1.78 Billion Dollar Jury Award in Burnett et al. v. National Association of Realtors, et al.
By Trey Van Dyke
November 7, 2023
If you haven’t been glued to the Real Estate Legal News Channel (don’t look for it) over the past few years, you may not be aware of a landmark jury decision that was just awarded a couple days ago. This jury verdict is from one of two class-action lawsuits that have taken aim at the NAR’s Participation Rules, that require listing agents to make a blanket offer of compensation to buyers’ agents to list the property on the Multiple Listing Service, commonly known as MLS. Nearly all the most prominent real estate brokerages with franchises across the country were also sued along with the NAR.
The Plaintiffs’ case focused on certain rules in the NAR Handbook and the NAR Code of Ethics that were requirements to participate in the MLS. These rules, plaintiffs argued, were a price-fixing conspiracy to force sellers to pay buyer broker commissions of 2.5-3% to have their home listed in the MLS. (For our curious readers, the specific rules are: NAR Handbook Section 2-G-1; NAR Code of Ethics Standard of Practice 3-2, 16-15, and 16-16.)
NAR contends that the current commission structure, which has been in place for over 100 years, helps consumers by assisting buyers with gaining independent transactional representation, thereby lowering the cost of entry, and helps sellers by bringing more buyers to the marketplace. The defendants denied wrongdoing, with the NAR saying there was no evidence agents were required to make offers of compensation at all, let alone at amounts that stabilize, fix, or raise commissions.
Some defendants settled both lawsuits a couple of months before trial. On September 6, 2023, Anywhere Real Estate (consisting of the brands: Better Homes and Gardens, Century 21, Coldwell Banker, Corcoran, Sotheby’s…) settled for paying $83.5 million and agreed to implement real estate practice changes throughout their franchises and agents. On September 18, 2023, Re/Max reached a settlement to pay $55 million and agreed to similar practice changes. A quick summary of the main practice changes:
• Settled company brokerages and their agents are prohibited from claiming buyer agent services are free.
• Settled companies must include listing brokers’ offer of compensation for prospective buyers’ agents as soon as possible in each active listing, consistent with MLS rules.
• Settled company brokerages and their agents are prohibited from using technology, or manually sorting listings by offers of compensation, unless requested by the client.
• Settled company brokerages will not require agents to belong to NAR or follow the NAR Code of Ethics Handbook or MLS Handbook.
• Settled company brokerages will require their agents to clearly disclose to clients that commissions are not set by law and are fully negotiable.
• Settled company brokerages will eliminate any minimum commission requirements, whether express or implied.
*If you’re a real estate agent at one of these companies, this is only a summary and should not be construed or relied upon as legal advice on how you should practice your real estate business. Please inquire with your broker or office manager for more details on those policy changes that may affect you.*
At the start of trial for the Burnett lawsuit on October 16, 2023, the only remaining defendants left in both lawsuits were the National Association of Realtors, HomeServices of America (Berkshire Hathaway), and Keller Williams. The nearly two-week trial was eventful, with interesting testimony from former and current leadership of the NAR and the powerhouse defendant brokerages. One comical exchange came when NAR CEO Bob Goldberg was cross-examined by the plaintiffs’ lead attorney, Michael Ketchmark. Ketchmark attempted to make an analogy that NAR’s price-fixing was similar to the ongoing antitrust legal drama of chicken price-fixing that (probably) only anti-trust lawyers are familiar with. When Ketchmark questioned Goldberg with the chicken-producer analogy, Goldberg responded that the two are an “apples and oranges” comparison. Ketchmark then asked whether NAR had violated the law by inflating prices, and when Goldberg said that he couldn’t say, Ketchmark asked, “Do you need me to explain antitrust law?” Goldberg replied, “No. I need you to explain to me chicken law.”
Cross-examination of NAR Director Rodney Gansho proved more effective for the plaintiffs. Ketchmark produced a 2018 email Gansho had written in which he told attorney Mitch Skinner of the Council of MLS that “continued failure” to follow NAR’s mandatory rules could result in charter revocation for the local association that owned and operated the MLS. The local association could also remove officers from the MLS because they have “effective control” over it. At one point, Gansho inadvertently provided Ketchmark with some ammunition. According to his testimony, when HomeServices’ Jon Coile or anyone else serves on a NAR committee, they owe a fiduciary duty to NAR. Ketchmark immediately seized upon this as an aspect of the alleged conspiracy between NAR and other corporate defendants, to which an exasperated Gansho replied, “There’s no conspiracy here!”
