The U.S. residential real estate economy as we know it is far from cooked, but a judge has turned on the front burner.
Stephen Bough, a judge for the federal court in Kansas City, Missouri certified a class action lawsuit in a written ruling Friday that makes “hundreds of thousands” of U.S. housing consumers the plaintiff in a now potentially historic case.
The defendants? The National Association of Realtors – the trade group that purports to represent real estate businesses, agents, and consumers – and arguably the four biggest companies in residential real estate: Realogy, Berkshire Hathaway HomeServices of America, RE/MAX, and Keller Williams.
NAR responded to the ruling Monday, and the trade group says it plans to appeal the decision.
At issue is an NAR policy that the seller’s agent of a home must split their commission equally with a buyer agent. The rule has been around since 1913, and, according to the consumers and their lawyers who filed the lawsuit (the lead named plaintiffs are homebuyers Rhonda and Scott Burnett), has artificially inflated real estate commissions to 5-6% total of the home sale price.
This 5-6% total split has only dipped gradually in the last 20 years, plaintiffs note, even as home prices have soared and perhaps analogous positions in the U.S. economy – like travel agent and stockbroker – have gone mostly extinct.
Bough’s 41-page ruling does not say either way whether he believes that NAR and the four brokerages conspired to make real estate commissions higher.
But Bough does make clear that he agrees with plaintiff’s proposed remedies for moving the antitrust case forward: Certifying a class of plaintiffs that includes: “All persons in the United States who, from April 29, 2015 to the present, used a listing broker affiliated” with either Realogy, Berkshire Hathaway HomeServices, RE/MAX or Keller Williams in the sale of the home listed on the Heartland, Columbia Board of Realtors, Mid America Regional Information System, and the Southern Missouri Regional multiple listings services.
Plaintiff’s attorneys will now be representing, “Hundreds of thousands of class members geographically dispersed throughout the state of Missouri and portions of Kansas and Illinois,” the judge wrote.
In a ruling that appears a complete slam dunk for the plaintiff’s, Bough goes into depth about the arguments made by plaintiff’s witness Craig T. Schulman, who is an economics professor at Texas A&M. The judge said that Schulman is persuasive in showing that real estate agents in countries’ with comparable economies – such as Australia – pay their agents much less per home sale.
The judge also swatted down an argument from Realogy that they actually disagreed with the NAR’s policy, and so were not part of any alleged conspiracy. Bough took exception with the conglomerate’s contention that their agents – who are part of such consumer-facing brands as Coldwell Banker – were “powerless” to stop NAR policy.
Reached Monday, Realogy also indicated that they will appeal the judge’s decision. Keller Williams spokesperson Darryl Frost responded with a statement noting that the judge “did not decide the merit’s of the plaintiff’s claims, which we categorically deny,” adding, “The case is far from over, and we will continue to defend ourselves in court.”
Messages left with RE/MAX and Berkshire Hathaway HomeServices were not immediately returned.
NAR returned an email asking for comment and provided this statement: “We are disappointed in the decision and plan to appeal. The pro-competitive, pro-consumer local broker marketplaces serve the best interests of buyers and sellers. Local broker marketplaces ensure equity, transparency, and market-driven pricing options for the benefit of home buyers and sellers. These marketplaces reduce transaction costs by ensuring, among other things, that a buyer broker and their client understand how much the listing broker will pay the buyer broker for procuring a buyer for the listed property. Local broker marketplaces also level the playing field among brokerages, allowing small brokerages to compete with large ones, and provide for unprecedented competition among brokers, including different service and pricing models.”