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  • An earthquake just hit the real estate industry as class action ruling comes down. Only question is big or small quake?

An earthquake just hit the real estate industry as class action ruling comes down. Only question is big or small quake?

NAR Chief Legal Officer: "could have major consequences for the real estate industry and profession for years to come"

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On Tuesday, a Missouri jury awarded the plaintiffs in the Sitzer/Burnett buyer broker commission class action lawsuit a total of $1.78 billion in damages. The class action lawsuit alleged that organizations such as Keller Williams, HomeServices of America, and the National Association of Realtors had violated the law by conspiring to inflate commission rates. The jury concurred with that claim.

As reported by Inman, one of the plaintiffs, Hollee Ellis, a former high school English teacher, had paid a 6% commission on her home sale. The buyer's agent's share of the commission amounted to 21% of her "net equity," effectively consuming 40% of the equity she had accrued in the property. During the trial, which lasted two weeks, Ellis reportedly said: “It was a hard pill to swallow that we would walk away with so little.”

In Ellis’ view, she should not have been forced to pay for both the seller and buyer’s agent, reportedly telling the court that: “The buyer who chose them and who they’re working for should pay them.”

As of 5:00 p.m. ET, there hasn't been a press release issued by Keller Williams, HomeServices of America, or the National Association of Realtors. However, back on October 16th, NAR Chief Legal Officer Katie Johnson discussed the lawsuit on their internal podcast.

“The outcome, no matter which way it goes, could have major consequences for the real estate industry and profession for years to come,“ Johnson said. “The plaintiffs are home sellers in Missouri represented by class action attorneys. These home sellers used an agent who listed their home on one of four MLSs in Missouri. And the class action attorneys representing the plaintiffs are alleging that the commissions paid by the sellers are too high as a result of the listing brokers offering compensation to buyer brokers. So what's really at stake here is the way that compensation is made from listing broker to buyer broker.”

Johnson went on to explain: “These class action attorneys are mischaracterizing our rules and do not understand how the rules work themselves. And then the practice of cooperation between real estate professionals has contributed to this efficient pro-consumer model that we have and have had for a hundred years for transacting real estate in America.”

Not everyone in the industry agrees with NAR.

“It was unclear whether a jury would understand the economics of price-fixing well enough to see NAR's rule of having the seller pay the buyer's agent as a scheme to prevent competition, but they did. Bravo to the prosecutors for their economics communication skills,” Daryl Fairweather, chief economist at Redfin, tweeted on Tuesday.

While the U.S. District judge still needs to weigh in (according to HousingWire), the jury decision is already an earthquake being felt in the industry. Just after the jury decision, Inman reports new lawsuits were filed against Douglas Elliman, eXp World Holdings, Redfin, Weichert Realtors, Compass, United Real Estate, and Howard Hanna.

Real estate stock took a hit following the news. On the day, Zillow stock fell -6.9%, Opendoor fell -9.1%, Redfin fell -5.7%, and Compass fell -6.2%.

Big picture: This is just one case, and it already appears that the defendants will appeal. However, it is clearly an earthquake in the real estate industry, potentially triggering years of legal battles and additional lawsuits. The big outstanding question here is if today was a small quake, or this first tremor in something much much bigger.

This morning, we got the latest Case-Shiller National Home Price Index reading. It showed that U.S. home prices rose +0.4% between July and August (with seasonal adjustment it was a +0.9% month-over-month jump).

On the year, U.S. home prices are up +5.8% (or +4.0% with seasonal adjustment), and up +2.6% on a year-over-year basis. National house prices in August 2023 are +1.0% higher than in June 2022 (i.e. last year’s price peak).

U.S. home prices, as tracked by Case-Shiller, are also up +44.7% since March 2020.

On Saturday, the Lance Lambert House Price Tracker went live. The beta version has metro-level analysis; however, county and ZIP code data will be available soon. This offering is for just ResiClub Pro members.