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When Josh Sitzer first listed his Kansas City home for sale in 2017, he didn’t intend to disrupt the real estate industry. But what began as frustration over paying a 3% commission to a buyer’s agent turned into a legal battle that would fundamentally alter how Americans buy and sell their homes.

A Frustration That Sparked a Revolution

Sitzer and his wife were frustrated by what they saw as an unfair commission structure, one that forced them, as sellers, to pay a 3% commission to the buyer’s agent. “Due to the anti-competitive structure of the industry before the lawsuit, I, as the seller, was effectively coerced into paying 3% of my home’s selling price to a buyer’s agent in order to achieve a successful sale,” Sitzer explained. This frustration led Sitzer to take a step few would consider: filing a lawsuit against the National Association of Realtors (NAR).

By 2019, Sitzer and other homeowners had filed a class-action lawsuit, Sitzer-Burnett v. NAR, challenging the commission structure that had been a cornerstone of real estate transactions for decades. The case argued that the industry’s commission model was anti-competitive and unfairly burdened sellers.

The Landmark Verdict

The lawsuit culminated in a 2023 verdict that sent shockwaves through the real estate industry. The NAR was ordered to pay $418 million in damages and agreed to abolish the “Participation Rule,” which required seller’s agents to offer compensation to buyer brokers. This ruling was a seismic shift, forcing the industry to reconsider how commissions were structured.

“I wouldn’t say I had expectations in the beginning, as it was a multi-year battle of ups and downs, but I had enough confidence in my position to commit to taking action,” Sitzer said. His confidence paid off, not just in the courtroom, but in the marketplace as well.

From Plaintiff to Tech Startup

With the traditional commission model disrupted, Sitzer saw an opportunity to innovate. He teamed up with Bryce Galen and Neal Batra to found Landian, a startup that aims to reshape the real estate landscape further by offering flat-fee services to homebuyers. The name Landian blends the words “Land” and “Guardian,” signifying their mission to protect consumers from the high costs traditionally associated with buying a home.

Landian, emerging from stealth mode, offers a model that allows buyers to pay for only the services they need. Buyers can pay $49 for each home tour, $199 for offer preparation, or opt for a flat fee of $1,799, which includes up to five home tours and two offer prep sessions. The fee is only payable upon closing, meaning buyers aren’t burdened with upfront costs if they don’t complete a purchase.

“People don’t need to use a buyer’s agent in the same way,” said Galen, pointing out that technological advancements have made it easier for buyers to find properties and manage transactions on their own.

The Industry’s Resistance

While Landian aims to capitalize on the changes brought about by the Sitzer-Burnett case, not everyone in the industry is on board. Companies like Zillow and Redfin, which have thrived under the traditional commission structure, are not eager to embrace this new model. “Because the Zillows and Redfins and this sort of old guard real estate tech companies have thrived and grown in a world where a buyer agent gets 3%, they’re not leading the change here,” Galen noted.

Batra, another co-founder, added, “My bet is that, following the NAR settlement, most agents will convert from relying solely on the traditional model based on speculation and higher fees to incorporating the Landian flat-fee model.”

The Future of Real Estate

As Landian begins its journey, the real estate market is watching closely. Sitzer, once a frustrated homeowner, is now at the forefront of a movement that could redefine how homes are bought and sold. The changes brought about by the Sitzer-Burnett case and the rise of flat-fee models like Landian may well be the beginning of a new era in real estate.

HEADLINES

Inflation’s Surprise Party: In August, core U.S. inflation unexpectedly rose, primarily due to increased housing and travel costs. The core consumer price index climbed 0.3% from July and 3.2% year-over-year, surpassing economists' projections. This uptick reduces the likelihood of a significant Federal Reserve interest rate cut in the coming week. While the Fed is still expected to lower rates, the focus remains on labor market softness as a key driver for future policy decisions. The inflation data caused a slight shift in market expectations, with traders adjusting their predictions for rate cuts and Treasury yields rising in response. (Bloomberg)

Price Hiccup: CoreLogic's Home Price Index report for July 2024 reveals a mixed housing market landscape. While home prices nationwide increased by 4.3% year-over-year, monthly growth has stagnated, with prices decreasing by 0.01% from June to July 2024. The forecast indicates a modest 0.2% increase for August 2024 and a 2.2% rise by July 2025. This slowdown is attributed to high mortgage rates dampening buyer demand. However, anticipated Federal Reserve rate cuts may reinvigorate the market. The report also highlights regional variations, with Rhode Island leading in price growth at 10.6% year-over-year, while some markets, like Gainesville, FL, face a high risk of price declines in the coming year. (CoreLogic)

SFH Rise: The Home Building Geography Index (HBGI) for Q2 2024 reveals contrasting trends in the U.S. housing market. Single-family home construction experienced positive growth across all markets due to limited existing inventory and high demand. However, the multifamily sector saw negative growth rates in all markets, attributed to the large number of apartments already under construction and tighter financial conditions. Both sectors continue to face challenges such as labor and supply shortages, as well as higher mortgage rates. (NAHB)