As NAR Settles, Warren Buffett’s HomeServices Is the Last Brokerage In the Commission Fight

Since last year, groups of lawyers have sued the National Association of Realtors and numerous real estate brokerage firms, claiming that they’ve conspired to artificially keep commissions high for home sellers through the current industry rules.

The NAR said on Friday that it’s reached a nationwide settlement with the plaintiffs to pay $418 million and make changes to its rules that would make it easier for home buyers to negotiate fees with their agents—and even forgo using agents altogether. 

The deal came after three large real estate brokerages settled in recent months. Anywhere Real Estate, the parent company of Coldwell Banker and Sotheby’s International, Re/Max, and Keller Williams agreed to pay nearly $200 million combined. 

That means Buffett’s HomeServices would be the last major firm left to fight the cases in court, if it doesn’t settle with the plaintiffs before trial. Berkshire noted in its 2023 annual report, released in February, that HomeServices is defending itself against eleven antitrust cases.

To be sure, there are likely still some smaller brokerages left on the cases, although the NAR settlement covered all brokerages with an NAR member as principal that had a residential transaction volume below $2 billion in 2022.

HomeServices and its parent company Berkshire Hathaway Energy, which Berkshire Hathaway owns 92% of, both declined to comment to Barron’s on the firm’s next step. HomeServices said it needs to review the NAR’s settlement agreement first before it could provide a comment. 

HomeServices is one the largest real estate brokerages in the U.S., operating under 50 brand names with over 41,000 real estate agents across the nation. The firm also has a network of 300 franchisees, with nearly 48,000 agents associated with its brands.

In one of the cases brought against HomeServices, NAR, and a few other firms last October—often dubbed the Sitzer-Burnett case—the jury returned a verdict that found the plaintiffs had proved damages in the amount of $1.8 billion.

While all other defendants in the case settled either before or after the verdict, Berkshire said in its annual report that HomeServices intends to “vigorously appeal” the jury’s findings and damage award. The appeals process and further actions could take several years, the firm said. 

Real estate brokers have been suffering over the past few years, as expensive home prices and high mortgage rates deterred many potential buyers from entering the market. Transaction volumes tanked as many brokers couldn’t close deals for months.  

HomeServices is not immune. According to Berkshire, the revenue from its real-estate business fell 30% from $6.2 billion in 2021 to $4.3 billion in 2023. However, costs of running the business remained high—squeezing the net earnings from $387 million in 2021 to merely $13 million last year.

Despite the struggling business, Berkshire is standing behind HomeServices. Berkshire noted in its 2023 annual report that the Sitzer-Burnett case alone could lead to losses up to $5.4 billion. The conglomaerate said that further losses could incur from the ten other cases, but it couldn’t estimate a specific range.

“We expect that BRK Energy earnings could be significantly impacted by legal costs, from real estate brokerage as well as wildfires in Northern California and Oregon,” Edward Jones analyst James Shanahan tells Barron’s.

Still, Berkshire said the potential liabilities from the pending legal actions will not have a material effect on its financial condition. As of the end of 2023, Berkshire Hathaway had about $168 billion in cash and short-term investments on its balance sheet.

NAR’s $418 million payment, in comparison, would be much more significant to the organization, which had $23 million in net income and nearly $750 million in net assets in 2022, according to a tax filing. 

Write to Evie Liu at evie.liu@barrons.com