As oral arguments began Monday in the federal commission case, plaintiffs questioned the role of buyer agents, what a world without NAR’s commission policy would look like and why they believe Keller is leading an antitrust conspiracy.

Keller Williams founder Gary Keller and his franchisor were singled out by attorneys on Monday as a federal court judge heard oral arguments in one of two closely watched federal commissions lawsuits that could rock the real estate industry and impact how agents are compensated nationwide.

On Monday, Judge Stephen R. Bough of the U.S. District Court in Western Missouri began weighing whether hundreds of thousands of homesellers can ask to be reimbursed for more than $1 billion in commissions they paid to buyer agents in the past eight years.

The case, whose inner workings have until now remained mysterious, included an unexpected shot across the bow at Keller Williams, which, like other defendants in the case, has been accused of conspiring to inflate seller costs by keeping commissions high through broker commission sharing.

Judge Stephen R. Bough

“We have the chairman of the board and the founder of Keller Williams actually admitting in corporate conference calls that he believes in the collusion theory — that there’s collusion amongst the competitors in this industry, which is designed to punish people who don’t play along,” said an attorney for the plaintiffs on Monday. “That’s what’s been happening. And we’re here today in the state of Missouri — the Show Me State — to ask that it stops.”

Keller Williams declined to comment for this story, citing pending litigation.

In 2019, homeseller plaintiffs Joshua Sitzer and Amy Winger filed a lawsuit against the National Association of Realtors and real estate franchisors Realogy, HomeServices of America, RE/MAX and Keller Williams alleging the sharing of commissions between listing and buyer brokers violates the Sherman Antitrust Act by inflating seller costs.

The suit, like a bigger federal case in Illinois brought by homeseller Christopher Moehrl, seeks to have homebuyers pay their broker directly, rather than having listing brokers pay buyer brokers from what the seller pays the listing broker.

At issue is a NAR policy, sometimes known as the buyer broker commission rule, that requires listing brokers to offer a blanket, unilateral offer of compensation to buyer brokers in order to submit a listing to a Realtor-affiliated multiple listing service.

In May 2021, attorneys for Sitzer filed a sealed motion seeking to have the court certify the lawsuit as a class action. Every legal filing related to that motion has been submitted under seal since then.

But on Monday, the court held oral arguments on that motion publicly, offering glimpses into how experts on each side view the role of buyer agents, what a world without NAR’s commission policy would be like and why the plaintiffs believe Gary Keller is leading the alleged antitrust conspiracy.

Why more than a billion dollars is at stake

The Sitzer lawsuit plaintiffs hope to represent sellers who paid a broker commission in connection with the sale of residential real estate in Missouri listed on one of four MLSs — MARIS, Heartland MLS, Southern Missouri MLS, and the Columbia Board of Realtors MLS — from April 29, 2014 to the present.

At oral arguments Monday, Craig T. Schulman, an economics professor at Texas A&M University and expert for the plaintiffs, said he produced a 131-page report in which he examined all residential home sales in Missouri between January 1, 2014 and December 31, 2020 — 550,000 total — and determined that 310,000 sales involved the defendants.

From there, he determined that the buyer broker commission amount that was allegedly overcharged to the sellers was $1.3 billion. One of the plaintiffs’ attorneys added that Schulman would be updating his figures with 2021 home sales and that by the time the case goes to trial, the home sale figure involving the defendants would likely be over 450,000.

If the court were to decide not to grant class certification, the realistic alternative would not be that those sellers would file their own individual cases, according to the plaintiffs’ attorney.

“The alternative to the 450,000 lawsuits would be zero because today only a lunatic would take on a case like this for $4,000, which is what they took on average,” he said.

Why the role of buyer agents is key — and controversial

In order to help the judge determine the impact of the buyer broker commission rule, the plaintiffs and defendants each had an expert testify regarding what the real estate market would be like “but for” that rule, i.e. in the absence of the rule.

Schulman’s report looked at six countries that don’t have the buyer broker commission rule: the United Kingdom, the Netherlands, Belgium, Singapore, Australia and Germany. In Australia, Schulman said, buyers pay their own agents and, as a result, only 1 to 5 percent of transactions involve a buy-side agent. Because none of those six countries require it, sellers in those countries don’t routinely pay buy-side agents.

