The Bombshell Case That Will Transform the Housing Market

from New York Times I'm Michael borro. this is the. [Music]. daily. today a bombshell legal settlement. reached a few days ago is about to. change almost everything about buying. and selling a home and in the process. make it significantly cheaper my. colleague Deborah Cayman explains.

it's Wednesday March. [Music]. 20th hi Deborah hi Michael what a treat. talk of this is surreal do you want me. just to go no I'm going to ask you a. question ready this is a conversation. mean I came ready to roll what do you. want so Deborah at the highest possible. level what just happened to American.

Real Estate Michael there's been this. invisible hand that's been guiding and. controlling the real estate industry for. over 100 years and they have long. thought that they were absolutely. Untouchable because they had so much. power so much influence so much money. and the biggest crack in their armor. that's ever happened just happened on. Friday H well what is this crack in the. armor and I guess who even is this. nefarious sounding group that you're. talking about the group is the National. Association of Realtors nearly n out of. 10 home sales are handled by real estate.

agents affiliated with n and the crack. in the armor is that they have had these. rules that have controlled how much. buyers and sellers pay to their agents. and how you work with agents to get a. home on the market and then last week. for the first time in its history n's. control over this huge industry which we. all thought was Untouchable it basically. collapsed and with it so did many of the. costs it was imposing on consumers okay. this sounds huge I think we need to slow.

this whole thing down and I think the. way to do that is to have you tell us. the story of how the National. Association of Realtors which is not at. all a household name became such a. powerful force. in the ritual of buying and selling a. home in the United. States the N is huge over there. existance theyve grown to 1.5 million. members more importantly they've created. a system where you really cannot sell a.

house unless you're a member they even. own the copyright to the word realtor. they own the copyright to the word. realtor they own the copyright they even. had a campaign a couple years ago to. convince people how to say properly and. correctly they take this very seriously. okay okay I'll bite how do you say it. proper it's real tour not real Tor real. tour two syllables not three okay very. important extremely important so I. should say on paper you can sell a house. if you're not a real tour if you're just. a real estate agent not a m n exactly.

but in practice it's really not that. easy because of the system they've. created they make it very difficult for. example if you want to list a home for. sale you have to put it on something. called an MLs a multiple listing service. and mls's for the most part are owned. and operated by the local subsidiaries. of n they control the databases in which. homes basically enter the market exactly. and not only the databases in which. homes enter the market but the databases. through which real tours tell each other. how much they will get paid if they sell.

those homes and the databases are very. important because databases are where. real estate agents can see how much. commission they will make if they bring. a buyer or they sell a home typically. when you sell a house in the US you pay. a commission fee it's usually around. five or 6% to Realtors this is how. realtors are making their money it's. what you're paying them for everything. they're doing listing the house showing. the house answering all your questions. making improvements in the house yeah. and it's how they make a living but it's. a very high rate 5 or 6% is one of the. highest rates in the world almost no.

other developed country has a rate that. high okay and let's talk about 6% for. just a minute that's a number everyone. knows if you've ever especially sold a. home because it's a number you hate you. hate the fact no offense to realtors. that you have to give. 6% of the money you get for your home to. a real estate agent right well two real. estate agents because it gets split half.

goes to the seller agent half goes to. the buyer agent right and just to put it. in perspective because I think it's. useful if you're selling a million. dollar house 6% fee is $60,000 if you're. selling a half million dollar house it's. $30,000 either way you slice it it's a. lot of money to put in somebody else's. pocket for a huge investment that you. made you're trying to get the money into. your pocket but it's coming out of your. pocket and going to the agent exactly. you're saying the National Association. of Realtors should be seen as.

essentially the force behind that 6% fee. the loathed 6% fee staying what it has. been for so long n will say we never set. 6% we don't have 6% set in stone that is. true but they created rules that led to. a system where that 6% has become the. industry standard and anyone trying to. challenge it their business model has. fallen apart fascinating and here's how. they control the market for example if. you're a real estate agent and you want. to open that home for a customer in most.

