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The US’s largest real estate brokerage agencies have been found liable for almost $1.8bn in damages over an alleged seven-year conspiracy to force home sellers to pay hefty commissions to buyers’ brokers, in a decision that sent related stocks lower.
The verdict on Tuesday against the National Association of Realtors, which represents 1.5mn agents, and market leaders including several Berkshire Hathaway subsidiaries and Keller Williams Realty, came at the end of a trial in which the industry was accused of adopting anti-competitive rules that require sellers to commit 3 per cent of a property’s sale price to buyers’ brokers.
The rules pertain to classifieds posted on the Multiple Listing Service platform, a database of homes for sale operated by local NAR associations.
Lawyers representing sellers of more than 260,000 homes in Missouri, where the case was heard, had argued that if such rules were not in place, the cost of buyer broker commissions would be borne by home buyers, not sellers, and “buyer brokers would thus have to compete with one another by offering a lower commission rate”.
As a result, broker fees for the typical home in the US total about 5-6 per cent of the sale price, about half of which goes to the buyer’s broker, according to the complaint.
“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,” plaintiffs’ lawyers added.
An eight-person jury agreed, delivering a blow to the sector. Shares in Zillow fell 6.9 per cent, with brokerage Compass down 6.2 per cent. Another brokerage group, Redfin Corp, dropped 5.7 per cent.
Research recently carried out by the conservative think-tank American Action Forum estimated a competitive market for commission rates could have saved consumers nearly $72bn in commission payments in 2022.
In a statement shortly after the verdict was delivered, NAR president Tracy Kasper said the matter was “not close to being final” and vowed to appeal.
She added: “We stand by the fact that NAR rules serve the best interests of consumers, support market-driven pricing and advance business competition.”
Darryl Frost, a spokesperson for Keller Williams, said the company disagreed with the verdict and was “disappointed that before the jury decided this case, the court did not allow them to hear crucial evidence that co-operative compensation is permitted under Missouri law”.
“We will consider all options as we assess the verdict and trial record, including avenues of appeal,” he added.
Berkshire Hathaway subsidiary HomeServices of America said it was disappointed with the court’s ruling and intended to appeal.
It added that the decision meant “buyers will face even more obstacles in an already challenging real estate market” and “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”.
The case in question is one of two high-profile antitrust class actions against the real estate industry in the US over broker fees. A similar complaint was filed in Illinois in 2019.
One of the defendants in both cases, Re/Max, agreed earlier this month to pay $55mn into a settlement fund for both complaints, while another, formerly known as Realogy Holdings Corp, agreed to provide monetary relief of $83.5mn to claimants. Neither admitted liability.
Bloomberg reported earlier this month that the Department of Justice is also considering bringing an antitrust action against NAR over broker fees.