A jury trial this month in a Kansas City federal courtroom could deliver a significant blow to the nation's largest real estate companies.
Consumers arechallenging major residential real estate players – the National Association of Realtors, HomeServices of America, Keller Williams, Anywhere Real Estate (formerly Realogy) and RE/MAX – and the rules that dictate how agent commissions for home purchases are determined. Those in home lending are watching closely, wary of unintended consequences that could affect financing for buyers.
An attorney for plaintiffs in opening statements last weekcharacterized the ongoing Sitzer/Burnett trial as a "refund case" for home sellers, who are seeking up to $4 billion in damages. Beyond this month's trial, a further reckoning on the broker commission rules that have been in place for over a century looms in the form of another major class action complaint and possible federal action.
Here's what you need to know:
Consumers are
An attorney for plaintiffs in opening statements last week
Here's what you need to know:
How it started
The Sitzer/Burnett trial is the culmination of an April 2019 filing in a Missouri federal court by two Kansas City-area home sellers. Joshua Sitzer and another plaintiff both sold homes in the region in 2017 and paid broker commissions of 5.5% each, 3% of which was paid to the buyer's broker.
The plaintiffs accuse major brokerages, working under four Missouri multiple listing services, of conspiring to require sellers to pay inflated commissions. The case, today referred to as Sitzer/Burnett in reference to another plaintiff from an amended complaint, attained class action status in April 2022.
Christopher Moehrl, a Minnesota home seller, filed another class action lawsuit against the same defendants in March 2019. That seller sued brokerages and NAR following a 2017 sale in Minnesota, in which Moehrl paid a broker commission of 6%, 2.7% of which went to the buyer's broker. That case is scheduled to go to trial next year.
The plaintiffs accuse major brokerages, working under four Missouri multiple listing services, of conspiring to require sellers to pay inflated commissions. The case, today referred to as Sitzer/Burnett in reference to another plaintiff from an amended complaint, attained class action status in April 2022.
Christopher Moehrl, a Minnesota home seller, filed another class action lawsuit against the same defendants in March 2019. That seller sued brokerages and NAR following a 2017 sale in Minnesota, in which Moehrl paid a broker commission of 6%, 2.7% of which went to the buyer's broker. That case is scheduled to go to trial next year.
The issues
Sellers are challenging long standing rules by the National Association of Realtors for associated multiple listing services, which dictate how compensation is dealt at a home sale's closing.
Under those rules, seller brokers are required to offer compensation to a prospective buyer's agent to get listed on an MLS. The home seller pays their broker a commission, which is divided evenly between sell-side and buy-side agents. The fee is usually between 5% to 6% of the final sale price after closing, with the majority of each half going toward the agent, then their firm.
The structure, informally known as coupled commissions, has evolved from a system first used by a NAR predecessor in 1908. The rules are meant to allow for buyers to have greater funds to use toward their home purchase,NAR suggests .
Plaintiffs take aim at numerous mechanisms in NAR's rules, accusing them of allowing buyer brokers to misrepresent their fees and restraining negotiations around compensation. They argue in filings that, under these rules, the buyer broker is supposed to work against the seller's interest by negotiating for a lower sales price.
"This setup defies basic economic common sense and would not (and does not) exist in a market free of anticompetitive restraints," counsel for plaintiffs wrote in a pre-trial briefing.
NAR voted to update its MLS policies in 2021,adding the requirement to display commissions and prohibiting buyer brokers from advertising their services as "free." That evidence will be allowed at trial despite some objections, according to court filings reported by Inman. Just ahead of the trial, NAR also began allowing listing brokers to offer no compensation to buy-side brokers, a move an attorney characterized to Inman as an "admission of guilt."
Under those rules, seller brokers are required to offer compensation to a prospective buyer's agent to get listed on an MLS. The home seller pays their broker a commission, which is divided evenly between sell-side and buy-side agents. The fee is usually between 5% to 6% of the final sale price after closing, with the majority of each half going toward the agent, then their firm.
The structure, informally known as coupled commissions, has evolved from a system first used by a NAR predecessor in 1908. The rules are meant to allow for buyers to have greater funds to use toward their home purchase,
Plaintiffs take aim at numerous mechanisms in NAR's rules, accusing them of allowing buyer brokers to misrepresent their fees and restraining negotiations around compensation. They argue in filings that, under these rules, the buyer broker is supposed to work against the seller's interest by negotiating for a lower sales price.
"This setup defies basic economic common sense and would not (and does not) exist in a market free of anticompetitive restraints," counsel for plaintiffs wrote in a pre-trial briefing.
NAR voted to update its MLS policies in 2021,
The parties
The class includes hundreds of thousands of homeowners who from April 29, 2015 to the present used a listing broker affiliated with any of the defendants in the sale of a home, using any of the four Missouri MLS in question.