markets n controls the lock boxes that. you use to open the homes everyone knows. what those lock boxes look like with the. little punch key n actually owns one of. the two companies in America that makes. those lock boxes wow and in many markets. they require their agents to use their. own technology and then let's say you. open the home you bring a buyer you want. to sell the home the actual technology. that you use to sell the home which is. DocuSign they own a controlling stake in. that company so every aspect of the home. selling transaction from the very. beginning to the very end that hand of n.

is guiding it and behind it and it's. been there for 100 years wow I mean that. sounds an awful lot like monopolistic. level of power the word monopoly gets. thrown around all the time when critics. are talking about n another word that. comes up a lot is the word cartel. there's a lot of power there's a lot of. control and there's also a very. organized drive to go after anyone who. tries to challenge them H this is just. not a level of influence that I.

associate with the trade group I think. of trade groups as kind of gathering. people together for professional. development having a happy hour at the. hotel right exactly not controlling a. toz elements of the industry if there. was an n in journalism it sounds like. they would control the printing presses. how is it possible that no private. company has come along and tried to. break into this n controlled Market or. that the government hasn't looked at it. and thought cartel Monopoly we got to. bust this up people have definitely. tried so it's not that its people have.

not tried the challenge is that n. because they have so much power they. have quashed any attempts at challenging. them like what they sue the heck out of. anybody who comes after them there have. been upstart companies that have tried. to advertise homes outside of these. multiple listing services that n. controls and N has sued them and then. you get buried in tens of thousands of. dollars of legal fees for an upstart. tech company right that's a death blow. what about the government the government. has also been going after n for more. than 20 years the doj and N have been.

locked into battle back and forth since. 2005 but in terms of the government n is. not just a Trade Organization they are. also a political action committee they. have the largest pack in Washington in. terms of dollars raised and they give. millions of dollars to candidates who. are in line with their agenda and they. spend millions of dollars fighting. candidates who are not in line with. their. [Music]. agenda so anyone in the government who. wants to go after n knows that they are. fighting a battle that probably is.

bigger and more moneyed than they really. want to deal with right sounds a little. bit like another Washington organization. with similar acronym which is the NRA. the National wildfield Association which. has kept a very strong lid on efforts to. challenge its Authority with campaign. dollars there is a playbook for this. sort of behavior and it is followed. pretty clearly right but I don't think. any of us quite understood it was. happening in the housing market right. and at the end of the day it wasn't the. government that brought them down and it.

wasn't a venture capital firm with a ton. of money fighting them or trying to be. an upstart group it was five normal. bluecollar homeowners and a personal. injury lawyer from Missouri who had. never dealt with the housing market. before in his. life we'll be right. [Music]. back so deor tell us about this.

unexpected cast of characters that ends. up bringing down the National. Association of real Alors so Michael in. 2018 2019 there was a group of Home. sellers in Missouri who had learned that. they had paid pretty high fees to their. real estate agents and they might have a. legal case against them they were. probably paying that kind of standard 6%. fee to their agents when they sold the. house right they were paying the. standard 6% fee but the key was they had. not known that that fee was actually. negotiable they thought they had to pay. it okay here I need to pause it is.

actually negotiable it is actually. negotiable it is it is and that's the. thing n has always said we don't set the. fees there is no standard fee but in. practice if consumers don't know that. the fee isn't negotiable and if. consumers are told by their agents that. they cannot negotiate the fee that is. the fee H okay so these folks discover. that perhaps they didn't need to pay. 6% and did what do they do they.

contacted a lawyer and they started. going through the contracts that they'd. signed when they sold their homes MH so. one of the people went back through her. contract and the contract actually said. what fee do you want to pay your agent. and it said 6% 7% 8% or 9% so she did. the smart thing and she chose the lowest. fee circled 6% and that's what she paid. right in other words like a tipping. machine that says 20 22 25 when buy a. coffee and the the tip starts at 22% ex. it's inconceivable if there's anything. beneath that or that you actually could. off out right exactly okay someone else.

