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Industry veterans sparred over how much of a risk antitrust lawsuits coursing through the courts pose to real estate at Inman CEO Connect on Tuesday — but all agreed that agents and brokers are in for some changes.
In a session called, “Life After the Megalawsuits,” industry blogger, podcaster, and entrepreneur Greg Robertson put the risk to the industry at a 3 on a scale of 1 to 10.
“I have a bet … that this stuff will be settled by the end of the year,” Robertson told attendees, acknowledging that his view might be an outlier among the crowd.
Two of the suits the industry is facing, known as the bombshell lawsuits, are class actions filed by homesellers against the National Association of Realtors, Keller Williams, Anywhere (formerly, Realogy), RE/MAX and HomeServices of America.
They allege 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 (MLS) — violate the Sherman Antitrust Act by inflating seller costs.
One of the suits known as Sitzer/Burnett is scheduled to go to trial on Oct. 16. It covers four MLS markets in Missouri and is asking for reimbursement of $1.3 billion in commissions hundreds of thousands of sellers paid to buyer agents over eight years — plus potential treble damages that could raise that total to around $4 billion.
The other suit known as Moehrl will likely go to trial in the first half of 2024. It covers 20 MLS markets nationwide, and potentially millions of homesellers are asking for reimbursement of an estimated $13.7 billion in damages. If the court awards treble damages that figure could go up to $41.1 billion.
Then there’s litigation between NAR and the U.S. Department of Justice. The DOJ is currently appealing a lower district court ruling quashing a July 2021 request from the agency for information from NAR on its Clear Cooperation Policy around pocket listings and Participation Rule on commissions, arguing the agency should be allowed to resume its investigation into those policies. NAR is fighting that appeal with support from the U.S. Chamber of Commerce.
James Dwiggins, CEO of NextHome, put the industry’s risk from these lawsuits at an 8 or 9. He stressed that he hopes the defendants in the cases win, telling those in the room, “we’re obviously rooting for you,” but he predicted victory would be “difficult.”
Russ Cofano, CEO of Collabra Technology and a licensed attorney, gave a risk score of 11 out of 10 because of the “double punch” from the lawsuits as well as government interest in mandating policy changes that would impact overall compensation in the industry.
“Our industry operates with this amazingly efficient multi-relationship structure,” Cofano said. “Consumers have relationships with agents, agents have relationships with the brokers, brokers have relationships with the brands.
“And all those people have relationships with associations — locals and the national — and MLSs. These lawsuits and the governmental intrusion in the industry is going to affect every single one of those relationships in a pretty significant way.”
Dwiggins agreed, noting that the Federal Trade Commission (FTC) is not part of any settlement NAR has with the DOJ, so even if the DOJ were obligated to stick to that deal, the FTC would still have its direction from the Biden administration to exercise its rule-making authority “in areas such as … unfair occupational licensing restrictions; unfair tying practices or exclusionary practices in the brokerage or listing of real estate; and any other unfair industry-specific practices that substantially inhibit competition.”
“No one’s talking about [this],” Dwiggins said. “There’s massive change coming to this business.”
Cofano noted that a settlement in a case similar to the bombshell suits, but against MLS PIN in New England rather than NAR, has yet to be approved by the court and the DOJ would likely interfere with that settlement approval.
“Not a chance,” Robertson protested. “This is all going to be settled. There’s too much money involved here.” The damages amounts being sought would send the defendants into bankruptcy, he argued, so the plaintiffs wouldn’t ultimately get paid.
“The question is how much is that settlement,” Dwiggins said. If it’s $2 billion or more, the industry doesn’t have it, he said.
In terms of policy, Dwiggins said the best case scenario is that sharing commissions between listing brokers and buyer brokers becomes optional. The worst case scenario is that after the Sitzer/Burnett trial in October, the judge in that case orders an injunction on NAR’s commission rule and that goes into effect nationwide, he said.
Robertson agreed that there will be changes “for sure” in the industry as a result of the lawsuits. For instance, he agreed with Cofano and Dwiggins that brokers should start training their buyer agents to use buyer agency agreements in which buyers agree to pay their agents if sellers don’t.
But people are used to having to comply with new regulations, he argued.
“We’re going to get over that,” Robertson said. “Consumers are going to get over that.”
“Northwest MLS has had this [change] and it hasn’t affected anything,” he added.
Dwiggins replied, “That’s because it’s optional.”
Cofano predicted that experience will begin to matter to consumers looking for a buyer agent.
“Experience should matter in this business economically,” Cofano said. “It does matter on the listing side. There’s going to be economic changes that are going to have a disparate impact on the masses of buyers’ agents out there.”
Robertson agreed. “If you’re not able as a buyer agent to express your value, that’s a problem.”
Dwiggins advocated for a focus on strategy in the event NAR does lose the lawsuits. For his part, he’s retraining his agents next month in case this happens, which he said was “very likely.” He said MLSs should require buyer agency agreements in order to “level the playing field” and that the industry should also look into how compensation can be financed into a mortgage.
The industry needs to start preparing for the worst-case scenario because it will have a domino effect across MLSs, associations, and brokerages, Dwiggins said. “Everybody should be playing a part at this point.”
Panel moderator Denee Evans, CEO of the Council of Multiple Listing Services (CMLS), asked a question pertinent to her membership: Will the MLS survive if the plaintiffs win?
“MLSs are not going away anytime soon,” Cofano said. “The function of the MLS is valuable without compensation being a part of the MLS structure. The idea that MLSs are threatened … is way overstated and a red herring to the overall discussion.”
Still, he said, if the plaintiffs win in the Sitzer/Burnett case, NAR will appeal, but in the meantime, the judge could impose a “staggering” bond on the defendants.
Robertson quipped, “That’s why they’re going to settle before that.”
But Cofano stressed that NAR and the franchisor defendants can’t risk settling a federal case because of the fear of copycat lawsuits at the state level — which a federal settlement would do nothing to allay.
Dwiggins then pointed out that liability policies have exclusions for antitrust violations. “In other words, you’ll have no insurance coverage for any of those suits,” he said.
Robertson replied, “It’s not going to happen, guys,” prompting some chuckling from the audience.
He noted that the housing market is not doing well right now and he couldn’t see the DOJ coming in “to fuck this up even more,” adding that “it would be irresponsible.”
He said he couldn’t see why the DOJ would want to come after NAR, whose membership is around 60 percent female with a median age of around 58. “This is who they want to come after?” he said, admitting that he has a “Pollyanna” attitude about the situation.
Evans ended the session by asking the panelists whether the lawsuits present opportunities for the industry.
“I think there’s amazing opportunity for new value propositions to be discussed between buyers and their buyer agents,” Cofano said.
Dwiggins predicted a rise in professionalism would result from buyers paying their buyer agents directly.
“The sky is not falling, let me be clear,” Dwiggins said.
“I think you’re going to see the professional people rise up,” he added. “If you actually track how much a buyer’s agent does, they do about twice as much work in time than a seller’s agent.”
Robertson anticipated more transparency into how buyer agents are paid would result from the suits.
“That is a good, positive thing,” he said.
