By Alex Veiga | The Associated Press
A real estate company owned by Warren Buffett’s Berkshire Hathaway has agreed to pay $250 million to settle lawsuits nationwide claiming that longstanding practices by real estate brokerages forced U.S. homeowners to pay artificially inflated broker commissions when they sold their homes.
HomeServices of America said Friday that the proposed settlement would shield its 51 brands, nearly 70,000 real estate agents and over 300 franchisees from similar litigation.
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The real estate company had been a major holdout after several other big brokerage operators, including Keller Williams Realty, Re/Max, Compass and Anywhere Real Estate, agreed to settle. Last month, the National Association of Realtors agreed to pay $418 million.
“While we have always been confident in the legality and ethics of our business practices, the decision to settle was driven by a desire to eliminate the uncertainty brought by the protracted appellate and litigation process,” the company said in a statement.
HomeServices said its proposed settlement payout represents a current after-tax accounting charge of about $140 million, though it will have four years to pay the full amount. The real estate company also noted that its parent company is not part of the settlement.
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Buffett said in February in his annual letter to shareholders that Berkshire had $167.6 billion cash on hand at the end of last year. That makes Berkshire, which is based in Omaha, Nebraska, an attractive target for litigation, but the company largely lets its subsidiaries run themselves and doesn’t directly intervene in litigation involving its many companies, which include Geico insurance, BNSF railroad and See’s Candy.
Including HomeServices’ proposed payout, the real estate industry has now agreed to pay more than $943 million to make the lawsuits go away.
“This is another significant settlement for American home sellers who have been saddled with paying billions in unnecessary commission costs,” Benjamin Brown, managing partner at one of the law firms that represented plaintiffs in a case filed in Illinois, said in a statement.
The lawsuits’ central claim is that the country’s biggest real estate brokerages and the NAR violated antitrust laws by engaging in business practices that required home sellers to pay the fees for the broker representing the buyer.
Attorneys representing home sellers in multiple states argued that homeowners who listed a property for sale on real estate industry databases were required to include a compensation offer for an agent representing a buyer. And that not including such “cooperative compensation” offers might lead a buyer’s agent to steer their client away from any seller’s listing that didn’t include such an offer.
In October, a federal jury in Missouri ordered that HomeServices, the National Association of Realtors and several other large real estate brokerages pay nearly $1.8 billion in damages. The defendants were facing potentially having to pay more than $5 billion, if treble damages were awarded.
The verdict in that case, which was filed in 2019 on behalf of 500,000 home sellers in Missouri and elsewhere, led to multiple similar lawsuits being filed against the real estate brokerage industry.
The major brokerages that have reached proposed settlements in these cases have also agreed to change their business practices to ensure homebuyers and sellers can more easily understand how brokers and agents are compensated for their services, and that brokers and agents who represent homebuyers must disclose right away any offer of compensation by the broker representing a seller.
HomeServices said it also agreed to make “substantially similar new or amended business practice changes that have been included in the other corporate defendant settlement agreements,” said Chris Kelly, a HomeServices spokesperson.
NAR also agreed to make several policy changes, including prohibiting brokers who list a home for sale on any of the databases affiliated with the NAR from including offers of compensation for a buyer’s representative. The new rules, which are set to go into effect in July, represent a major change to the way real estate agents have operated going back to the 1990s.
While many housing market watchers say it’s too soon to tell how the policy changes will affect home sales, they could lead to home sellers paying lower commissions for their broker’s services. Buyers, in turn, may have to shoulder more upfront costs when they hire an agent to represent them.