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On Friday, a federal court dealt a blow to the National Association of Realtors and major real estate franchisors, allowing a class action commission lawsuit that could rock the real estate industry to continue toward a new trial date.
On Dec. 16, Judge Stephen R. Bough, of the U.S. District Court in Western Missouri, denied motions for summary judgment filed by NAR, Anywhere (still known as Realogy in court filings), Keller Williams, RE/MAX and HomeServices of America and its subsidiaries BHH Affiliates and HSF Affiliates as defendants. Had Bough granted the motions, the lawsuit, known as Sitzer/Burnett, would be over in favor of the defendants and there would be no trial.
“We are disappointed with the decision to deny our summary judgment motion but are confident that we will ultimately prevail in this lawsuit,” NAR spokesperson Mantill Williams told Inman in an emailed statement.
“Pro-competitive, pro-consumer local MLS broker marketplaces make it possible for businesses of all types and sizes to compete and ensure equity, transparency and market-driven pricing for buyers and sellers.
“The practice of the seller’s broker paying the buyer broker has worked so well for so long is because it provides the greatest economic benefits for both buyers and sellers, creates greater access and equity for first-time, low/middle-income and all buyers and enables small business brokers to compete with larger brokers.”
On Dec. 13, Bough postponed the case’s trial from February to an undetermined date in 2023 at the request of Anywhere and over the objections of NAR. On Friday, Michael Ketchmark, of Ketchmark & McCreight PC, attorney for the plaintiffs, told Inman that the three-week jury trial’s start date had been reset to Oct. 16, 2023 “by agreement of all parties.”
“We represent over 500,000 Missourians,” Ketchmark told Inman in an emailed statement. “The court’s ruling today sets the stage for the October 16th jury trial in federal court in Kansas City. The defendants have kept many of the damaging emails and documents about their wrongdoing from the public eye. That is about the end. The day of accountability is coming.”
Many of the legal filings in the Sitzer/Burnett case have been filed under seal.
Sizter/Burnett was originally filed in 2019 and won class-action status in April. The suit alleges that some NAR rules — including one that requires listing brokers to offer buyer brokers a commission in order to list a property in a Realtor-affiliated multiple listing service — violate the Sherman Antitrust Act by inflating seller costs.
The case’s class certification means that hundreds of thousands of homesellers in four MLS markets in Missouri can ask to be reimbursed for $1.3 billion in commissions they paid to buyer agents in the past eight years — plus potential treble damages that could put the total damages in the case at around $4 billion.
Summary judgment is generally granted when material facts in the case are undisputed and a party is entitled to judgment from the court as a matter of law without the need for a trial.
In his order denying the summary judgment motions, Bough noted several disputes of material facts in the case that remain unresolved. For instance, Bough said NAR had argued that the homeseller plaintiffs did not directly purchase buyer broker services because the buyer broker’s commission comes from the seller broker’s commission and is not directly paid by the seller.
But the plaintiffs disagreed, arguing that they have standing to sue because buyer broker commissions are negotiated between sellers and seller brokers and set out in the seller’s listing agreement and therefore they are direct purchasers of buyer broker services.
“Plaintiffs have created a genuine dispute of material fact as to whether the Seller is the direct purchaser of the Buyer-Broker’s commission,” Bough wrote in his order.
Bough also found that the plaintiffs had “created a genuine dispute of material fact as to whether” NAR MLS Policy Statement 7.23 (which the court refers to as Section 2-G-1) and the franchisor defendants’ adoption of the policy is direct evidence of a conspiracy.
The policy begins “In filing property with the multiple listing service, participants make blanket unilateral offers of compensation to the other MLS participants and shall therefore specify on each listing filed with the service the compensation being offered by the listing broker to the other MLS participants.”
“Plaintiffs have produced evidence, creating a genuine dispute of material fact, that Defendants implemented or enforced Section 2-G-1 with the purpose and effect of inflating or stabilizing broker commission rates,” Bough said.
“The record creates a genuine material fact as to whether Defendants have engaged in a horizontal price-fixing scheme.”
Bough said the plaintiffs had produced evidence that the policy “stifles competition among brokers by artificially inflating commission rates. Additionally, Plaintiffs have produced evidence that NAR adopted Section 2-G-1 and the Franchisor Defendants required their franchisees to follow Section 2-G-1, either explicitly or through NAR’s Code of Ethics.”
According to Bough, although the defendants had argued that cooperative compensation is required only when it’s in a client’s best interest, “Plaintiffs have produced evidence indicating that Defendants’ position is that it is always in the client’s best interest to market a property on an MLS, subjecting it to Section 2-G-1.”
He noted that the plaintiffs had also offered evidence that the defendants provide “uniform training” to listing brokers to obtain 6 percent commission rates, to split those commissions equally with buyer brokers and to never lower commissions.
“Because these commission offers are blanket offers and agreed to prior to listing the house, the Buyer-Broker will receive the same amount in commission regardless of the effort made, stifling competition,” Bough said.
“Plaintiffs have produced evidence that Defendants have stabilized the price of residential real estate brokers’ services, as reflected through commission rates,” he added.
Plaintiffs also presented expert testimony showing that the policy had the effect of stabilizing commission rates, according to Bough.
“Although it is true that a nominal commission of $1 would satisfy Section 2-G-1 and Defendants agree such nominal commission is mandated, Plaintiffs have produced evidence that no transaction within the Subject MLS took place using a nominal commission,” Bough said.
“Therefore, Defendants’ argument is rejected.”
In separate orders, Bough also denied defendants’ motions to exclude the testimony of Jeffrey Rothbart, a licensed real estate broker with some 19 years of experience in commercial and residential real estate transactions, and Dr. Craig T. Schulman, director of Berkeley Research Group and professor of economic data analytics at Texas A&M University.
Bough said the defendants’ arguments against experts were more suited to cross-examination at trial than to being excluded from the court at the outset.
Per the plaintiffs, Rothbart will “testify about how Realtors function in residential real estate transactions, including about the relationships and compensation/retention arrangements between sellers and listing brokers and between buyers and buyer brokers, and about how certain rules in NAR’s Code of Ethics and its MLS Handbook affect those relationships and real estate transactions,” according to the filing.
“Among other things, Schulman opines that Defendants use MLSs to control local real estate markets and inflate real estate commission rates,” the filing reads.
“Schulman opines that Defendants use their control to impose certain rules, including a commission rule which requires all home sellers to pay compensation to any cooperating broker that supplies a home buyer. According to Schulman, the buyer broker commissions rates are set at anticompetitive levels.”
Keller Williams and RE/MAX declined to comment for this story. Anywhere and HomeServices did not respond to requests from Inman for comment.