The long-anticipated Sitzer/Burnett class action commission lawsuit enters its first day in court on Monday, leaving real estate professionals to ponder the fate of today’s cooperation and commission practices.
At the crux of the case is the allegation that commission rates are too high, it’s unfair that the seller pays the buyer’s agent’s commission, and that the National Association of Realtors’ (NAR) Code of Conduct and MLS Handbook lead to set pricing. Named in the class action are NAR, RE/MAX, Anywhere, Keller Williams and Berkshire Hathaway HomeServices.
According to Katie Johnson, NAR’s Chief Legal Officer, jury selection started last week and should finish today. “We are now anticipating opening arguments to begin on Tuesday, Oct. 17. The trial will run through November 3, with a verdict sometime the week of Nov. 6,” says Johnson, in a statement to Realtor Association communications directors.
RE/MAX and Anywhere settle
Last month, RE/MAX and Anywhere settled with the plaintiffs for $55 million and $83.5 million, respectively. According to a litigation fact sheet from NAR, “Their proposed settlements do not change how our case is presented in court, and we are confident we can prove that NAR guidance for local MLS broker marketplaces ensures consumers get comprehensive, equitable and reliable home information and that brokerages of any size, service or pricing model gets a fair shot at competing.” The statement goes on to say that, “Based on their latest filing, it also appears Anywhere and RE/MAX are agreeing to do things already called for by our Code of Ethics and MLS rules.”
However, part of the settlements no longer require franchisees or agents to join NAR or comply with NAR’s Code of Ethics, which is not “already called for” by the NAR Code of Ethics.”
In a webinar last week with NAR’s Deputy General Counsel Lesley Muchow, she notes that if the plaintiffs are successful, “We will be forced back into the 19th century or what we see as the Wild West where unscrupulous people can regularly defraud clients. If MLS broker marketplaces didn’t work the way they do not, there would be no centralized hub and source of available homes.”
What’s at stake?
While the settlements give us a peak into what may be part of the outcome of the trial, such as monetary relief, removing the mandate that company-owned brokerages, franchisees, and affiliated agents belong to NAR, follow NAR’s Code of Ethics or the MLS Handbook, and mandatory disclosure of the fact that commissions are negotiable, the true potential impact and outcome is unknown.
What’s at stake may be much bigger than that. According to an investor report by Keefe, Bruyette & Woods, they expect “litigation to reshape the residential brokerage industry’s commission structure and the broader housing market should a court-ordered injunction unbundle commissions, eliminating the long-standing practice of listing agents and sellers setting and paying buyer’s agent commissions.”
In addition, the analysts at KBW believe that “the annual commission pool could decline by upwards of 30% over time as these changes bring additional transparency to consumers around commission rates.”
The true result remains to be seen and a verdict will likely be appealed. However, many brokers aren’t waiting for that to happen before preparing agents, implementing buyer-broker agreements, and training agents on transparency in how commissions are paid and negotiable.
HousingWire will be following the trial and providing readers with updates over the next few weeks.