he's the son of a factory worker he's. now the head of Mothers Against Drunk. Driving in Missouri these are really. blue collar people he was told that he. was going to be charged 5.5% he found. out later that he was charged 6% so his. agent just jacked up the fee without. telling him so all these people realized. we left money on the table at the most. important financial transaction of our. entire lives and we probably have a. legal claim against the institution that. set the rules that made it so this was. possible n AR n are so not only are they.

upset that they had to pay 6% and they. could have negotiated it and did not. know they also are realizing that they. have paid the fee to the agent that's. representing the person that they're. going against in the negotiation for the. home sale which is the buyer which is. the buyer right cuz as you said earlier. the nature of the 6% fee is that it is. split between the sell's agent and the. buyer agent which no one really tells. you or reminds you but that's what. happens because it's all happening. through a back door on these multiple. listing sites that you can only see if.

you're a real estate agent Who belongs. to. n okay so what ends up happening to all. these sellers once they discover in. their minds that they've been wronged. and that they want to do something about. it they hire this attorney Michael. katchmark he's a personal injury lawyer. from Missouri pretty much nobody outside. of Kansas City had heard of him until. this moment he decides he's going to. file a class action. lawsuit this is not the best time for n. this is actually the moment that they. were really coming onto my radar as a.

reporter I had spent last summer focused. on sexual harassment allegations at n. and I discovered that n's president his. name was Kenny parcel had years and. years of sexual harassment accusations. against him that had been covered up and. women had been paid off and at the times. we published a big expose on those. allegations at the end of August and he. stepped down two days later you're. reporting got the head of this. incredibly powerful. organization to step down it did and. there have been other Nation since then.

and that moment for n really put them on. the world stage suddenly people are. aware that the leader of the. organization is an alleged sexual. harasser and women who've been. whistleblowers about the sexual. harassment have been paid off and all of. that is happening at n behind the scenes. when this case where they're being. accused of price fixing ends up going to. trial got it okay so what ends up. happening to this case as it moves. through the legal system just as n AR's. leader has been forced out so the case.

goes forward and Nar says okay we have a. new president we're kind of in disarray. but we are going to regroup we're going. to fight this we're absolutely not going. to settle okay what ends up happening at. this trial they come gunsblazing High. powerered corporate lawyers black suits. tons of money and up against then you. have catchmark and his team of. plaintiffs and the jury really liked. what catchmark had to say a Kansas City. jury found the National Association of. Realtors and other organizations.

conspired to keep realtor commission. fees high they agreed that these home. sellers were not told that they could. negotiate the prices the plaintiffs. argued the organizations forced home. sellers to pay both the seller and buyer. fees calling that practice wrong and. illegal so late in October of last year. n is found guilty of price fixing and. the jury came back and said yeah you're. guilty and the damages are $1.8 billion. wow what we proved was the National. Association of real. has joined in a conspiracy with the two.

of the largest corporate real estate. brokers to to use the system to to fix. prices so what happens within hours of. this verdict coming through is the. floodgates open the minute that that. verdict came in we we filed the lawsuit. against the National Association of. Realtors and these other large corporate. real estate companies to bring the same. relief Nationwide catchmark turns around. the same day that he won this case and. files a national case so we're talking.

the exact same argument but now it's not. just Missouri it's the whole country the. money will be returned to the homeowners. that were the victims of this rig system. it's been going on in our country for. about 100 years and it stops today wow. so every every single person who sold a. home in the past four years is now part. of this case if they paid a 6%. commission and didn't know it wow across. the country already since that case a. case filed by buyers in Illinois also. sellers in Missouri New York Texas and.