The defendants include NAR, HomeServices of America, Keller Williams, Anywhere Real Estate (formerly Realogy) and RE/MAX. Realogy and RE/MAX agreed to settlements in the Sitzer/Burnett and Moehrl cases prior to today's trial and aren't participating in the active proceedings.
The defendants include NAR, HomeServices of America, Keller Williams, Anywhere Real Estate (formerly Realogy) and RE/MAX. Realogy and RE/MAX agreed to settlements in the Sitzer/Burnett and Moehrl cases prior to today's trial and aren't participating in the active proceedings.
The trial
The trial opened Oct. 16 and is expected to last three weeks, according to counsel and legal filings. A decision is anticipated the week of Nov. 6 to10.
A panel of nine jurors, or seven men and two women according to courtroom reporting by Inman, will decide the case. Witnesses include the leaders of the aforementioned defendants, including NAR CEO Bob Goldberg; HomeServices CEO Gino Blefari; and Keller Williams co-founder Gary Keller.
The proceedings aren't being broadcast live, and courtroom rules don't generally allow for electronic devices. Outside of some media coverage, NAR is postingsome daily updates around the case, with commentary reinforcing its defense.
A panel of nine jurors, or seven men and two women according to courtroom reporting by Inman, will decide the case. Witnesses include the leaders of the aforementioned defendants, including NAR CEO Bob Goldberg; HomeServices CEO Gino Blefari; and Keller Williams co-founder Gary Keller.
The proceedings aren't being broadcast live, and courtroom rules don't generally allow for electronic devices. Outside of some media coverage, NAR is posting
Possible outcomes
Plaintiffs are asking for $1.3 billion in damages stemming from their commission payments, and $4 billion in total damages, should they win the case. Regardless of the outcome, experts including counsel for NAR anticipate a lengthy appeals process that could delay resolution for years.
NAR has already experienced some losses to do with the cases, in particular with respect to settlements by Anywhere and RE/MAX. The companies agreed to put $83.5 million and $55 million respectively, into a settlement fund for the Sitzer/Burnett and Moehrl cases, in addition to enacting changes to their business practices. Chief among those was the lifting of a requirement for NAR membership.
Redfin on October 2, 2023also announced its exit from NAR over the commission policies in question as well as recent sexual harassment allegations.
Another MLS in Massachusettssettled a class action lawsuit this summer for $3 million. That suit also challenged broker commission rules, but the plaintiffs had sued brokerages instead of NAR.
The Department of Justice could also deliver a more lethal blow to the compensation system if it decides to pursue a case against NAR. Feds in 2021pulled out of an antitrust settlement with NAR, reached the year prior, because they wanted to continue their investigation. The DOJ is appealing a decision by a federal judge in January stating the DOJ was still bound by its settlement agreement.
NAR has already experienced some losses to do with the cases, in particular with respect to settlements by Anywhere and RE/MAX. The companies agreed to put $83.5 million and $55 million respectively, into a settlement fund for the Sitzer/Burnett and Moehrl cases, in addition to enacting changes to their business practices. Chief among those was the lifting of a requirement for NAR membership.
Redfin on October 2, 2023
Another MLS in Massachusetts
The Department of Justice could also deliver a more lethal blow to the compensation system if it decides to pursue a case against NAR. Feds in 2021
If rules change
Should commission rules be wiped out, some experts think the impact to sellers will be minor. BTIG in a report said it wouldn't anticipate much change to agent compensation, with listing contacts presuming sellers will continue to pay buy-side agents.
If home buyers have to cover real estate agent costs, that change could marginalize low-to-moderate income buyers, said Valerie Saunders, president of the National Association of Mortgage Brokers. The group, along with the Association of Independent Mortgage Experts, isn't advocating for either side in the Sitzer/Burnett case.
One immediate impact could be apparent in a Department of Veterans Affairs-guarantee program, which prohibits buyers from paying real estate sales commissions. An industry wide change could discourage sellers from accepting offers with that VA financing, said Brendan McKay, president for advocacy at AIME.
"A real estate transaction is a big complicated system with a lot of people involved, a lot of moving parts and frankly a lot of money," said McKay. "And changing one part of it is going to have a ripple effect on all the others that the people trying to make the change might not always be conscious of."
If home buyers have to cover real estate agent costs, that change could marginalize low-to-moderate income buyers, said Valerie Saunders, president of the National Association of Mortgage Brokers. The group, along with the Association of Independent Mortgage Experts, isn't advocating for either side in the Sitzer/Burnett case.
One immediate impact could be apparent in a Department of Veterans Affairs-guarantee program, which prohibits buyers from paying real estate sales commissions. An industry wide change could discourage sellers from accepting offers with that VA financing, said Brendan McKay, president for advocacy at AIME.
"A real estate transaction is a big complicated system with a lot of people involved, a lot of moving parts and frankly a lot of money," said McKay. "And changing one part of it is going to have a ripple effect on all the others that the people trying to make the change might not always be conscious of."
