Real Estate Verdict Spurs ‘Race to Courthouse’ Over Collusion

Private plaintiffs are primed to file new lawsuits against the National Association of Realtors following a $1.8 billion verdict against the powerful trade group, pushing potential damages into the hundreds of billions of dollars and posing significant risk to the real estate industry.

A Missouri jury last week sided with the plaintiffs against the NAR and several residential brokerages, finding them guilty of colluding to inflate brokerage commissions. Home sellers had accused the trade group of forcing them make inflated payments to buyers’ brokers.

The success of the case, and the additional scrutiny of how real estate agents are paid, is likely to prompt a wave of follow-on suits against the industry, attorneys say.

One such suit, a proposed class action filed last week, aims to refund 31 million home sellers across the US who allegedly paid inflated commissions to brokers, and seeks damages in excess of $100 billion from NAR, as well as from Compass Inc. and Redfin Corp., said Mike Ketchmark, lead attorney for the plaintiffs at Ketchmark and McCreight. A similar class action in Illinois set for trial next year seeks as much as $40 billion.

The flood of litigation aimed at NAR and various brokers could further cripple the real estate industry while interest rates hovering around 8% have diminished housing supply.

Read More: US Housing Market Becomes Impossible Mess With No End in Sight

“Obviously it’s a big blow to them, and a reminder that these organizations can be viewed as facilitating collusion,” said Matthew DeFrancesco, partner with FisherBroyles LLP in New York and an antitrust law professor at New York Law School. “The real estate market is something everyone is attuned to, and I’m sure that’s part of the reason it was a target. And there’s a lot of money there.”

The verdict sets a court precedent that makes other real estate groups and brokers a target for litigation with large damages that could force some players out of business.

Total damages against NAR and other industry brokerages could reach $400 billion, said Ryan Tomasello, managing director at Keefe, Bruyette & Woods who covers the real estate industry. The court could decide to increase the $1.8 billion verdict to $5.4 billion, triple what the plaintiffs prove they actually suffered in damages.

“It’s a race to the courthouse, so to speak,” Tomasello said. “It’s possible that you see other lawsuits filed against numerous other brokerages, of which there are probably hundreds that aren’t included in the existing cases so far.”

“There’s a lot of white space for ambulance-chasers to kind of go out there and capitalize on this court precedent, and increase the amount of damages further and further,” he added.

Real estate groups that are the target of additional suits will feel pressure to settle and negotiate monetary damages down to levels that are “feasible for the industry to address probably over a multi-year period,” Tomasello said. “The plaintiffs don’t want to just see the entire industry be bankrupt.”

‘Best for Consumers’

NAR didn’t immediately respond to requests for comment. The organization has said it will appeal the verdict and ask the court to lower damages.

The NAR disputes claims that it engaged in a conspiracy by enforcing a buyer-agent commission rule. The rule requires home sellers to offer payment to the broker of a buyer when listing a property on a database known as the multiple listing service, which aggregates properties for sale in a given region and is controlled by the NAR.

“We continue to assert that the practice of listing brokers making offers of compensation to buyer brokers is best for consumers,” the association has said in a statement. “It gives the greatest number of buyers a chance to afford a home and professional representation, while also giving sellers access to the greatest number of buyers.”

See also: Why 6% Commissions on US Home Sales Are on Trial: QuickTake

Redfin declined questions, pointing to an Oct. 31 blog post by its CEO, Glenn Kelman, who touched on the potential of copycat suits and emphasized Redfin’s move to pull out of the NAR prior to the verdict.

“For our entire history, at congressional hearings, in press appearances, in sensationalized debates, and in public and private industry meetings, we’ve campaigned tirelessly for lower fees, commission transparency, and broader consumer access to real estate listings,” Kelman stated.

Compass didn’t immediately respond to requests for comment. On a Nov. 5 call with investors, Compass CEO Robert Reffkin said the brokerage is “well-positioned” to face real estate industry changes and “will respond accordingly to all the complaints against us at the appropriate time.”

‘Jockeying for Position’

The Missouri verdict, based off the case originally brought by home sellers including Josh Sitzer, provides a legal framework for similar suits seeking the next big class action, attorneys say.

“It serves as a roadmap for what other plaintiffs can allege,” Joe Ostoyich, head of Clifford Chance’s US antitrust litigation practice, said about the Sitzer case. “They are jockeying for position on who is going to get a leadership role in the case going forward, and what venue it will end up in.”

A class action filed last week in US District Court for the District of Illinois doesn’t name NAR as a defendant but alleges that real estate groups including Redfin, Compass, and eXp World Holdings Inc. engaged in a conspiracy by requiring their franchisees to comply with the NAR’s anticompetitive buyer-agent commission rule.

In a statement, eXp World Holdings said it is still studying the complaint, and is closely observing the antitrust litigation against its competitors in recent years.

“We are committed to upholding fair and transparent practices compliant with law and we already have mechanisms and a plan in place that enables buyers and sellers to negotiate commissions,” eXp said.

The goal of individual suits will be to compensate sellers in specific regions of the country where they listed homes on NAR-controlled multiple listing services, said Barry Barnett, a partner with Susman Godfrey LLP who focuses on antitrust. NAR controls more than 800 MLS databases nationwide that allow brokers to share data on properties.

“People will be opportunistic about trying to parlay that into a settlement or a verdict in their locality or state,” Barnett said about the $1.8 billion verdict, adding that cases will likely be consolidated into multidistrict litigation and decided by one federal judge.

Disputing Conspiracy

But plaintiffs could face a rocky path ahead. NAR has successfully fought off similar lawsuits before. For example, a judge dismissed a case in 2022 against NAR that accused the organization of conspiring with other defendants, including Keller Williams Realty Inc., to inflate buyer-agent commissions. The NAR said in its motion to dismiss that case that the plaintiffs failed to allege a plausible antitrust market.

A jury in October found Zillow Group Inc. not guilty in a suit that accused it of conspiring with defendant NAR to hide listings from rival brokers on its popular online real estate marketplace.

The NAR can defend itself against current and future cases by disputing claims a conspiracy ever took place, said Shubha Ghosh, an antitrust professor at the Syracuse University College of Law.

“They could show that they had some policy that each agent acts on their own and they are trying to promote competition among the different agents,” Ghosh said. “NAR is a dominant organization of course, but it’s not clear if they were acting as one entity.”

DeFrancesco, of FisherBroyles LLP, said he thinks the NAR can also defend itself by repeating past arguments that its rules create transparency and promote competition.

“Conspiracies often aren’t just expressed, they can be a wink-wink, and often are,” DeFrancesco said. “It’s so rare that you have a smoking gun.”

The case is Sitzer v. National Association of Realtors, W.D. Mo., No. 4:19-cv-00332.