Real Estate

The Sitzer/Burnett trial kicks off in Kansas City

Plaintiffs leaned heavily on video depositions of Gary Keller and Gino Blefari, while defendants argued there's no conspiracy and the Participation Rule doesn't impose obligations on sellers

The highly anticipated trial of the Sitzer/Burnett buyer broker compensation class action lawsuit kicked off in earnest on Tuesday morning, with opening arguments taking place in the Kansas City courtroom belonging to U.S. District Court Judge Stephen Bough.

According to reports from Inman News, the plaintiffs opening arguments leaned heavily on the video depositions of Keller Williams CEO Gary Keller and HomeServices of America CEO Gino Blefari.

In agent training videos, Blefari said he pre-writes a 6% commission into all his listing agreements and that he only negotiates commissions if they go up.

“I was showing them [agents] what I did so they can learn from that,” Blefari said in his video deposition, according to Inman.

When asked by Michael Ketchmark, the lead attorney for the plaintiffs, in the video deposition if his actions consisted of price-fixing, Blefari replied: “No, it’s just negotiating.”

The National Association of Realtors, whose Participation Rule lies at the center of the this and other lawsuits, used its opening remarks to note that the rule has been around for 25 years and has been clearly published on NAR’s website. Ethan Glass, an attorney for the trade association who spoke on behalf of NAR, said that from this it is clear the industry is not engaged in a conspiracy.

These remarks were expansions of arguments both the plaintiffs and the defendants laid out in trial briefs filed on Monday.

Plaintiffs allege collusion

In their trial brief, the plaintiffs in the suit allege that NAR’s Participation Rule, which they refer to as the Mandatory Offer of Compensation Rule, is “a market-shaping and distorting rule” that stifles innovation and competition.

“The Rule requires every home seller to offer payment to the broker representing their adversary, the buyer, even though the buyer’s broker is retained by and owes a fiduciary obligation to the buyer (who may be told, falsely, that the services of the buyer broker are “free”),” the brief said.

They argue that the current practice of the seller’s agent splitting their commission with the buyer’s agent, who typically negotiates for a lower selling price for their client, works against the seller’s interest and only exists due to the alleged anticompetitive rules. The plaintiffs also note that the NAR rule in question requires a blanket offer of compensation for the buyer’s broker regardless of their experience or the level of service they provide the buyers with, and that the compensation offer was only visible to the buyer’s agent and not their clients, until very recently. 

“This artificial and severed market structure created by Defendants’ conduct deters price-cutting competition and innovation, resulting in inflated commissions,” the brief states. “The Mandatory NAR Rules impede the ability of a free market to function in the residential real estate industry, and the plain purpose and/or effect of the Rules is to raise, inflate, or stabilize commission rates.”

In the brief, the plaintiffs claim that the other defendants in the suit colluded with NAR to enforce this and other NAR and MLS policies.

“The Corporate Defendants compel compliance in multiple ways, including by requiring their franchisees, subsidiaries, brokers, and agents become members of NAR; writing the NAR Rules into their own corporate documents; and requiring that their franchisees, subsidiaries, brokers, and agents become members of and participants in the Subject MLSs — entities that compel NAR membership and adopt the mandatory NAR Rules,” the brief reads.

The brief notes that Craig Schulman, the director of Berkeley Research Group and professor of economic data analytics at Texas A&M University, will be an expert witness for the plaintiffs at trial. In studying transaction data from NAR and other parties, the brief states the Schulman has concluded that “(a) the NAR Rules have anticompetitive effects; (b) the NAR Rules caused a seller to pay his adversary (buyer broker) and that, but for the conspiracy, a seller would not pay the buyer broker; and (c) all class members were impacted.”

The brief also notes that Schulman will testify that NAR’s rules have stabilized commission rates at an “anticompetitive level,” noting that commissions have remained at 6% for several year.

NAR’s opening arguments

For its part, NAR noted in its own trial brief that the trade group does not receive, study or track commissions, set commission amounts, determine who receives commissions, or decide how commissions are paid.

According to the brief, NAR’s rules do not require Realtors to “share commissions, fees, or to otherwise compensate another broker,” and they “do not require sellers to do anything, and do not prevent sellers from doing anything” or “fix, set, inflate, or suggest commission amounts.”

NAR’s filing also makes three assertions about the trade group’s Participation Rule, which lies at the heart of the investigation. These assertions include that the rule “imposes no obligations on sellers,” that “it imposes no particular amount the agent representing the seller must offer to pay the agents helping her sell the home; and [that] it explains that its purpose is to make sure agents know how much they will be paid before they do any work.” 

Additionally, the brief does not mention NAR’s MLS policy than an MLS “shall not publish listings that do not include an offer of compensation expressed as a percentage of the gross selling price or as a definite dollar amount, nor shall they include general invitations by listing brokers to other participants to discuss terms and conditions of possible cooperative relationships.”

The brief also does not mention NAR’s recent announcement that seller’s brokers could offer $0 (before it was “as little as one cent”) and still be in compliance with the trade group’s policies.

NAR does, however, note that it sellers are able to negotiate the commission rate with their agent, and agents are able to negotiate with one another.

“While NAR prohibits one agent from unilaterally changing the compensation she is being paid … it ‘does not preclude the listing broker and cooperating broker from entering into an agreement to change cooperative compensation,’” the filing states.

The trade group also took a clear stance on the conspiracy accusations.

“There is no direct evidence that the Defendants agreed with each other to enforce or follow NAR’s Model Rules,” the brief states. “Plaintiffs’ conspiracy allegations boil down to an argument that trade associations are walking conspiracies, which courts routinely have rejected.”

NAR also argued in the brief that the plaintiffs do not have the ability to sue for damages —which some believe could reach as much as $4 billion in this case — because under federal and Missouri antitrust law, only “direct purchasers” can be allowed to sue and the plaintiffs have not bought anything directly from NAR or the other defendants.

“And, according to those same Model Rules and listing agreements, Plaintiffs did not directly pay cooperating agents, NAR, or the other Defendants; sellers only directly pay their listing agents and only directly receive services from their own agents,” the brief states. “Therefore, at best, Plaintiffs might claim that they paid their listing agents (who are not parties to this case) who, only then, paid Defendants. But such an indirect claim is prohibited by Supreme Court case law.”

In their briefs, Keller Williams and HomeServices of America, which are the only two brokerage defendants left after both RE/MAX and Anywhere filed settlement agreements, both claim that they did not participate in a conspiracy to enforce or create NAR’s Participation Rule.

Both defendants also said they joined in NAR’s trial brief.

The court noted that it expects a verdict in the suit, which was originally filed in April 2019, by mid- November.

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please