“It was my conclusion on the key issue of injury, that absent this rule in the U.S., if it had never existed, sellers would not pay buy-side agents,” Schulman told the court.

“Therefore every single instance when they are required to is part of an injury” that sellers suffer to get into the market through the MLS, Schulman said. “That constitutes antitrust injury that’s common to everyone in the class.”

The exact amount of money that would have to be returned to sellers if the plaintiffs prevail is easily available on transaction closing statements, Schulman added.

Scott A. McCreight, an attorney for the plaintiffs, said that, absent the buyer broker commission rule, there’s no evidence that buyers would be willing to pay buyer agents.

“It’s one thing for somebody to use one under the current system because it’s free and who cares?” McCreight said. “But the question that needs to be asked on that is … would buyers be willing to pay for those services if they were told they had to, and if so, what would they charge?

“We know by looking out to Australia, for instance, almost no transactions involve buyer brokers … and when they do, it’s not the seller [who] pays, it’s the buyer who pays and it’s going to be a lower rate.”

But Lauren Stiroh, managing director at NERA Economic Consulting and an expert for the defendants, said other countries’ real estate markets are not appropriate benchmarks for comparison to the U.S. market. Such markets are varied, with their own features and service providers that may affect demand for buyer agents, according to Stiroh. For instance, 30 percent of transactions in Australia happen through auctions.

“You can’t compare to a different country that has fundamentally different market features and say that it is an appropriate comparison when we only want to change one thing,” she said.

Moreover, even some of the countries Schulman examined don’t back up his claims, according to Stiroh.

“In Singapore, one of the countries that he considered, buyer brokers are used in 57 percent of transactions,” she said. “They’re also paid by the listing broker, not necessarily in all cases, but there are selling brokers that paid for the buyer broker because there are economic incentives for that to happen.”

“The value of having a qualified buyer is valuable to the seller and so it’s appropriate then that the seller will be willing to compensate for that amount,” she added.

It’s not appropriate to just assign all of a buyer broker’s commission into the sellers’ damages claim, according to Stiroh.

“The fact that we still see buyers’ brokers being used in other countries tells us that we can’t just zero them out; it doesn’t make sense to do that,” she said. “They provide value that you have to have to be compensated for and so if we’re considering switching it from the seller to the buyer, that’s a switch off from one party to another and you have to think what role that plays in the transaction.”

Stiroh pointed to data from Washington-based Northwest MLS, which eliminated the buyer broker commission rule in 2019, to stress that in a market where the rule has been absent, 99.2 percent of listings continue to offer a buyer broker commission (flat from 99.3 percent before the rule was eliminated).

“The Northwest MLS [data] does not support that [buyer broker commissions] go away completely,” Stiroh said. “The same market forces would apply.”

“It makes sense for the seller with the liquidity to offer some of that liquidity to the buyer … if it’s gonna make the transaction happen,” she added, comparing sellers paying buyer broker commissions to sellers offering to cover closing costs and home warranties for buyers.

Given that a third of transactions involve a down payment of less than 5 percent, Stiroh predicted that sellers would continue to compensate buyer brokers even if they weren’t required to, especially for first-time buyers.

Gary Keller alleged head of conspiracy

An attorney for the plaintiffs pointed out that the Northwest MLS data that Stiroh and Schulman used in their reports was solely from transactions in which Keller Williams was either the listing broker, buyer broker or both. The attorney said he had filed a subpoena to compel similar data from Northwest MLS for the other real estate franchisors.

While cross-examining Stiroh, the plaintiffs’ attorney revealed a key allegation in the plaintiffs’ case regarding Keller Williams, whose training scripts the plaintiffs’ complaint calls out for encouraging steering and discouraging sellers from reducing buyer broker commissions.

“You’re aware of the fact that our allegation is that Gary Keller and Keller Williams is kind of the head of this conspiracy?” the attorney said. “That he’s written two national best-selling books encouraging people to pay 6 percent commissions and split them down the middle?”

Stiroh said she was unaware of the allegation.

