Wrong, wrong, wrong

12 angry sellers

Courtesy of Snotty Philistine, this:

US jury finds realtors liable for inflating commissions, awards $1.78 bln damages

Trebled under antitrust law, that’s a $5 billion judgement.

Oct 31 (Reuters) - A U.S. jury on Tuesday found the National Association of Realtors and some residential brokerages, including units of Warren Buffett's Berkshire Hathaway liable to pay $1.78 billion in damages for conspiring to artificially inflate commissions for home sales.

The verdict by a federal jury in Kansas City, Missouri, could upend decades-old practices that have allowed real estate agents to boost commissions as home prices and mortgage rates rise, hurting consumers by making housing transactions more expensive.

Plaintiffs in the class action included sellers of more than 260,000 homes in Missouri, Kansas and Illinois between 2015 and 2022, who objected to the commissions they were obligated to pay buyers' brokers.

The verdict followed a two-week trial, and the damages award can be tripled under U.S. antitrust law to more than $5.3 billion.

"Today was a day of accountability," said Michael Ketchmark, the lead lawyer for the plaintiffs.

The defendants included Berkshire-owned HomeServices of America and two subsidiaries, as well as the realty Keller Williams.

NAR spokesperson Mantill Williams said the trade group plans to appeal, and seek reduced damages.

HomeServices said it was disappointed in the verdict and planned to appeal, while Keller Williams spokesperson Darryl Frost said the realty company would consider its options for an appeal. "This is not the end," Frost said.

The alleged offense here, and in Biden’s DOJ’s separate attempt to revive its own antitrust suit, is the role of the buyer’s agent, who supposedly does no work and still collects half of the commission on sale.

Broker compensation in the U.S. has typically been about 5% to 6% of a home's sales price, with about half paid to a buyer's broker.

Home sellers complained that this model suppressed competition by keeping commissions for buyer brokers in the 2-1/2 to 3% range despite the brokers' diminishing role, with many buyers able to find homes independently online.

Sellers said the arrangement had "severe anticompetitive effects" and made "no economic sense, except for the buyer broker."

The sellers apparently believe that, in this day of Zillow, buyers will find the sellers on their own, and approach the sellers’ brokers directly and negotiate a sale — the buyer has no need for her own representation, and it’s to the sellers’ advantage that their own broker is forbidden by law from disclosing anything about the seller or the neighborhood that would harm the broker’s principal’s — the seller’s — interest.

Aside from the fact that sellers are also usually buyers, and may soon discover what it’s like to work without a guide, the idea that buyers agents “do practically nothing” is simply wrong.

In normal times, a buyer’s agent probably shows clients 10-20 different homes, with multiple visits to homes that pass the initial search, negotiates a price, arranges and oversees inspections and a dozen other pre-closing tasks, and not infrequently, after spending a year or a year-and-half with a buyer, discovers that she was “really just looking”, or “prefers Westport”, or she meets a more understanding agent at her tennis club, and decides to go with her, instead. We write off 100s of wasted hours on clients like that, and their numbers are not balanced by the black swan client who falls in love with the first house she’s shown and buys it on the spot. No one works for free, and no agent I know is willing to work for $10 an hour to sell your house for you.

And even as the industry is now, there is absolutely no requirement that a house hunter work with an agent; they can go on Zillow, find a house they like and approach the sellers’ agent directly and negotiate a price on their own. One rude fellow told me at a public open house that he only works directly with a seller’s agent, “because that way I know that only one person’s lying to me”. A BSD Wall Streeter tough guy and oh-so sophisticated, bless his heart.

A buyer’s agent owes a fiduciary duty to his buyer; the seller’s agent, in turn, owes her principle 100% loyalty. The sellers’ motive for selling (divorce, pending indictment, bankruptcy are always good motivators), the impending solar farm going up down the street, the alcoholic next door who’s known for banging on his neighbors’ doors at midnight, the fact that the house is ridiculously overpriced and going nowhere — those are for the Zillow customer to discover on her own, and the sellers’ agent won’t — is not allowed to — help in that search.

But whatever: if these suits eliminate buyer representation, and that’s what sellers want, fine. It will kill the Multiple Listing Service and that, in turn will reduce the exposure of their house to the broadest possible number of people, but hey, at least it will cut down on the number of strangers traipsing through the house at inconvenient hours. Don’t expect commissions to go down, however, because my guess is that listing brokers will just keep everything in house, and pocket the entire commission.