South Carolina there's also an Illinois. case that was other copycat Suits start. happening and within weeks we're up to. almost 20 lawsuits against n all saying. you are a monopoly you have antitrust. violations and these rules need to. change been a major shakeup in the real. estate world today if a settlement is. approved in court homes make it cheaper. and agents and brokers could be out of. business so in the face of all these.

lawsuits n finally agrees to settle and. late last week early Friday morning they. agreed to a settlement that includes. massive changes that are going to. introduce competition into the. marketplace the biggest one being the. rules that led to that 6% commission are. gone gone gone so is the 6% fee perhaps. now gone it will it will go away because. competition is now going to enter the. marketplace and when competition comes. in people have to lower their fees as a. result a really good example if you want.

to look at a precedent in history is the. travel industry it used to be if you. wanted to book a vacation or buy a. flight you had to go through a travel. agent and you had to pay what they told. you to pay but then we had things enter. the marketplace like Expedia and kayak. and Price Line the same way we now have. Zillow and redin we do a lot of the. searching for homes ourselves just not. the buying in the but the fees for. searching for a home have not changed. even though the service itself has it's. a lot cheaper now to book travel than it. was when you had to go through an agent. it's going be a lot cheaper to book a.

real estate agent now as well to sell. your home okay I think I understand I. want to talk about what it would mean. for the 6% commission to go away because. as we' talked about previously in this. conversation that was the immovable fact. of buying and selling a home and a huge. amount of money a huge amount of money. Americans spend about hundred billion. dollar a year on real estate commissions. alone unbelievable Economist forecast. that they're probably going to see that. number drop up by 20 to 50 billion.

because these commissions are going to. go down but where it really matters is. housing prices housing prices have. become higher because real estate. commissions are baked into the housing. price right if you're selling a house. and your agent says to you when you sell. this house you're going to have to pay a. 6% fee so we're just going to bump up. the price of the house by 6% to absorb. that cost so imagine now those fees. going down across the board that bump up. is going down as well so housing prices. are going to dip. right it's one of the most significant.

changes we've seen to the Housing. Industry in 100 years yeah I when you. think about it if you take a 6% fixed. fee in the system and you get rid of it. and if you're right housing prices fall. what this n change means is that the. entire US housing market is about to be. discounted it's about to go on sale it's. the prices are about to drop absolutely. okay what else does a settlement do the. other major change is that that if you. are a sellers agent and you're listing a.

home for sale you can no longer make an. offer of commission to the Buyer Agents. on these MLS databases so Buyer Agents. will no longer be able to say hey I'm. only going to take people to homes where. I know I'm guaranteed to get 3% H okay I. I want to just make sure I understand. that so in addition to this settlement. essentially ending the reign of the 6%. commission it's ending this kind of. informal conspiracy that's been going on. between buyers a and seller agents where.

they kind of wink and Nod at each other. and say I'm going to get my 3% you're. going to get your 3% in fact what it. does is it kind of ends the very nature. of the two colluding over who's going to. get what there was nothing informal. about it it was happening in broad. daylight on these mls's right but of. course we weren't on those Ms we didn't. know exactly and now we know okay so. those are two colossal changes to the. market but it leaves me with a question. this settlement sounds like it. represents people who were in the class. action lawsuits. but if I sold a home I don't know like 3.

four years ago and I look at this. settlement and I say congratulations to. those in it but what about me what about. the fact that I and a million and a half. other people we paid our 6% fees what's. in it for us yes Michael Barbaro you. could also make money from the. settlement and I Deborah Cayman could. also make money from the settlement the. settlement is a global settlement. because there were so many lawsuits. going on at once it didn't just settle. that case in Missouri with the five. homeowners it settled all of them it's a.

class action suit that applies to almost. every person in America who sold a home. over the last few years interesting and. over the next few years it's going to. take a while but we're all going to get. letters that are going to ask us if you. sold a home and if you paid commission. right and you know we've all gotten. these letters were you part of did you. buy a piece of meat from the supermarket. on the state did you buy a piece of the. housing market on the state is the. letters we're going to get and depending. on how many people fill out these. letters and send them back and how big. that pot of money has grown to by the of. it because there's still some lawsuits.

