Burnett v. National Association of Realtors

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Burnett v. National Association of Realtors
WDMo Seal.gif
CourtUnited States District Court for the Western District of Missouri
Full case name Rhonda Burnett, et al. v. the National Association of Realtors, Realogy Holdings Corp., HomeServices of America, Inc., BHH Affiliates, LLC, HSF Affiliates, LLC, RE/MAX LLC, and Keller Williams Realty, Inc.
StartedOctober 16, 2023 (2023-10-16)
DecidedOctober 31, 2023;12 months ago (2023-10-31)
Docket nos. 4:19-cv-00332
VerdictAll defendants were found liable for damages caused by engaging in a price-fixing conspiracy that required home sellers to pay more for real estate brokerage services.
Court membership
Judge sitting Stephen R. Bough
Laws applied
Sherman Antitrust Act
Keywords

Burnett v. National Association of Realtors (formerly Sitzer v. National Association of Realtors) is a class-action lawsuit challenging the fees charged by real estate agents in the United States. The case was filed against the National Association of Realtors and some of the largest brokerages in the country. At trial, a federal jury found that they violated antitrust law by conspiring to force home sellers to pay inflated commissions to real estate agents.

Contents

Background

Lawn signs used by Realtors to advertise homes for sale Houses for sale sign.jpg
Lawn signs used by Realtors to advertise homes for sale

National Association of Realtors

In the United States, most homes [1] are bought and sold using real estate agents affiliated with the National Association of Realtors (NAR), an industry lobbying group with over 1.5 million individual members. [2] NAR permits only its members to call themselves Realtors.

Commission rates

Fees paid to Realtors during home sales in the United States average around 6% of the sale price, a percentage considered exceptionally high compared to rates in other developed countries such as Australia, Canada, and the United Kingdom. [3] [4] [5] Industry research shows that Americans pay $100 billion in commissions to real estate agents each year. [6]

Cooperative compensation rule

Realtors list homes for sale on a multiple listing service (MLS), a database of properties in a specific geographic region. The National Association of Realtors maintains rules that each MLS owned by a local association of Realtors is required to follow.

In 1996, as part of its rules governing multiple listing services, NAR adopted a rule requiring Realtors to make "blanket unilateral offers of compensation" when listing homes for sale on an MLS. [7] These offers of compensation were required to be "a percentage of the gross selling price or as a definite dollar amount" and were to be paid by the seller's agent to the buyer's agent.

Steering

When a buyer's agent is able to view offers of compensation in advance, it is possible to discourage buyers from pursuing homes that would result in lower pay for the buyer's agent. This practice of encouraging guiding buyers toward homes with higher commission rates is known in real estate as steering. [8] Published research has provided evidence that steering based on commissions does occur. [9] [10]

Complaint

The original complaint was filed on April 29, 2019, in the United States District Court for the Western District of Missouri.

Allegations

The plaintiffs alleged that the defendants violated the Sherman Antitrust Act, the Missouri Merchandising Practices Act, and the Missouri Antitrust Law by engaging in a price fixing conspiracy that caused home sellers to pay inflated amounts.

Trial

Judge Stephen R. Bough presided over the trial Stephen R. Bough, U.S. District Court Judge.jpg
Judge Stephen R. Bough presided over the trial

Judge Stephen R. Bough presided over the trial, which was held at the Charles Evans Whittaker Courthouse in Kansas City, Missouri, between October 16, 2023, and October 31, 2023.

Testimony

Craig Schulman

Craig Schulman, an economics professor at Texas A&M University, testified for the plaintiffs as an expert witness. Schulman stated that NAR's cooperative compensation rule was "one of the clearest cases of price-fixing and collusion" he'd ever seen. Analysis by Schulman showed that the average buyer commission rate was 3% in 95% of the Missouri home sales that were studied. [11]

Hollee Ellis

One plaintiff, Hollee Ellis, testified that she paid a total commission rate of 6% when she sold her home, and that she was never informed that the commission was negotiable. She netted $18,295 from the sale of her home, but 40% of that went to commissions paid to the listing agent from Coldwell Banker (a subsidiary of Anywhere Real Estate) and to the buyer's agent from Keller Williams Realty. [12]

