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Judge denies HomeServices’ motion for mistrial in commission lawsuit

Evidence presented Thursday shows listing agents still offer compensation to buyer brokers even when it's not required

KANSAS CITY, Missouri — The ninth day of the Sitzer/Burnett commission lawsuit started off with some overnight news from the court.

After filing a motion for a mistrial Wednesday morning, citing several grievances including “vulgar” footage from a Tom Ferry podcast featuring Allan Dalton and references to the Department of Justice’s investigation of the National Association of Realtors (NAR), defendant HomeServices of America learned it didn’t get its way.

In his denial of the motion, Judge Stephen Bough said he found a mistrial “too drastic a remedy under the current circumstances.”

“By instructing the jurors to disregard all references to the Inman article, instructing the jurors to disregard any references to the salary of any NAR executive or anyone else, and polling the jury to confirm that no juror has read or seen any recent media coverage, the Court sufficiently removed the prejudice, if any, incurred,” Bough wrote in his ruling. “Further, the Court finds that Defendants failed to timely object to the video exhibit properly used for impeachment purposes.”

HomeServices wasn’t the only defendant to receive bad news in the commission lawsuit trial. Keller Williams was denied its motion for judgment as a matter of law, which it had filed earlier Wednesday. HomeServices’ motion for judgment as a matter of law was also denied.

HomeServices continues defense testimony

Once proceedings began on Thursday, Dave Stevens, the former head of the Federal Housing Administration (FHA), was the first to take the witness stand, called by HomeServices.

Stevens’ testimony focused on how changing the current commission structure would impact homebuyers. He testified that, in most cases, homebuyers would be unable to include buyer agent commission costs into their financing.

“My concern is buyers who are cash-constrained,” Stevens said.

According to Stevens, the homebuyer process is “challenging” and “intimidating,” and “not having representation puts all the advantage on the other side of the transaction.”

But buyers are not the only ones who benefit from the current system, according to Stevens.

He told the jury that sellers also benefit because it brings more foot traffic and attention to their listings.

During his cross-examination, Michael Ketchmark, lead attorney for the plaintiffs, claimed that the internet has made home-buying easier than ever. Stevens disagreed, saying that in some markets it is now harder than ever to buy a home.

Ketchmark then asked if it is six times harder than it was in 1992 when he bought his first house, referencing the six-fold increase in commission dollar amounts over the past three decades.

Stevens said it was harder in some markets, in part, because there is currently very little housing inventory.

Next, Ketchmark asked Stevens about housing affordability issues, attributing the rising cost of commissions as the reason for affordability challenges.

Stevens contradicted this by saying that home costs are driven not by commissions but by other factors, including buyer demand and a lack of inventory. He also noted that home-price appreciation is a huge wealth driver for homeowners.

The D.A.N.G.E.R. Report examined

Stefan Swanepoel, the author of the infamous NAR D.A.N.G.E.R. Report, was next to take the stand.

During his testimony, Swanepoel discussed how the report was created with 72 industry voices. The report, he said, is neutral and does not reflect his personal opinions. Despite the wide variety of voices within the report, he does not feel that it is extremely thorough.

In compiling the report, Swanepoel said he worked with a team of researchers to look at commissions internationally. He noted that some of the 72 people he spoke with were concerned about commissions declining in other countries.

Swanepoel also testified that some of the analysis done by Craig Schulman, an associate professor of economics at Texas A&M University, was incorrect.

Schulman testified last Friday after being called as a witness by the plaintiffs. During his testimony, Schulman compared the U.S. to countries like Australia and the United Kingdom, which have very different real estate systems, Swanepoel said.

No evidence of a conspiracy

Like Swanepoel, Lawrence Wu, president of the National Economic Research Associates, also took issue with Schulman’s testimony.

On Friday, Schulman stated that home sellers have no reason to pay buyers’ agents, whom he claimed do not provide much value. He also stated that there would be fewer buyer brokers if the Participation Rule were not in place.

“My conclusion is completely different,” Wu said, claiming that Schulman misses the practice and function of the rule in his analysis.

According to Wu, if home sellers want to sell their home quickly at the highest price, they do that by having listing brokers compensate buyer brokers, who are motivated to help their clients navigate the homebuying process.

Wu said the Participation Rule “facilitates the process” by bringing listings more exposure, more bids and more money for home sellers.

Wu then moved on to Schulman’s conclusion that since buyer broker commissions are roughly the same nationwide, there must be a conspiracy. Just because there is a cluster does not mean there is a conspiracy, and there is no evidence that companies have coordinated to decrease competition, Wu pointed out.

Businesses make independent decisions on commissions to be competitive, and sometimes they make the decision to do the same thing, Wu said. He cited an example of a restaurant deciding to copy a popular dish off the menu at a nearby restaurant and fast food prices, which are similarly priced regardless of the chain. He also noted that there’s no evidence of individual agents conspiring.

Wu also addressed Schulman’s comparison of the U.S. commission structure to Australia, reaching similar conclusions to Swanepoel. Australia, which does not have a policy like the Partipciation Rule, buyers typically do not use buyer brokers; if they do, buyers pay for the service out of pocket.

Schulman was using the comparison to illustrate what he believed the U.S. system would look like without the rule. Again, Wu said he reached a very different conclusion.

In U.S. markets with no Participation rule, such as NorthwestMLS and the Real Estate Board of New York, Wu said listing agents still make offers of compensation roughly 99% of the time. He also noted that buyer brokers are still strong in number, and homebuyers don’t pay for their services.

“If we eliminated the rule, we would still have the practice of cooperative compensation,” Wu said. “The practice would still continue.”

Wu echoed Stevens’ testimony from earlier in the day, stating the cooperative compensation increases demand for sellers’ homes and helps buyers who are low on cash. He also noted that buyers’ agents provide valuable services for sellers and buyers.

“We have the practice because it benefits sellers and buyers,” he said.

He concluded that the rule is about transparency and clarity, and it’s important because buyer brokers know they will be compensated if they’re successful without a lot of phone calls.

On the other hand, Schulman believes that posting the offer of compensation with the listing allows buyers’ agents to steer their clients. Wu argues that there is no evidence of steering.

In an analysis he performed looking at all compensation offers made on the Missouri MLS between April 2014 and December 2020, Wu found that commission offers were negotiated between 22% to 33% of the time, and that 46% of commission offers were below 3% of the home sales price.

He also looked at eight cities in Missouri and found that the average compensation offer ranges from 2.68% in St. Louis to 3.01% in West Plains.

During his cross-examination time, Ketchmark claimed that Wu’s testimony was paid for by the defendants and that he worked with the defendants’ lawyers on his PowerPoint and used a bad batch of data the defendants provided to him. Wu admitted that he had been paid by the defendants and that he had met with the attorneys for the defendants about his testimony, but that the evidence he presented was his “honest and independent opinion.”

Although Keller Williams still needs to present its defense, closing arguments in the commission lawsuit trial are expected as early as Monday.

Editor’s note: Keep checking for ongoing, live coverage from Kansas City from our editorial team on the commission lawsuit trial.

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