It did not take long for a Kansas City jury to create a Halloween nightmare for real estate agents.
The jury in the bombshell Sitzer/Burnett trial in Kansas City has found the National Association of Realtors, HomeServices of America, and Keller Williams guilty of colluding to inflate or maintain high commission rates through the National Association of Realtors’ Clear Cooperation Rule.
In North Texas, Allie Beth Allman & Associates, Dave Perry-Miller Real Estate, Ebby Halliday Realtors, and Williams Trew Real Estate are owned by Berkshire Hathaway. Austin-based Keller Williams is one of the largest real estate brokerages in the U.S. The National Association of Realtors, based in Washington, D.C., is the largest trade organization in the U.S –1.5 million members. Most local Multiple Listing Services require agents’ membership in the NAR.
Damning Podcast Episode Nets No Mistrial For Defendants
Earlier, the judge in the case denied the defendant’s motion for a mistrial. HomeServices of America attorneys had filed a motion last Wednesday requesting a mistrial, saying a flamboyant video submitted to the jury a day earlier jeopardized any chances of a fair trial. The video had not been produced as an exhibit, as is customary in lawsuit trials. However, the Judge ruled that the defendant’s attorneys did not object in time.
The video was a Tom Ferry podcast interview with Allan Dalton, CEO of Real Living Real Estate and senior vice president of Berkshire Hathaway HomeServices. Tom Ferry is a well-known real estate coach whom agents hire to improve sales techniques, often by using top producers as role models.
During the segment that was played to the jury, Dalton shared one top producer’s sales technique rather crudely saying, in effect, agents who agree to lower commissions are like hookers negotiating with sailors “standing outside the Lincoln Tunnel at three o’clock in the morning giving bleeping bleepings to sailors?”
$1.78 Billion in Damages
Defendants have been ordered to pay damages of $1.78 billion to the plaintiffs in the case, which include homebuyers who alleged that major brokerages, working under four Missouri multiple listing services, conspired to require sellers to pay inflated commissions. Sellers customarily pay commissions to agents representing the buyer.
The case attained class-action status in April 2022. While it is happening in Missouri, there is fear that the case could shake up the way current real estate commissions are handled across the United States, whereby the sellers generally cover the buyer’s agent commission through the proceeds of the home sale, essentially subsidizing it.
Some argue that sellers should pay their real estate agents separately, apart from the housing transaction. However, that would give buyers, especially first-time buyers, yet another financial hurdle to overcome. The industry has undergone monumental changes over the last 15 years with the advent of online portals such as Zillow, empowering consumers to search for properties on their own.
Indeed, real estate stocks today are taking a beating. Zillow, which thrives by selling buyer leads to real estate agents, also took a nosedive. The fear is that more such class-action lawsuits could now happen in other states and that buyer’s agents’ fees could be substantially reduced.
Big Names in Real Estate Take The Stand
The verdict was reached after a little over two weeks of testimony from both plaintiffs and defendants, including some of the biggest names in the real estate industry including Gary Keller; Dr. Lawrence Wu (who said that you cannot use Australia as a comparison to the U.S. housing market); Stefan Swanepoel, who founded real estate consulting firm T3Sixty; David Stephens, former Federal Housing Commissioner; Ron Peltier, former CEO of Berkshire Hathaway HomeServices of America, NAR president Bob Goldberg, and more.
The lead attorney for the plaintiffs, Michael Ketchmark, argued that despite the defendants having antitrust rules and regulations in place, the trade group and corporate brokerages knowingly violated their own rules to maintain high commission rates.
The final judgment on the case is expected later today from Judge Stephen Bough before the verdict is final.
This class action antitrust lawsuit, which was originally filed in 2019, also included RE/MAX and Anywhere as defendants, however the two reached settlements in this suit — $83.5 million for Anywhere, $55 million for RE/MAX — as well as two other commission lawsuits, Moehrl and Nosalek, in September.
The NAR recommends “the continued use of Buyer Representation Agreements to formalize a working relationship with clients and detail what services consumers are entitled to and what the buyer agent expects from their client in return. We also encourage members to remind clients that commissions are negotiable at any point in the transaction.”
I have no doubt there will be an appeal of this decision.
Another Class-Action Suit
It didn’t take long for the lead attorney for the plaintiffs, Michael Ketchmark, to file yet another class-action lawsuit right after the first landmark victory. Ketchmark, just minutes after the win in Judge Bough’s Missouri courtroom, has named NAR, Compass, Douglas Elliman, ExP, Redfin, Weichert Realtors, United Real Estate, and Howard Hanna Real Estate Services as defendants according to The Real Deal.