Rhonda Burnett

Rhonda Burnett, the lead plaintiff, testified about her experience with a real estate agent from HomeServices of America subsidiary ReeceNichols. According to Burnett, the agent gave her a contract to sign with a commission rate of 6% already filled in, and she was told that the rate was non-negotiable. [12]

Jeremy Keel

Jeremy Keel, another plaintiff, testified that he paid a 6% commission, with 3% going to the Keller Williams agent he hired and 3% going to the buyer's agent from ReeceNichols. He said that the commission rates were already filled in on the contracts he signed, and that he didn't know that commissions could be negotiated. [12]

Jerod Breit

Jerod Breit, the fourth plaintiff to testify, told the court that his real estate agent from RE/MAX promised him a 5.5% commission, but actually charged him the full 6%. [12]

Gary Keller

Keller Williams founder Gary Keller testified during the trial GaryKellerTeaching1.jpg
Keller Williams founder Gary Keller testified during the trial

Gary Keller, the founder of real estate brokerage Keller Williams, was called to the witness stand by the defense. Keller testified that there is no standard commission rate and that commissions are set by market conditions. [13]

Verdict

The eight-person jury deliberated for 2 hours and 28 minutes before returning a unanimous verdict against the defendants on October 31, 2023. [14] [15] The organizations and corporations found liable were:

  1. National Association of Realtors
  2. HomeServices of America, Inc.
  3. BHH Affiliates, LLC
  4. HSF Affiliates, LLC
  5. Keller Williams Realty, Inc.
  6. Anywhere Real Estate, Inc.
  7. RE/MAX, LLC

Jurors found that all the defendants in the case "knowingly and voluntarily" engaged in a conspiracy with the goal of "raising, inflating, or stabilizing broker commission rates paid by home sellers" by following and enforcing NAR's cooperative compensation rule. The jury awarded $1.8 billion in damages, which was eligible to be trebled to $5.4 billion.

Settlement

On March 15, 2024, the National Association of Realtors announced that it would settle the lawsuit rather than appeal. The group agreed to change how commissions are paid and to pay back $418 million over four years. [16] The judge presiding over the case granted preliminary approval to the settlement on April 23, 2024. [17] A deadline of July 2024 was set for practice changes, which was later moved to August 17, 2024. [18]

Practice changes

The cooperative compensation rule has been eliminated as a result of the settlement. Seller's agents are no longer required to offer compensation to buyer's agents when listing a home for sale on a Realtor-owned multiple listing service. In addition, Realtors acting as buyer's agents must enter into contracts with buyers before touring any homes, allowing buyers to negotiate how much they will pay their buyer's agent. [19] [20]

See also

Related Research Articles

A multiple listing service is an organization with a suite of services that real estate brokers use to establish contractual offers of cooperation and compensation and accumulate and disseminate information to enable appraisals. A multiple listing service's database and software is used by real estate brokers in real estate, representing sellers under a listing contract to widely share information about properties with other brokers who may represent potential buyers or wish to work with a seller's broker in finding a buyer for the property or asset. The listing data stored in a multiple listing service's database is the proprietary information of the broker who has obtained a listing agreement with a property's seller.

<span class="mw-page-title-main">National Association of Realtors</span> American trade association for real estate brokers

The National Association of Realtors (NAR) is an American trade association for those who work in the real estate industry. As of December 2023, it had over 1.5 million members, making it the largest trade association in the United States including NAR's institutes, societies, and councils, involved in all aspects of the residential and commercial real estate industries. The organization holds a U.S. trademark over the term "Realtor". NAR also functions as a self-regulatory organization for real estate brokerage. The organization is headquartered in Chicago.

<span class="mw-page-title-main">Real estate agents and brokers</span> Person who acts as an intermediary between sellers and buyers of real estate for a commission

Real estate agents and real estate brokers are people who represents sellers or buyers of real estate or real property. While a broker may work independently, an agent usually works under a licensed broker to represent clients. Brokers and agents are licensed by the state to negotiate sales agreements and manage the documentation required for closing real estate transactions. Buyers and sellers are generally advised to consult a licensed real estate professional for a written definition of an individual state's laws of agency.

<span class="mw-page-title-main">For sale by owner</span> Selling real estate without a broker or agent

For sale by owner (FSBO) is the process of selling real estate without the representation of a broker or agent. This is where the homeowner sells directly to a new homeowner. Homeowners may still employ the services of marketing, online listing companies, but can also market their own property.

