[In October], a Missouri court found the National Association of Realtors and two real-estate brokerages guilty of conspiring to inflate real-estate commissions. A decision that will likely rock the U.S. housing market and undoubtedly alter the way Realtors conduct business. The NAR, the largest industry group in the U.S., as well as brokerages, HomeServices of America and Keller Williams, were found guilty by a Kansas City jury of colluding to maintain artificially high commission rates. The verdict is the first of two antitrust lawsuits that aim to address the longstanding practice of commissions being paid by sellers (not buyers), and aims to reform the way agents are paid.
The verdict was part of the “Sitzer/Burnett” case, which was first filed in May, 2019. The trial began on Oct. 16th and concluded after only two weeks of testimony. As you know, when a home is sold, custom in the industry is that the listing agent and the buying agent
each get a 3% commission, both of which are paid for by the seller (euphemistically called “cooperative compensation”). But in this case, the plaintiffs argued that sellers should only have to pay the listing agents, and that buyers should be responsible for paying the buyers’ agents. Second, they argued that commissions should not be preset at 3%, but rather open to negotiation. In response, the defendants argued that this would create an undue burden on buyers. Apparently, the jury disagreed! As a result, the defendants have been ordered to pay damages of nearly $1.8 billion, according to the Wall Street Journal. Worse, the court could increase the damages under antitrust rules, and result in them paying roughly $5.36 billion to the class of plaintiffs. But the judge has not issued a final ruling on the case yet. Both parties could also settle, which would stem any “chaos” that will likely follow from copycat lawsuits. For example, minutes after the verdict, the attorney representing the plaintiffs filed a new suit against NAR, Compass, Douglas Elliman, ExP, Redfin, Weichert Realtors, United Real Estate and Howard Hanna Real Estate Services, claiming that they had also committed a conspiracy to control commissions. “This matter is not close to being final as we will appeal the jury’s verdict,” a NAR spokesperson assured the press. An appeal will likely focus on the Court NOT allowing the jury to hear crucial evidence that cooperative compensation is permitted under Missouri law. Regardless, this archaic custom is inevitably changing, so be ready for it.
Mortgage Rates Rise For Seventh Straight Week
The 30-year fixed-rate mortgage averaged 7.79% [in October] according to data released by Freddie Mac. It’s up 16 basis points from the previous week (one basis point is equal to one hundredth of a percentage point). Rates continue to be at the highest level since November, 2000.
A year ago, the 30-year was averaging at 7.08%. The average rate on the 15-year mortgage is 7.03%, up from 6.92%.. The 15-year was at 6.36% a year ago. Freddie Mac’s weekly report on mortgage rates is based on thousands of applications received from lenders across the country that are submitted to Freddie Mac, when a borrower applies for a mortgage. “Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many, and the only way to address it is lower rates and greater inventory,” Freddie Mac reports. Neither of which, by the way, are on the horizon.
Californians Are Fleeing Amid Sky-High Housing Costs
California saw a big net population loss last year from people moving to other states. Over 818,000 people left California between 2021 and 2022, while just 475,800 moved in, according to the Census Bureau. Around 340,000 more people left California than moved there between 2021 and 2022, and many are flocking to Texas and Florida. The data was pulled from responses to the American Community Survey. Though this number is lower than the 410,000 net loss between 2020 and 2021, it was still much higher than any other year in the last two decades, most of which were below 200,000.
Ultimately, the total population of California from 2021 to 2022 dropped from 39,143,000 to 39,029,000. Over 102,000 people left California for Texas during this period, many citing Texas’ lower housing costs as reason for making the move. This was slightly below the 108,000 people who made the same move between 2020 and 2021. Meanwhile, only 42,000 Texas residents moved to California and had their heads examined. Though California’s median household income is higher at $84,097, the median value of owner-occupied housing units is $573,200, nearly three times the price of Texas’ homes. This has forced many California residents to spend a significant portion of their income on housing, cutting away at their savings. Another 74,100 left California for Arizona, in contrast to 27,400 Arizona residents who moved to California, probably kicking and screaming. Many are likely moving to Arizona for the state’s lower cost of living, lower taxes, and employment opportunities.
After practicing law for 35 years (specializing in real estate litigation), Lloyd Segal was
elected President of the Los Angeles County Real Estate Investors Association (“LAC-
REIA”) in 2017. LAC-REIA is the oldest (1996) and largest investor group in California.
Lloyd is an author, investor, mentor, public speaker, and LANDLORD. As president,
Lloyd conducts Basic Training Real Estate Boot Camps (8-hour intensive). “Everything
you ever wanted to know about real estate investing, but were afraid to ask.” To
register, visit www.LARealEstateInvestors.com.