Attitudes are Changing

A jury in Kansas City, Missouri just found realtors liable for colluding to keep commissions high, and awarded $1.8 billion to the plaintiffs.

Good.  

Even 5 years ago, the judge would probably have dismissed the lawsuit without the jury getting to rule, but people are beginning to understand that the free market is rigged in ways like this.

The short version is that the National Association of Realtors coerces its members into keeping the rates high, using things like refusing carry listings from brokers who charge lower commissions and preventing uncooperative agents from calling themselves realtors.  (NAR holds the trademark on "Realtor:)

Hopefully, they get nailed to the wall: (And not just because of the organizations years of ignoring allegations of sexual harassment.)

A federal jury ruled on Tuesday that the powerful National Association of Realtors and several large brokerages had conspired to artificially inflate the commissions paid to real estate agents, a decision that could radically alter the home-buying process in the United States.

The realtors’ group and brokerages were ordered to pay damages of nearly $1.8 billion. The verdict allows the court to issue treble damages, which means they could swell to more than $5 billion.

It’s a decision that has the potential to rewrite the entire structure of the real estate industry in the United States, lowering the cost of moving homes by reducing commissions. Under a N.A.R. rule, a home seller is required to pay commissions to the agent representing the buyer, which sellers claimed forced them to pay excessive fees to the agents. The home sellers said the brokerages collaborated with N.A.R. to enforce what is called the “cooperative compensation rule.”

But under the verdict, the sellers would no longer be required to pay their buyers’ agents, and agents would be free to set their own commission rates, which could be slashed in half or less. For example, a home seller with a $1 million home can now pay as much as $60,000 in agent commissions — $30,000 to their agent and $30,000 to the buyers’ agent.

N.A.R., alongside Keller Williams, Anywhere (formerly, Realogy), Re/Max and HomeServices of America, had been on trial in Kansas City in an antitrust suit brought by nearly half a million Missouri home sellers.

As an aside, HomeServices of America is owned by Warren Buffet's Berkshire Hathaway.

This is not surprising, Buffet's investment strategy is to maximize the extraction of monopoly and anticompetitive rent

………

But N.A.R., as well as Keller Williams and HomeServices, headed to trial. And on Tuesday morning, after deliberating for less than three hours, an eight-person jury delivered the verdict: Yes, there had been a conspiracy, and not only would the defendants be required to pay damages, but those damages could triple.

The Chicago-based N.A.R. is the largest professional organization in the United States. It has more than $1 billion in assets and owns the trademark to the word “Realtor,” making a real estate agent’s ability to buy and sell homes contingent upon the payment of membership dues in much of the country.

There is something that the USPTO should look into.  Realtor has become generic, much like aspirin, cellophane, hovercraft, and yo-yo.

………

How the ruling plays out remains to be seen, but it’s clear that the verdict — and the size of the damages — point to a shift in the way agent commissions are now paid. Redfin, which earlier this month exited the National Association of Realtors, said that the decision will prompt home buyers and home sellers to now question the standard practice of setting commissions between 5 and 6 percent.

As well they should. Those commissions are larcenous.

………

More than 1.5 million real estate agents across the United States pay dues to the organization in order to call themselves Realtors and assure home sellers and home buyers that they are aligned with the organization’s strict policies on ethics and home transactions. But after a series of sexual harassment allegations led to the resignation of the organization’s president this summer, Tuesday’s ruling threatens to further diminish their influence and could, according to some real estate agents, prompt many to abandon them entirely.

………

Makenzy Mohrman, a financial services analyst at Capstone LLC, said the verdict was just the beginning of changes in the industry, noting the U.S. Department of Justice is likely to pursue a more thorough investigation of how real estate transactions are handled in the United States.

“Antitrust has been a top issue for the administration. This is something that will affect a lot of consumers,” she said in an emailed statement.

………

Other lawsuits are now imminent. Within minutes of receiving the verdict on Tuesday, the lawyers for the plaintiffs entered another class-action suit into U.S. District Court in Missouri. That case, filed on behalf of three new home sellers, also claims the practice of having home sellers pay sales commissions to buyers’ agents is a violation of the Sherman Antitrust Act. It names N.A.R. as a defendant, as well as several major brokerages including Compass, eXp World Holdings, Redfin and Douglas Elliman.

One of the problems in our economy is that we have entities whose business model is based on their ability to charge rent far beyond the value of their services.  

Here hoping that this is a blow against this state of affairs.

If it is not the beginning of the end, hopefully, it is the end of the beginning.