Federal Jury Hits Realtors with $1.78 Billion Verdict: A Stinging Challenge to Traditional Commission Structures

NATION – In a landmark verdict that could potentially reshape commission structures in the real estate industry, a federal jury in Kansas City, Missouri, held the National Association of Realtors (NAR), along with several prominent real estate brokerages, liable for a hefty $1.78 billion. The lawsuit, centered around the longstanding practice of commissions on home sales, has raised eyebrows across the sector and could set a precedent for future litigation.
The lawsuit accused the NAR and various real estate entities, including those owned by Warren Buffett’s Berkshire Hathaway, of colluding to artificially inflate commissions for home sales from 2015 to 2022. This traditional commission model in the U.S. typically sees about 5% to 6% of a home’s sales price going towards broker compensation. Home sellers argued that this model suppressed competition, had “severe anticompetitive effects,” and made “no economic sense, except for the buyer broker,” as per court documents.
On October 31, 2023, after a two-week trial, the federal jury handed down a verdict that could disrupt decades-old practices in the real estate industry. The awarded damages, which could be tripled to more than $5.3 billion under U.S. antitrust law, signify a monumental financial repercussion for the defendants.
The class action represented sellers of more than 260,000 homes in Missouri, Kansas, and Illinois who had objected to the commissions they were obligated to pay to buyers’ brokers. Michael Ketchmark, the lead lawyer for the plaintiffs, remarked, “Today was a day of accountability,” underscoring the importance of the verdict.
In the aftermath of the verdict, the defendants expressed disappointment and signaled their plans to appeal. Notably, Re/Max and Anywhere Real Estate had settled before trial, paying $55 million and $83.5 million respectively without admitting liability. The ripple effects of the verdict were felt in the stock market too, with shares of real estate brokerages not involved in the lawsuit, such as Zillow Group and Redfin, seeing declines.
Moreover, this lawsuit has triggered a broader discussion about industry practices concerning real estate transactions. The U.S. Department of Justice is separately pushing to revive an antitrust probe into NAR’s practices, highlighting a period of intense legal scrutiny for real estate commissions.
The $1.78 billion verdict is more than just a legal entanglement; it’s a pivotal moment that could lead to a paradigm shift in the real estate industry’s commission structure. As the defendants gear up for an appeal, the real estate sector, consumers, legal pundits, and market watchers are keenly observing, fully aware that the ramifications of this verdict could extend far beyond the courtroom, potentially ushering in a new era of transparency and competitiveness in real estate transactions.
The implications of the verdict could be far-reaching, prompting a re-evaluation of commission structures and potentially fostering a more competitive environment that could benefit consumers in the long run.