Closing costs are fees paid at the closing of a real estate transaction. This point in time called the closing is when the title to the property is conveyed (transferred) to the buyer. Closing costs are incurred by either the buyer or the seller.

A listing contract is a contract between a real estate broker and an owner of real property granting the broker the authority to act as the owner's agent in the sale of the property.

<span class="mw-page-title-main">Business broker</span>

Business brokers, also called business transfer agents, or intermediaries, assist buyers and sellers of privately held businesses in the buying and selling process. They typically estimate the value of the business; advertise it for sale with or without disclosing its identity; handle the initial potential buyer interviews, discussions, and negotiations with prospective buyers; facilitate the progress of the due diligence investigation and generally assist with the business sale.

A buyer brokerage or buyer agency is the practice of real estate brokers and their agents representing a buyer in a real estate transaction rather than, by default, representing the seller either directly or as a sub-agent. In the United Kingdom and Australia, the most common term is buying agent.

Flat-fee multiple listing service or flat-fee MLS refers to the practice in the real estate industry of a seller entering into an "à la carte service agreement" with a real estate broker who accepts a flat fee rather than a percentage of the sale price for the listing side of the transaction. A flat-fee MLS brokerage typically unbundles the services a traditional real estate brokerage offers and lists the property for sale in the local multiple listing service (MLS) à la carte without requiring the seller to use all services.

<span class="mw-page-title-main">Stefan Swanepoel</span> American businessman

Stefan J. M. Swanepoel, is an American business executive, author and real estate businessperson. He has served as president of two non-profit organizations and seven companies, including a New York-based global franchise network. He is most known as a business and trends author, having written more than 20 books and reports. His books have been listed on the New York Times and Wall Street Journal bestseller lists.

Property finders are companies and individuals representing a buyer in a property transaction. The term is more common in the United Kingdom, but in the United States the situation is referred to as buyer brokerage, and in Australia it is known as buyer advocacy.

In the real estate industry in the United States, a pocket listing or hip pocket listing is a property where a broker sells a property through private connections rather than entering it into a multiple listing system (MLS) or otherwise publicly advertising it. In Canada, this is called an Exclusive Listing.

A real estate trend is any consistent pattern or change in the general direction of the real estate industry which, over the course of time, causes a statistically noticeable change. This phenomenon can be a result of the economy, a change in mortgage rates, consumer speculations, or other fundamental and non-fundamental reasons.

A real estate license is an authorization issued by a government body to give agents and brokers the legal authority to represent a home seller or buyer in a real estate transaction. Real estate agents and real estate brokers are required to be licensed when conducting real estate transactions in the United States and many other countries.

HomeServices of America is the United States' largest residential real estate services company, based on closed transactions. The company provides real estate brokerage services, mortgage loan origination, franchising, title insurance/escrow and closing services, home warranties, property insurance, casualty insurance, and relocation services.

An exclusive buyer agent (EBA) (also known as an exclusive buyer broker (EBB)) is a U.S. real estate firm (or an agent or broker who works in such a company) that represents only buyers of real estate. EBA firms never take listings and, therefore, never represent the seller in a real estate transaction.

<span class="mw-page-title-main">Realtor.com</span> Real estate website

Realtor.com is a real estate listings website operated by the News Corp subsidiary Move, Inc. and based in Santa Clara, California. It is the second most visited real estate listings website in the United States as of 2021, with over 100 million monthly active users.

A private transfer fee covenant is a legal instrument that is filed in the real property records, which imposes an assessment payable in connection with a series of future transfers of title to certain real property. The assessment can be for a fixed amount or a percentage of the sales price, and typically runs for a limited term. Unlike a transfer tax a private transfer fee assessment is payable to an identified third-party, often a community association, the real estate developer, and/or an environmental or charitable organization. According to the Coalition to Save Community Benefits, private transfer fee covenants of some kind encumber approximately eleven million homes in the United States. Although encumbering a statistically small percentage of the estimated 135 million homes nationwide, increased use of private transfer fee assessments, particularly by real estate developers beginning around 2007, when financing became difficult to obtain on commercially reasonable terms, lead to increased regulation at both the federal and state level.

NeighborCity was a residential real estate information and service company that rated real-estate agents in the United States, offering a way for buyers and sellers of homes to compare and evaluate agents. It was based in San Francisco.

