The Financial Samurai Podcast - Busting Real Estate Collusion And Price Fixing With Attorney Mike Ketchmark
Primer: Attorney Mike Ketchmark has won a landmark $1.8 billion class action case against the National Association of Realtors and other entities for real estate collusion and price fixing. Now we get to meet the man himself in this episode of the Financial Samurai Podcast.
Background
Trial attorney
Won the landmark lawsuit regarding real estate collusion against the National Association of Realtors (NAR), Keller Williams, and HomeServices of America
Why Are The Damages For The Lawsuit In Billions?
It is a shocking amount of money
However, if you break it down, they represented 500,000 people across the state of Missouri who sold over 260,000 homes over a 7-year time period. Hence, it added up to a tremendous amount
The Sherman Antitrust Act was passed in the late 1800s. The law states that if you can prove competitors coming together and fixing prices, you not only get your money back but triple the damages
The lawsuit was filed 4 years ago
In the US, the seller of a home is forced to pay the buyer’s agent’s commission in order to list their home
“The National Association of Realtors is functioning effectively as a cartel. They've carved our country up into 880 different regions for these multiple listing services.”
- Mike Ketchmark
The NAR kept referring to itself as a not-for-profit
They set up a special lobbying interest specific to the real estate industry so that they do not need to pay taxes
With the money, they use it to pass laws to protect their corporate interests
The Probabilities Of Winning The Case
When he first got involved, he thought that he would win
It felt like a righteous cause and they were factually and legally right
“I told the jury that my mom and dad sat through the whole trial. One of the coolest things is having them sit in the front row. They're in their mid-80s. And I told the jury that I learned every single thing that I needed to learn about this case from my mom. When I was in kindergarten if you take something that doesn't belong to you, you have to give it back.”
- Mike Ketchmark
The hard part about federal court is that there is an anonymous jury — it’s difficult to get them to agree on anything
They had experts who agreed that corruption and fixing real estate prices are wrong
The jury was disgusted with their behaviour
Why Has This Lasted For So Long?
It’s been around for a hundred years
When they were first formed, the commissions were set at 6%
In the 1950s, the Supreme Court struck it down, stating that it was against the law
They had control of the information and could fix the price
When the internet came along, they became worried that they would be disintermediated
They created a series of rules stating that you have 24 hours to list the house electronically and put it into the portals that they have set up
Have email evidence that agents are trained to scare home sellers into paying the buyer’s agent’s commission
Steering is used by buyer’s agents who refuse to show houses where the commission is not being paid
People are not familiar with buying and selling homes, so they use that to their advantage
Commission Comes Out Of Buyers’ Own Pocket
The National Association of Realtors trains its buyer agents to tell buyers it is free
When Zillow and other real estate aggregators get their information, the only way they will feed it to them is that they refuse to put it in there “for sale by owners” or people who are not members of the National Association of Realtors
When someone clicks on a house in Zillow, they would think that they got a good deal
However, the cost is baked into the price of the house
Difficulty To Buy If Need To Pay For Agent Commission
The National Association of Realtors has looked at what is done in other countries
In the UK, Singapore, Germany, Australia, etc., that is not true
Buyers would pay for what the house is worth
Every state has something like a Missouri Housing Development Commission
In Missouri, for families that are making less than $140,000 a year, you can get up to 4% of the value of a $400,000 home. As long as you live there for 7 years, you do not need to pay it back
Real Estate Commissions To Decline
Even if the National Association of Realtors stops this illegal behaviour tomorrow, it would take 10-15 years to do so
Paying 6% commission for real estate transactions is too baked into the American culture
Hence, people will hold on to that thinking for as long as they can
What Are His Thoughts On Moving Forward?
A lot of real estate companies just want to throw money at the issue and hope it goes away
His team wants to get the National Association of Realtors out of the business of allowing their system to force homeowners
There are 2 sides to the lawsuit:
The money side
The injunctive/change side
They are not just going to take a payout and let it continue business as usual
Have convinced some folks on the other side to believe in them
Very few antitrust cases have gone to trial. This is due to the large amount of money that is at stake
What Are Government Officials Saying?
The Department of Justice has an extremely dedicated, smart team of attorneys in the antitrust division
One of them sat through the opening statement and closing statement
They want to see change in the real estate industry
Is This A Failing Of The Department of Justice To Not Do What His Team Had Done?
The Department of Justice has extremely talented attorneys
There are all kinds of politics at different levels
On his trial team, he is the lead trial attorney
He takes the input and makes the decision, which is more efficient than to get a piece of legislation through the House
“If the governmental entities don't take down monopolies that collude, the private citizens have the ability to rise up and do so.”
- Mike Ketchmark
Paying $10 Million To Fight This Case: What If They Lost?
They would have lost the $10 million
They are a small firm, but they had a lot of success over the years
The reason this case is so expensive is the data
They had to collect data from giant data dumps where there were 260,000 transactions from different brokerages
Had to hire a team of statisticians, economists, and expert witnesses
The Defense Appealing: Years To Collect Winnings
Yes, there’s no pot of money right now
When you win, the money is not automatically wired into your bank account/law firm
The money actually goes to the court
They have to file a fee application with the court and show the court the time they spent, the money they spent, and how they spent it
This happens in all class action lawsuits, which is different from a typical personal injury case
Does The Defense Have To Pay For Their Legal Bills?
No, they do not need to pay
His Son Being Born During His First Case
When his wife was in the hospital getting ready to go into pregnancy, he was reading a book called Trying Cases to Win and the doctor looked at him strangely
A week later, after his son was born, he had his first trial where he stood before a jury
His children both wanted to do law even though he never pushed law to either of them
When They Will Do After Collecting The Windfall
They are currently carrying a banknote called client cash advances — money that they have paid out that they are paying interest on
By the time they receive the money, it might be 7-8 years and it would have amassed to an amount like $20 million
They are also supporting their internal structure and salaries of their staff
What he tries to do is to stay grounded. Personally, he has seen money screwing up people rather than it being beneficial to them
Dealing With The Publicity After This Case
Try not to let it get to his head
They have worked really hard on their cases
The weird thing is that the more success you have, the easier it is to be successful
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