THE SHOCKING $1 TRILLION LAWSUITS SHAKING UP REAL ESTATE
Monday, December 4, 2023
THE SHOCKING $1 TRILLION LAWSUITS SHAKING UP REAL ESTATE
TODAY'S HOT NEWSAfter their win in the Burnett trial, where recent home sellers secured a $1.78 billion verdict against the National Association of REALTORS® (NAR) and two corporate brokerages, attorneys swiftly filed a similar lawsuit against more real estate companies, expanding their class-action claims from Missouri to a nationwide scope.
If the Gibson case, which is similar to the Burnett case covering about the last seven years, also gets approved to include a nationwide group, the damages could be around $262 billion using the same information. This huge amount could bankrupt all the big real estate companies and NAR, but that's just the start.
There's evidence suggesting that the team involved in another significant commission-focused lawsuit took note. Recently, the lawyers handling the Batton lawsuit also decided to broaden their case.
Named after the lead plaintiff, Mya Batton, a Tennessee resident, this suit, along with another similar case, echoes claims made in the Burnett trial. It alleges that NAR and major brokerages colluded on regulations that inflated commissions, yet with a crucial difference: Batton and the plaintiffs, recent homebuyers, assert that these rules affecting sellers also harm buyers.
Specifically, they argue that buyers were either prohibited or discouraged from negotiating commissions, misled about free buyer agent services, and directed towards properties with higher commission rates. These actions contributed to inflated commission costs (embedded in home prices) and subpar services.
Although the original Batton case listed NAR and the same four brokerage defendants as Burnett—Keller Williams, HomeServices of America, RE/MAX, and Anywhere—the second Batton suit includes eight new significant real estate companies while excluding NAR.
This means most major corporate brokerages face the prospect of paying damages for millions of transactions on both sides. While the time period covered by the Gibson suit remains unspecified, both Batton suits aim to encompass buyers utilizing MLS-affiliated listings from Dec. 1, 1996, to present day.
This timeline aligns with the adoption of NAR's "participation rule," demanding comprehensive compensation offers to buyer agents, a practice deemed anti-competitive by Burnett plaintiffs.
Approximately 154 million home sales transpired across the country in that period, as per NAR and Federal Reserve records. If Batton plaintiffs expand their damages claims to all 50 states (currently covering only half), it would involve 138 million transactions.
In the hypothetical scenario where plaintiffs triumph, and the jury awards damages akin to the Burnett case calculation, the sum would reach nearly $1 trillion, at $970.5 billion! These figures are clearly unsustainable for the industry. It's improbable these cases will progress to the point of such damages being considered, as the total revenues of the defendants would only cover a fraction of that amount. Nonetheless, it's a sobering situation.
What's evident is that the real estate industry's modus operandi of the past 30 years is undergoing a dramatic shift. While it might not happen immediately due to legal wrangling with appeals and injunctions, the message is clear: prioritize the customer over self-interest.
Although seemingly obvious, it hasn't been the prevailing stance. In Florida, the legislature previously designated all real estate agents as Transaction Brokers, representing the deal rather than the buyer or seller. Personally, I've long chosen to operate as a fiduciary representative for my clients, prioritizing their interests above all else.
Amidst the uncertainty, while thousands of agents panic about the industry's future, those of us who anticipated these changes years ago see it as validation of our current best practices and an opportunity to expand market share.
