In the News

How the $1.8 Billion Real Estate Commissions Lawsuit Came to Be

The Wall Street Journal

November 26, 2023

For years, lawyers prodded at the rule on how buyers’ and sellers’ agents share fees. But two lawsuits finally took aim at it head on.

The litigation that could end up changing how millions of Americans buy and sell homes was hiding in plain sight for three decades.

The current set of rules governing how agents are paid, which effectively mean sellers are the ones who set compensation for buyer agents, date to the 1990s. Those rules have come under significant scrutiny, particularly as commissions have remained around 5% to 6% of the sale price even as home values have skyrocketed and many buyers do more of the work finding a home themselves online.

A Kansas City jury last month delivered a $1.8 billion verdict to home sellers in Missouri against the National Association of Realtors and major brokerages, finding they had conspired to keep commission rates high. A judge could triple that to $5 billion. NAR says it plans to appeal. 

Groups as varied as the Consumer Federation of America and the Cato Institute have published papers accusing the industry of working to keep Realtor commissions high. The Justice Department has conducted high-profile investigations of NAR twice in the last 20 years. Plaintiffs’ attorneys said they would often field calls from home sellers interested in filing lawsuits.

For three decades all those efforts amounted to very little.

“It seemed a little bit out of reach. You would need an entire industry to be reformed,” said Benjamin Brown, co-chair of the antitrust practice at Cohen Milstein, a 100-lawyer plaintiffs’ firm known for suing big companies and banks.

A call five years ago from a Minnesota consumer advocate and lawyer with a one-person firm would change that.

George Farah, then a partner at Cohen Milstein, took the call with the advocate who had spent decades investigating practices in the industry. Farah says he readily talks to advocates about case ideas and has at times had to listen to a 45-minute soliloquy about how squirrels in the park are creating a shortage by hoarding nuts.

But this time Farah readily saw the potential for a major antitrust case. “C’mon, this is just sitting here,” he remembered thinking. “I was stunned to see that it hadn’t happened yet.”

Farah, who has since started his own firm with a couple other attorneys, said he combed through every rule in NAR’s roughly 175-page handbook and homed in on the requirement that homes listed on a multiple listing service must advertise the compensation offered to the buyer’s agent. Plaintiffs attorneys would ultimately argue that the rule, in combination with a few others, allowed the industry to conspire to keep commissions high, in part by allowing buyers’ agents to steer clients away from homes where sellers offer a lower commission. 

Farah wasn’t the only one scrutinizing the industry’s rules. The Justice Department concluded an investigation into similar issues near the end of the Trump administration, resulting in modest rule changes. The Biden administration tried to reopen the investigation but was blocked in court—a ruling it has now appealed.

Attorneys filed a lawsuit in an Illinois federal court in March 2019. They knew that others might follow, and sure enough an attorney in Kansas City saw news reports about the suit and a similar one was filed in Missouri less than two months later.

Getting the cases to trial was still a major financial gamble for the firms involved, requiring millions of dollars spent out of pocket and tens of thousands of hours of unpaid attorney time.

Antitrust cases almost always settle before trial, giving attorneys some assurance they will get paid something. But in this case, the damages were so high and the threat to the industry so existential that plaintiff attorneys thought it unlikely NAR would settle. The potential damages in the two cases combined could surpass $40 billion.

Read How the $1.8 Billion Real-Estate Commissions Lawsuit Came to Be.