In the United States, there is currently a large class action lawsuit (Sitzer v. National Association of Realtors Case №4:19-cv-00332-SRB) regarding real estate agent commissions.
The key premise of this lawsuit is that:
- There are two types of real estate professionals in the United States: real estate agents and realtors.
- More than half of real estate agents become realtors.
- Realtor is a trademarked profession by the NAR, and by paying membership fees, realtors can access various benefits provided by the NAR.
- One of the benefits is access to the MLS, a regional real estate database, which is not always accessible to real estate agents who are not realtors.
- According to the NAR rule established in 1996, the buyer’s real estate commission is determined by the seller. Although MLS and NAR are separate organizations, in order for the seller’s real estate agent to list on the MLS, they must follow this NAR rule. In addition, the seller cannot be involved in the distribution of the commission.
- The standard real estate commission is around 6% of the sales price, which is split between the buyer’s and seller’s real estate agents.
- There have been many lawsuits against the NAR regarding real estate commissions in the past, but NAR has won almost all of them.
- The total amount of real estate commissions in the United States is about 10 trillion yen per year.
The current status of this lawsuit is that “a jury in a federal court in Missouri awarded $1.8 billion in damages, but the judge has not yet issued a ruling” (Reuters article). After the judge issues a ruling (which can triple the damages), NAR appears to be appealing to the 8th Circuit Court of Appeals.
Buffett’s Berkshire, which is involved in this lawsuit, stated in its “2023 Annual Report that, as a result of the October verdict, HomeServices could face losses of up to $5.4 billion, excluding legal and other potential costs.” Berkshire’s subsidiary appears to be appealing to the U.S. Supreme Court that “it is not subject to the jurisdiction of the U.S. courts because there was an arbitration agreement” (Reuters article).
In addition, other class action lawsuits have been filed in response to the jury’s verdict, and there is also an antitrust investigation by the Justice Department (this timeline is a good reference, but it is very complicated). The largest of the related class action lawsuits is the one filed by Gibson et al. against the NAR. Gibson vs NAR is in the same state of Missouri, with the same judge and the same attorney (Mr. Ketchmark) as Sitzer vs NAR. The legal structure seems to be the same, but all people who have traded houses in the United States since 2019 may be able to join the class action lawsuit, and the damages could amount to 20 trillion yen.
The outcome of these series of lawsuits is unknown, but with some real estate agents settling and real estate portal Redfin leaving the NAR, it seems likely that the U.S. housing market will change significantly.
To begin with, the reason why this huge lawsuit has progressed differently from previous lawsuits against the NAR is that the value of “marketing” and “negotiation” that real estate agents are doing has become less clear.
In particular, the former is not only due to the development of web portals, but also the development of SNS and YouTube, where sellers can sometimes appeal their properties themselves and already have potential buyers.
From the buyer’s point of view, it may be strange to be forced to pay a real estate commission just for being shown a property found on a real estate portal. For the same reason, it seems that the tenant’s commission will be banned in New York in the rental market.
“Contract negotiation” is also a bit ambiguous in the United States because there are many real estate lawyers, so it is not clear how much added value real estate agents can create.
By the way, the original plaintiffs in this class action lawsuit was three couples, but the original plaintiff, Mr. Sitzer, has withdrawn from the lawsuit, while several new plaintiffs have joined.
Although this lawsuit in the United States is a cautionary tale, the point of “marketing” is something that is common to all countries, and it may also be an opportunity for the DIY (Distributed It Yourself) approach to become more widespread throughout the world.
If you are interested in DIY, you should create your account in placeof and create your place where you can express your love to your property and communicate with potential next users using a waiting list.