“Can you understand how Keller Williams, if they’re supporting this rule around the rest of the country, that they would have an economic incentive to continue that same thing in the Northwest United States?”

Stiroh pointed out that on the Redfin website, which began displaying buyer broker commissions last year, listing brokers who were not with Keller Williams also offered compensation to buyer brokers.

“If you’ve been trained to be worried about steering and concerned about steering in order to sell a house, you can’t just flip a switch and overnight have something change,” the plaintiffs’ attorney replied. “It might take a period of time for this rule change to start changing activity in the market. Would you agree with that?”

Stiroh responded, “I think not necessarily. If there is a phenomenon of steering that you’re suggesting persists absent the rule, then I would say that that is not caused by the rule at issue, it’s caused by the economic circumstances.”

The attorney asked Stiroh if she was offering any opinion on whether there is a conspiracy or whether the rule at issue is procompetitive and she confirmed she was not. But she said that she disagreed with the idea that the only outcome of eliminating the rule would be that sellers would not continue to pay buyer broker commissions.

“One of the things that could happen absent the rule is that the seller continues to pay,” she said. “Another thing that could happen absent the rule is that there could be other concessions, such as other types of closing costs. Or you can see an entirely different transaction because you would have to have a different buyer or a different transaction price.”

‘Uninjured plaintiffs’

In addition, Stiroh alleged that the majority of the proposed class is made up of “uninjured plaintiffs” when comparing how much they paid as sellers to how much was paid on their behalf when they were buyers.

Stiroh examined 22,000 of the 550,000 transactions in Missouri during the relevant time period and found that 65.6 percent of sellers had more paid for them as buyers to their buyer brokers than they themselves paid as sellers to buyer brokers.

The remainder were worse off, meaning they paid more as sellers, but “would nonetheless be overcompensated by a model that just gave them everything that they paid when they were a seller,” Stiroh said.

Robert MacGill, the defendants’ attorney, said the class could not be certified if it contained uninjured plaintiffs.

But McCreight said there were no uninjured plaintiffs.

“Antitrust injury occurs the moment the purchaser incurs an overcharge, whether or not that injury is later offset,” he said.

“The only way that they’re saying that there are uninjured members is they’re going on this theory of Dr. Stiroh … that you have to deduct from this overcharge — that everyone kind of agrees this happened — you have to deduct the supposedly free buyer agent services that people got when they bought their homes. That is absolutely prohibited by the law. That’s not a relevant consideration.”

Whether the plaintiffs liked their buyer agents and were glad they were there is not the question, according to McCreight.

“The question is, in the but-for world, what if anything would a buyer be willing to pay a buyer’s agent for these services?” he said. “And there’s been no showing by the defendants that the answer is anything but zero. That answer is zero in the vast majority of transactions in the but-for world.”

‘100 years of contamination’

Schulman disagreed with Stiroh that the experience of Northwest MLS was an appropriate benchmark to see what the effect would be of eliminating the buyer broker commission rule.

“When you have a market that’s got over 100 years of contamination by an anticompetitive institution, like this adversarial commission rule, it’s not going to change overnight, and even in three years,” Schulman said.

For example, he noted, in the 1970s the New York Stock Exchange had fixed, written commission rules that were eliminated at the end of that decade. While there was some discounting within the first couple of months after that, “it wasn’t until the advent of the Internet and almost 30 years of adjustment to get to the point today where almost all land trades carry a zero commission,” he said.

“So it took over 30 years to fully adjust to them getting rid of this fixed-rate schedule. And you’d expect the same thing in a market that has experienced a very long period of this anti-competitive institution. That’s why I do not believe Northwest MLS is an appropriate benchmark.”

The other six countries Schulman cited are more appropriate benchmarks, he said, because despite the variation of their markets, none of them require sellers to pay buyer brokers and in all six sellers don’t then voluntarily make offers to pay buyer brokers.

“That’s why that variation certainly is not economically relevant,” he said. “It doesn’t change the outcome.”

In the end, the judge said he made “no promises” on when he would rule on the motion for class certification, but given the size of each side’s legal filings, suggested it would take a while.

Editor’s note: This story has been updated to note that Keller Williams declined to comment.

Email Andrea V. Brambila.

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