The Future of Real Estate Commissions: Groundbreaking Sitzer/Burnett Lawsuit Begins

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The real estate industry is abuzz as the Sitzer/Burnett class action commission lawsuit, long in the making, finally enters the courtroom. This landmark case has the potential to redefine commission practices and cooperation within the industry.

Central to the lawsuit is the contention that commission rates are exorbitantly high. The plaintiffs argue that it's inequitable for sellers to bear the cost of the buyer’s agent’s commission. They further allege that the National Association of Realtors’ (NAR) Code of Conduct and MLS Handbook indirectly enforce set pricing. The heavyweights named in this class action include NAR, RE/MAX, Anywhere, Keller Williams, and Berkshire Hathaway HomeServices.

Katie Johnson, NAR’s Chief Legal Officer, provided an update on the trial's progress. "Jury selection began last week and is expected to conclude today. We're gearing up for the opening arguments on October 17, with the trial set to continue until November 3. We anticipate a verdict during the week of November 6," Johnson informed Realtor Association communications directors.

Settlements and Implications

In a significant development last month, RE/MAX and Anywhere reached settlements with the plaintiffs, agreeing to pay $55 million and $83.5 million, respectively. Despite these settlements, NAR remains undeterred. A litigation fact sheet from the association stated, "These settlements won't alter our case presentation in court. We're confident in demonstrating that NAR's guidance for local MLS broker marketplaces ensures consumers receive comprehensive, equitable, and reliable home information. It also ensures that brokerages, regardless of their size or pricing model, have a fair competitive chance."

Interestingly, the settlements have led to changes in affiliation requirements. RE/MAX and Anywhere's agreements no longer mandate their franchisees or agents to be NAR members or adhere to its Code of Ethics.

During a recent webinar, NAR’s Deputy General Counsel, Lesley Muchow, highlighted the potential repercussions if the plaintiffs emerge victorious. "A win for the plaintiffs could send us back to what we term as the 'Wild West', where deceitful practices could become rampant. Without the current MLS broker marketplaces, we'd lack a centralized hub for available homes," Muchow warned.

The Bigger Picture

While the settlements offer a glimpse into potential trial outcomes, such as monetary compensation and changes in affiliation mandates, the broader implications remain uncertain.

A report by investment banking firm Keefe, Bruyette & Woods sheds light on the potential industry-wide ramifications. They predict the lawsuit could "reshape the residential brokerage industry’s commission structure and the broader housing market." If a court-ordered injunction were to unbundle commissions, it could end the age-old practice of listing agents and sellers determining and covering buyer’s agent commissions.

Furthermore, KBW analysts estimate that increased transparency around commission rates could lead to a decline in the annual commission pool by nearly 30% over time.

While the industry awaits the verdict, which is likely to be contested regardless of the outcome, many brokers are already taking proactive measures. They're preparing agents, introducing buyer-broker agreements, and emphasizing the importance of transparency in commission negotiations.

As the trial unfolds, all eyes are on the courtroom, with the outcome set to have lasting implications for the real estate industry's future.

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