that are simmering that money is going. to be divied up and parts of it are. going to go to homeowners no one's going. to get rich off of this but yes we all. stand to get a small chunk of it if this. is in fact as you're describing it a. Kind of Revolution in the American Real. Estate industry the downfall of n the. changes of all these. rules we know that revolutions can be. very fast or they can be very slow and. I'm curious if you can in your mind's. eye kind of imagine what the real estate. market is going to look like in 5 or 10.

years and how much better or more. accessible it might be for people as a. result of these changes and I'm asking. that in particular because here on the. daily we've talked so much about how. cruel the US housing market is right now. there's a shortage prices are really. high and young people in particular feel. completely locked out of the market and. so is this really going to do something. about that or is it really going to only. feel like it's at the margins no it will. help them but not in the clean easy way. that you may think one of the major.

fallouts of the settlement is going to. be the fact that n stands to lose. something like 2third of its members why. because the major reason people have. stayed members of N is because they. needed access to home listings and they. control the home listings now that that. access has been broken by the settlement. deals people are fed up with n they pay. hundreds of dollars a year to be a. member and now they're saying what do. you do for me after all this you lost in. court and now I don't even have access. to these listings for my commission so. when they lose 2third of their members.

that group is now also losing 2third of. the people who donate to their political. action committee and that lobbying arm. in Washington has now been very. significantly blunted and that lobbying. arm in Washington is one of the biggest. forces behind Pro landlord policies. stopping things like rent control all of. the initiatives in DC that have made the. housing market so very brutal for so. many Americans so in the long run this. is going to have a serious impact that. would completely change the Dynamics of. the real estate market so if we take the.

N Out of the equation we get a more. consumer tenant friendly housing market. and that is very likely to happen. because this settlement essentially. kneecaps n and leaves its current. members with no real incentive to stay. members that is absolutely correct so. it's going to take time but there's. going to be all sorts of Ripple effects. from this that go well beyond $418. million right at the end end of the day.

Deborah this feels like the story of a. monopoly that outlived all other. monopolies in our system right I mean. American economic history is littered. with the story of Industries where a. group or a company have a strangle hold. and it gets broken up that's the idea of. a fair economy this one lasted so long. despite the fact that what it controlled. was a pillar of the American dream which. is owning a home and I wonder. how you think about the fact that it.

took so long to do it it genuinely. shocks me I guess I'm saying that this. Dynamic lasted as long as it did it. shocks me too and I have to say when I. started this beat about a year ago I. didn't know what n was most Americans. had no idea that this organization had. so much control and so much power over. the housing market the housing market is. 20% of the US GDP this is a huge. organization that's been guiding. everything from the. wings but what I love about this story.

is at the end of the day it was just. five normal home sellers who took them. on in court in Kansas City and a. personal injury lawyer and they won and. that irony is not lost on the lawyer he. after the settlement sent me a quote it. was a David versus Goliath quote from. the Bible that is how he sees himself. and in many ways that is what this story. is it's one of those stories where the. little guy went up against the biggest. guy there was and they won and a lot of. regular Americans now stand to to. benefit from this because of its impact.

on the housing. [Music]. market well Deborah thank you very much. well Michael thank you very. much a federal court is expected to give. final approval to the N AR's legal. settlement and make it official in the. coming. [Music]. weeks we'll be right.

back here's what else you need to. another day on Tuesday Israeli Prime. Minister Benjamin Netanyahu said he. would push ahead with a planned ground. invasion of the Southern Gaza City of. Rafa despite pleas for restraint from. the United States which has warned it. could be disastrous for the civilians. there in remarks to his cabinet. Netanyahu IGN knowledge that the White. House had asked him not to invade Rafa.

but said that he sees no way to. eliminate Hamas without doing. [Music]. so today's episode was produced by Diana. win Shannon Lynn and Sydney Harper it. was edited by Brendan clink BG and Lisa. Chow contains original music by Diane. Wong Mary Lozano Sophia landman Rowan.

misto and Brad fiser and was engineered. by Alyssa Moxley our theme music is by. Jim runberg and Ben lurk of. [Music]. wonderly that's it for the daily I'm. Michael babbaro see you. [Music]. tomorrow.