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Brokers prepare for changes after Sitzer/Burnett commission lawsuit verdict

No one knows what comes next, but brokers say they're preparing for anything from closing up shop to fighting copycat lawsuits

The real estate industry as agents and brokers know it has been turned upside down.

It remains to be seen exactly what the guilty verdict in the Sitzer/Burnett commission lawsuit means for agents and brokers, as the industry waits for Judge Stephen Bough’s injunction. However, real estate brokers across the country have already begun preparing themselves, their firms and their agents for the worst.

Gretchen Pearson’s greatest concern is how the industry is going to potentially pay the $1.8 billion in damages. (It would swell to $5.36 billion if the court allows treble damages.)

“I think it will come down to the individual brokers to get the damages, and that kind of money will put a significant amount of the brokers out of business,” the Berkshire Hathaway HomeServices Drysdale Properties broker-owner said.

Pearson also has concerns about what this will now mean for how she and her agents handle client meetings or how to word things on open house fliers.

“I am working with an attorney to figure out how we are going to talk to people that come into open houses and what language we use on open house fliers,” Pearson said. “Can we ask if the buyer is represented now? Can we even discuss things about the house because if we inform the potential buyer of something about the house that makes them not want the house, even if it isn’t something necessarily bad, are we going against our agreement with our seller?”

Although Pearson’s concerns are warranted, she is certainly ahead of the game.

With Bough’s injunction not yet known and the National Association of Realtors, Keller Williams and HomeServices of America all vowing to appeal the jury’s verdict, it’s uncertain exactly when changes will go into effect.

“As of today, as of tomorrow, next week, next month, two months from now, it is business as usual,” Anthony Lamacchia, broker-owner of Lamacchia Realty, said during a live episode of his Crush It YouTube show Tuesday afternoon. “This doesn’t have some immediate impact on the way that we conduct business.”

On the other hand, Glenn Kelman, CEO of Redfin whose company has been named in the recently filed Gibson commission lawsuit, believes changes are coming sooner rather than later.

“The judge may take days or weeks to decide what structural changes the jury’s verdict will entail. There will also be years of appeals about the legal standard used in the case and other issues,” Kelman wrote in a blog post. “For now, the initial size of the damages alone will ensure major change. In the weeks leading up to the verdict, the National Association of Realtors already updated its guidelines to let agents list homes for sale that don’t offer a commission to the buyer’s agent.”

Like Kelman, Chip Stella believes a shift to how agents work with buyers and sellers is imminent, and he’s working to prepare his agents for a variety of outcomes.

“Some states currently require buyer’s agency agreements, but now they are a must and agents need to know how to use them,” the LandVest broker said. “I am also supporting my agents by helping them to be able to better articulate their value in the marketplace.

“And I think every brokerage should be meeting as a group or having discussions around the language we use to talk about commissions, because those are some of the reasons we are where we are today. We need to have the conversations that commissions are negotiable.”

As Stella looks to navigate all of these potential changes to the industry, he is confident NAR and his local Realtor association will be there to support him, a sentiment echoed by Lamacchia.

“I do believe they will. They sent us an email right away informing members of the plan to appeal and answering questions,” he said.

Lisa Chinatti, the broker-owner of Chinatti Realty, doesn’t share Lamacchia’s optimism.

“I don’t have faith that NAR is going to navigate this, and I think that there were some changes that were necessary that will come out of this,” Chinatti said. “And we should have made those changes, as an industry, beforehand to prevent it from getting to this level. I think NAR is partly at fault, and I know that is not a popular opinion.”

Chinatti, who owns a large independent brokerage in Eastern Massachusetts, is also concerned about copycat lawsuits.

“Without a doubt they are coming,” Chinatti said. “I think it is just a matter of time until the copycat lawsuits are in every state going after every brokerage. I think the questions mark is whether it retains itself to just the brokerage level or whether it trickles down to the team or even agent level.”

Lamacchia echoes her concern.

“[The Sitzer/Burnett verdict] probably means that Michael Ketchmark, this money-grabbing lawyer, is going to go out and sue many other companies,” Lamacchia said. “If he keeps this up, he might get down to suing our company.”

Despite his dour outlook, Lamacchia remains optimistic that the industry will ultimately prevail.

“Somewhere along the line this is going to get worked out,” he said.

Industry leaders talk about the aftermath of Sitzer/Burnett decision

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