Warren Buffett’s real estate brokerage to pay $250mn over commission lawsuits
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Berkshire Hathaway’s HomeServices of America, the largest US residential real estate brokerage, has joined rivals and agreed to settle lawsuits that challenged long-standing fee arrangements in the industry.
HomeServices would pay $250mn over four years, executive vice-president Chris Kelly said in a statement. If approved by a court, the settlement would resolve claims alleging that the firm had conspired with peers and the industry’s main trade group to artificially prop up sales commissions.
The brokerage, a unit of Warren Buffett’s Berkshire Hathaway, was the last remaining defendant in cases that the National Association of Realtors trade group agreed to settle for $418mn in March. The deals with plaintiffs are likely to reshape business practices that have frozen most sales commissions at close to 6 per cent of a home’s price.
“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,” Kelly said.
The settlement will bring to a close the second of three big legal entanglements for Berkshire over the past year, resolving a problem that the company warned could hit its balance sheet. At the start of the year it also settled a dispute over its $11bn takeover of Pilot Flying J, a truck stop chain.
Berkshire shareholders are still waiting for the outcome of litigation over wildfires allegedly caused by the company’s PacifiCorp power utility in 2020 and 2022. Buffett may be questioned on the handling of the various lawsuits during Berkshire’s annual meeting next week.
In October, home sellers in Missouri won nearly $1.8bn in damages from the NAR and several large brokerages in a jury trial. The plaintiffs asked the judge to triple that amount to $4.7bn.
If approved, the settlement would release HomeServices from the earlier jury verdict and protect its 70,000 agents and 300 franchisees from a series of copycat lawsuits that have been filed across the country, HomeServices said.
The amount to be paid by firms that also include Anywhere Real Estate, Re/Max, Keller Williams, and Compass to a class of 50mn home sellers now totals $943.3mn under the settlements.
Lawyers representing the home sellers said commissions were kept high through a decades-old system that required sellers to hire brokers in order to include their property on databases known as multiple-listing services. These databases now also power search websites such as Zillow.
The commission system cost HomeServices clients $4.2bn in excess fees in 2023 alone, they alleged.
Starting in July, listing services will no longer disclose commissions under the terms of the NAR settlement, making it easier for buyers and sellers to hire agents for reduced services and fees, or forgo them altogether.
The shift could cut commissions by as much as 30 per cent, economists estimate.
Lawsuits targeted HomeServices in particular because of Berkshire’s financial resources including $167.6bn in cash, far more than independent brokers.
Kelly, however, said that the settlement was “a sole obligation of HomeServices, with no participation by any parent entity”.
Cohen Milstein, a law firm for the plaintiffs, said the settlement resolved claims against HomeServices, but does not release Berkshire Hathaway from claims or liabilities.
Additional reporting by Eric Platt in New York
