the industry restructures its compensation and offers but may also prompt a broader examination of regulatory barriers affecting buyer-agent commissions.
Information for this story was found via Fortune and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.