Michael Scott Ketchmark is an American civil trial attorney based in Leawood, Kansas. He is the president of Ketchmark & McCreight, P.C., a law firm which specializes in personal injury cases.

References

  1. ↑ "Quick Real Estate Statistics". National Association of REALTORS®. July 7, 2024. Retrieved October 31, 2024.
  2. ↑ "NAR Membership Remains Steady Notwithstanding Slower Home Sales". National Association of REALTORS®. June 7, 2024. Retrieved October 31, 2024.
  3. ↑ Dagher, Veronica (November 16, 2023). "Almost No One Pays a 6% Real-Estate Commission—Except Americans". The Wall Street Journal. Retrieved October 31, 2024.
  4. ↑ Leonhardt, David (March 18, 2024). "The Realtors' Big Defeat". The New York Times. Retrieved October 31, 2024.
  5. ↑ "Why America's real-estate brokers are such a rip-off". The Economist. August 29, 2019. Retrieved October 31, 2024.
  6. ↑ Nicole Friedman, Nicole Friedman; Laura Kusisto, Laura Kusisto (November 1, 2023). "The Way You Pay to Buy or Sell a Home Is About to Change". The Wall Street Journal. Retrieved October 31, 2024.
  7. ↑ Scarcella, Mike (March 29, 2023). "U.S. real estate brokerages must face home sellers' class action over commissions". Reuters. Retrieved October 31, 2024.
  8. ↑ Rodriguez, James (March 13, 2024). "The homes your real-estate agent doesn't want you to see". Business Insider. Retrieved October 31, 2024.
  9. ↑ Barwick, Panle Jia; Pathak, Parag A.; Wong, Maisy (July 1, 2017). "Conflicts of Interest and Steering in Residential Brokerage". American Economic Journal: Applied Economics. 9 (3). American Economic Association: 191–222. doi:10.1257/app.20160214. hdl: 1721.1/114048 . ISSN   1945-7782.
  10. ↑ Barry, Jordan; Fried, Will; Hatfield, John William (2023). "Et Tu, Agent? Commission-Based Steering in Residential Real Estate". SSRN Electronic Journal. Elsevier BV. doi:10.2139/ssrn.4596391. ISSN   1556-5068.
  11. ↑ Patterson, Maria (October 20, 2023). "COURT UPDATE: 'Expert Witness' and NAR Clash on Alleged Collusion". RISMedia. Retrieved October 31, 2024.
  12. 1 2 3 4 Han, Brooklee (October 20, 2023). "Plaintiffs take the stand in the Sitzer/Burnett trial". HousingWire. Retrieved November 1, 2024.
  13. ↑ Han, Brooklee; Kleimann, James (October 27, 2023). "Gary Keller testifies to close out week two of commission lawsuit trial". HousingWire. Retrieved October 31, 2024.
  14. ↑ Brambila, Andrea V. (October 31, 2023). "Jury awards $5B to homesellers in Sitzer". Inman. Retrieved October 31, 2024.
  15. ↑ Kamin, Debra (October 31, 2023). "Home Sellers Win $1.8 Billion After Jury Finds Conspiracy Among Realtors". The New York Times. Retrieved October 31, 2024.
  16. ↑ Kamin, Debra (March 15, 2024). "National Association of Realtors Agrees to Slash Commissions to Settle Lawsuits". The New York Times. Retrieved October 31, 2024.
  17. ↑ Kamin, Debra (April 23, 2024). "Judge Approves $418 Million Settlement That Will Change Real Estate Commissions". The New York Times. Retrieved October 31, 2024.
  18. ↑ Miller, Abby (July 5, 2024). "National Association of Realtors broker commission changes taking place in August: What you should know". Chicago Sun-Times. Retrieved October 31, 2024.
  19. ↑ Kamin, Debra (August 16, 2024). "Buying or Selling a Home? The Rules Have Changed". The New York Times. Retrieved October 31, 2024.
  20. ↑ Gregg, Aaron; Mark, Julian (September 24, 2024). "Buying a home? Here's what to watch out for with the new contracts". Washington Post. Retrieved October 31, 2024.
  1. Docket for Sitzer v. National Association of Realtors from CourtListener
  2. Case information for Burnett et al v. National Association of Realtors et al from the United States District Court for the Western District of Missouri
  3. Text of the settlement agreement from the National Association of Realtors
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