Realtors must pay home sellers $1.8 billion for inflating commissions, jury finds
The National Association of Realtors and several real estate companies were ordered to pay $1.8 billion in damages after a federal jury in Missouri on Tuesday ruled that they conspired to artificially inflate brokerage commissions.
Beyond the realtors' association, defendants in the case include Keller Williams, Berkshire Hathaway's HomeService of America and two of its subsidiaries. The verdict, which came after a two-week trial in federal court in Kansas City, is a potential game changer for how Americans buy homes. It also comes at a time when the U.S. real estate market is stalled, with mortgage rates nearing 8% and existing home sales down double digits from a year ago.
The case centers on the commissions home sellers make to a buyer's realtor. Those payments are partially governed by NAR rules, which mandate that sellers include a fee offer to the buyer's agent in listing property. The offer is known by real estate agents representing prospective buyers, but the latter are usually in the dark on those amounts. That can lead agents to steer buyers into deals to maximize their own commissions.
Plaintiffs claimed the association and other defendants colluded to drive up the commission that sellers pay to brokers representing home buyers. Class members include the sellers of hundreds of thousands of homes in Missouri and parts of Illinois and Kansas between 2015 and 2012.
Michael Ketchmark, the lead attorney for the plaintiffs, told CBS MoneyWatch he expects the jury award to be tripled under U.S. antitrust law to more than $5 billion.
"Today was a day of accountability — for the longest time the NAR has used its market power to get a stranglehold grip on home ownership," Ketchmark told CBS MoneyWatch.
"It cost two to three times as much to sell a house in the United States as it does in other industrialized countries," said the attorney, citing the practices outlined during the trial that compels the seller to pay brokerage commissions of up to 6%.
Two other brokerages, Re/Max and Anywhere Real Estate, settled with the plaintiffs earlier in the year, paying a combined $138.5 million and agreeing to no longer require that agents belong to the NAR.
HomeServices expressed disappointment with the ruling and vowed to appeal.
"Today's decision means that buyers will face even more obstacles in an already challenging real estate market, and sellers will have a harder time realizing the value of their homes. It could also force homebuyers to forgo professional help during what is likely the most complex and consequential financial transaction they'll make in their lifetime," a spokesperson stated in an email to CBS MoneyWatch. "Cooperative compensation helps ensure millions of people realize the American dream of homeownership with the help of real estate professionals."
Keller Williams said it would consider its options, including an appeal. "This is not the end," a spokesperson said in an email.
In a post on social media, The NAR vowed to appeal the liability finding. "We remain optimistic we will ultimately prevail. In the interim, we will ask the court to reduce the damages awarded by the jury," NAR President Tracy Kasper said in a statement.
Shares of real estate companies not identified in the lawsuit plunged following the ruling in a case that challenged widespread industry practices, with Zillow falling 7% and Redfin ending Tuesday's session nearly 6% lower. The fall continued on Wednesday, with Zillow shares down nearly 2% in early trading.