Lawyers Brandon Boulware and Mike Ketchmark challenge the real estate industry over high commissions and dual representation. They uncover suspicious practices, leading to a legal battle against major realtor franchises. The case may revolutionize how homes are bought and sold in the US by addressing fixed commission rates and collusion.
The legal case exposed collusion in fixed real estate commissions, leading to a $5.4 billion antitrust verdict.
The verdict pushed for transparency in commission practices, reshaping the real estate industry towards consumer empowerment.
Deep dives
Illegal Commissions in Real Estate
Real estate agents in the US typically earn a commission when a house is sold, which can be high and fixed, leading to concerns about anti-competitive practices. A personal injury lawyer, Mike Ketchmark, took on a legal case representing homeowners over high commissions, exposing potential collusion between seller's and buyer's agents. Through evidence and expert testimonies, the case revealed a system-wide practice of fixed commissions, resulting in a successful $1.8 billion verdict against major realtor franchises and the National Association of Realtors.
Impact on the Housing Market
The legal victory led to significant changes in the real estate industry, requiring fundamental shifts in how commissions are handled. The settlement forced realtors to end the practice of specifying commissions on MLS databases, providing transparency to consumers. While the outcome aims to empower buyers and sellers with more negotiation power, the full impact on the housing market remains uncertain as realtors adapt to the new rules.
Legal Battle and Verdict
After a two-week trial, the jury ruled in favor of the plaintiffs, highlighting a conspiracy among real estate agents to inflate commissions. The $1.8 billion verdict, tripled to $5.4 billion under antitrust laws, set a precedent for addressing anti-competitive practices in the housing industry. The legal battle exposed internal communications and practices of realtor organizations, leading to industry-wide scrutiny and reforms.
Consumer Rights and Industry Changes
The legal action aimed not only at financial restitution but also at transforming the real estate market to prioritize consumer rights. By challenging the status quo of fixed commissions, the case prompted real changes in how real estate transactions are conducted, advocating for transparency and fair practices. The impact of the settlement extends beyond monetary compensation, signaling a shift towards a more consumer-centric real estate industry.
In 2019, Mike Ketchmark got a call. Mike is a lawyer in Kansas City, Missouri, and his friend, Brandon Boulware, another lawyer, was calling about a case he wanted Mike to get involved with. Mike was an unusual choice - he's a personal injury lawyer, and this was going to be an antitrust case.
But Brandon knew Mike was great in front of a jury. And that he'd won huge settlements for his clients in the past.
So the lawyer friend drops by Mike's office, and pitches him the case. Rhonda and Scott Burnett had just sold their home for $250,000, and out of that amount, they had paid $15,000 in commission (plus a small fee), which was split between two real estate agents - even though they had hired only one. And the commission was high - 6%. Mike's friend said the whole thing seemed... suspicious. Maybe even illegal.
Mike agreed to take the case, a case that would soon become bigger than one about just what had happened to the Burnetts. It would become a fight about the way homes are bought and sold in the U.S. and challenge the way real estate agents have done business for more than 100 years.
This episode was hosted by Amanda Aronczyk and Keith Romer. It was produced by Willa Rubin, edited by Keith Romer, engineered by Valentina Rodríguez Sánchez, and fact-checked by Sierra Juarez. Alex Goldmark is Planet Money's executive producer.