Landmark $1.78 Billion Verdict Against Realtor Association May Disrupt Housing Market

Image Commercially Licensed from: Depositphotos
Image Commercially Licensed from: Depositphotos

In a recent groundbreaking event in Kansas City, Missouri, a jury awarded a $1.78 billion judgment against the National Association of Realtors (NAR). This decision could potentially cause a significant shift in the housing market. The timing and impact on residential property expenses for millions remain uncertain.

The lawsuit centered on the traditional 6% commission fees that home sellers pay to their agents, which are then shared with the buyer’s agents. This practice, a fundamental aspect of NAR’s operations, was deemed by the jury as a form of collusion to artificially raise the cost of real estate services.

Jerod Breit, a former Missouri homeowner and police officer, expressed his initial acceptance of paying a commission to his broker. However, he questioned why he also had to pay the buyer’s broker, someone he had never interacted with. This reflection led him to participate in the class-action lawsuit against the NAR.

Michael Ketchmark, the attorney leading the lawsuit, criticized the commission-sharing as an “unconscionable” conspiracy, likening it to cartel behavior. He highlighted the uniqueness of this arrangement in the U.S., where competitors set and split compensation.

The NAR, which recently saw its CEO Bob Goldberg resign, plans to appeal the verdict. The association, along with two brokerages found liable, emphasized their commitment to consumer-focused rules and competitive business practices. Despite the verdict, the legal process is far from over, and the current commission structure remains in place amidst a challenging market.

Bess Freedman, CEO of Brown Harris Stevens, commented that the ruling does not change the immediate situation and does not address the real issue for consumers: high mortgage rates. With 30-year fixed mortgage rates at an 8% high and a shortage of housing inventory, the market is under strain.

Homeowners who previously secured rates below 5% are reluctant to sell, creating a bottleneck in the market. Prospective buyers face high prices and limited options, with expectations that the Federal Reserve will maintain high-interest rates.

Tali Strom, soon to sell her home in New York, expressed her discontent with the distribution of commission fees. While she values the service provided by her broker, she is critical of the significant portion of fees that go to the buyer’s agent, especially given the technological advancements that have changed the role of realtors today.

This legal turmoil adds another layer of complexity for homeowners considering selling their homes, as the industry grapples with the implications of the jury’s decision.