The housing market has become so unaffordable and difficult to navigate that you’d be forgiven for thinking there was some kind of conspiracy going on. A Missouri jury just decided that there really was.
Around 2 pm ET in a federal courtroom, a jury found that the National Association of Realtors and franchisors of the largest national real estate agents, including Berkshire Hathaway’s HomeServices, had conspired to artificially inflate home sales commissions paid to real estate agents. The jury ordered NAR and others to pay nearly $1.8 billion in damages to a class of more than 250,000 home sellers. Under antitrust law, that figure can triple to more than $5 billion, at the court’s discretion.
The case, Burnett v. NAR et al, is the first of two antitrust lawsuits centered on NAR’s commission policy to go to trial, and could upend the structure of the entire real estate industry, which the plaintiff class claims amounts to a giant price-fixing conspiracy. The “cornerstone” of this conspiracy, according to the complaint, is the requirement that home sellers pay commissions to the agent representing the buyer before listing the homes in the property database used throughout the country, the Multiple Listing Service, which are controlled by local NAR associations.
Because the vast majority of homes are sold in an MLS marketplace, the plaintiffs claim, home sellers are forced to pay a cost that would otherwise have to be paid by the buyer. Because the NAR and major franchisors have “market power,” the plaintiffs argued, they structure the market in a way that results in higher fees and less competition.
The jury answered yes to all questions put to it, according to the verdict form, including whether this conspiracy caused the sellers to “pay more for real estate brokerage services when selling their homes than they would have paid without this conspiracy.”
NAR was challenging. In a statement delivered to the fortunethe group’s vice president of communications, Mantill Williams, said its rules “put consumers first, support market-driven pricing and promote business competition. Williams added that “This matter is not about to be final, as we will appeal the jury’s verdict,” and will ask the judge to reduce the jury’s verdict in the interim.
Williams said NAR maintains “the fact that NAR’s Guide to Local MLS Broker Markets ensures that consumers receive complete, fair, transparent and reliable home information and that brokerages of any size, service or model of prices have a fair chance to compete.” It will likely be several years before this case is fully resolved, he added.
In a statement, HomeServices said the company will also appeal the verdict, in accordance with The Washington Post. “Today’s decision means buyers will face even more hurdles in an already challenging property market and sellers will find it harder to realize the value of their homes,” the company said.
In addition, Keller Williams spokesman Darryl Frost said The Washington Post that the company is “disappointed that before the jury decided this case, the court did not allow them to hear crucial evidence that cooperative compensation is permitted under Missouri law.”
Michael Ketchmark, the lead attorney for the plaintiffs, struck a very different tone. “We spent 4 1/2 years uncovering the evidence of this conspiracy,” he said The Washington Post. “When the jury saw the evidence and heard the testimony … they agreed that this is wrong and illegal.”
When the lawsuit was originally filed, it included Any real estate site (formerly known as Realogy) as a co-conspirator in NAR’s practices, but this company as it was resolved for $83.5 million.
A stunned market reacts
The market digested the news, sending major brokerage stocks down 5% or more immediately. A few hours after the verdict, the big drops included Zillow falling by $600 million, eXp World Holdings for $200 million, and Opendoor for $150 million. On the smaller side, Redfin lost $32 million and compass lost $61 million. That means the market wiped more than $1 billion out of the brokerage’s stock in a matter of hours as its business model faced a tough challenge from a Kansas City jury.
The verdict in the case surprised some industry experts. By a, Daryl Fairweatherchief economist at Redfin, was impressed that the jury understood complex antitrust arguments about market power well enough to rule in the class.
“It was unclear whether a jury would understand the economics of price-fixing well enough to see NAR’s rule of making the seller pay the buyer’s agent as a scheme to avoid competition, but they did.” he said. published in X this afternoon. “Bravo to [prosecutors] for his economic communication skills.”
Redfin CEO Glenn Kelman says the company welcomes the verdict as the company tries to be “on the right side of history,” he wrote in a lengthy post, “Change is coming to the real estate sector.” Kelman has moved in recent weeks to completely sever the ties of its intermediation with NAR for a variety of reasons, including explosive allegations of a culture of sexual harassment, as reported in The New York Times.
“As a company that exists to give real estate consumers a better deal, Redfin is proud of our unwavering consumer advocacy,” he said in a statement. “Redfin has saved our clients more than $1.5 billion in fees.”
Zillow has not released any guidance or similar reactions to the case.
Is a major change coming to the commission structure?
However, the verdict could change the real estate commission structure as we know it. NAR Chief Legal Officer Katie Johnson addressed the lawsuit on the company’s podcast earlier this month.
“The outcome, whichever way it goes, could have significant consequences for the real estate industry and profession for years to come,” Johnson said on the podcast. “What’s really at stake here is how the clearing is done from the quote broker to the buyer broker.”
Amanda Orson, entrepreneur, founder and CEO of the private real estate market galleon, which is developing an AI-based transaction platform, says a change to fee structures is “long overdue.” Orson said a “triad of forces” is working against the old commission model: lawsuits, the market itself with frozen inventory and high interest rates, and accelerating AI.
“This [bears] noting that the vast majority of pending lawsuits are *by intermediaries* against the NAR. Not owners!” she published in X. “Change is not only coming, it’s long overdue.”
This story was originally presented at Fortune.com
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