On October 31, 2023, the jury returned the verdict form below, naming all remaining defendants as responsible for knowingly and voluntarily joining a price-fixing conspiracy. Damages were anticipated to be $1.78 billion and that is exactly what the jury awarded on the verdict form. Also, because the Sherman Act antitrust law permits private plaintiffs to recover treble damages, the damages could amount to well over $5 billion in total. NAR has publicly stated they intend on arguing to reduce those damages and to appeal the verdict, although they have not specified on what grounds they will base their appeal. (This is not uncommon as it’s a pending legal matter and they don’t want to give the plaintiffs extra prep time).
Because the case will likely go into fighting in the 8th Circuit of the U.S. Appeals Court, the only binding practice changes and money spent so far will be the settlement agreements previously made. The jury’s damages are only monetary and if they become binding, would not change practices themselves. However, Ketchmark indicated he intends to pursue injunctive relief (an order from a judge to do or stop doing something) to change business practices relating to commissions in the real estate industry. The Moehrl case will be tried in Chicago next year, and this jury verdict will surely be detrimental to NAR and the remaining defendants in that case as the claims are similar.
Immediately after the verdict was reached, the same law firm representing the Burnett class of plaintiffs filed a new lawsuit, also in the Western District of Missouri (Kansas City). The new suit is Gibson v. NAR et al., and includes NAR, Compass, eXp, Redfin, Weichert Realtors, United Real Estate, and other brokerages. A recent report by Keefer, Bruyette & Woods research analysts heading into the Burnett trial estimated that an expansion of these commission lawsuits throughout the country could increase the potential damages against NAR and other defendants to more than $400 billion. It appears that the beatings will continue, and morale is not improving.
As you can imagine, these lawsuits were a topic of discussion at the recent California Association of Realtors (CAR) legal affairs forum at CAR’s annual meeting in September. While the future of NAR looks rather bleak, CAR and local associations have been researching solutions that balance the market needs of affordability for buyers, and choice and negotiation for sellers. While we can’t make any predictions on what the future might hold, buyer agent commission looks to become a *more negotiable aspect of contract negotiations than it currently is and of course, there will always be more disclosures.
The information presented in this article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately to determine your best options.
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By Trey Van Dyke
November 7, 2023
If you haven’t been glued to the Real Estate Legal News Channel (don’t look for it) over the past few years, you may not be aware of a landmark jury decision that was just awarded a couple days ago. This jury verdict is from one of two class-action lawsuits that have taken aim at the NAR’s Participation Rules, that require listing agents to make a blanket offer of compensation to buyers’ agents to list the property on the Multiple Listing Service, commonly known as MLS. Nearly all the most prominent real estate brokerages with franchises across the country were also sued along with the NAR.
The Plaintiffs’ case focused on certain rules in the NAR Handbook and the NAR Code of Ethics that were requirements to participate in the MLS. These rules, plaintiffs argued, were a price-fixing conspiracy to force sellers to pay buyer broker commissions of 2.5-3% to have their home listed in the MLS. (For our curious readers, the specific rules are: NAR Handbook Section 2-G-1; NAR Code of Ethics Standard of Practice 3-2, 16-15, and 16-16.)
NAR contends that the current commission structure, which has been in place for over 100 years, helps consumers by assisting buyers with gaining independent transactional representation, thereby lowering the cost of entry, and helps sellers by bringing more buyers to the marketplace. The defendants denied wrongdoing, with the NAR saying there was no evidence agents were required to make offers of compensation at all, let alone at amounts that stabilize, fix, or raise commissions.
Some defendants settled both lawsuits a couple of months before trial. On September 6, 2023, Anywhere Real Estate (consisting of the brands: Better Homes and Gardens, Century 21, Coldwell Banker, Corcoran, Sotheby’s…) settled for paying $83.5 million and agreed to implement real estate practice changes throughout their franchises and agents. On September 18, 2023, Re/Max reached a settlement to pay $55 million and agreed to similar practice changes. A quick summary of the main practice changes:
• Settled company brokerages and their agents are prohibited from claiming buyer agent services are free.
• Settled companies must include listing brokers’ offer of compensation for prospective buyers’ agents as soon as possible in each active listing, consistent with MLS rules.
• Settled company brokerages and their agents are prohibited from using technology, or manually sorting listings by offers of compensation, unless requested by the client.
• Settled company brokerages will not require agents to belong to NAR or follow the NAR Code of Ethics Handbook or MLS Handbook.
• Settled company brokerages will require their agents to clearly disclose to clients that commissions are not set by law and are fully negotiable.
• Settled company brokerages will eliminate any minimum commission requirements, whether express or implied.
*If you’re a real estate agent at one of these companies, this is only a summary and should not be construed or relied upon as legal advice on how you should practice your real estate business. Please inquire with your broker or office manager for more details on those policy changes that may affect you.*
At the start of trial for the Burnett lawsuit on October 16, 2023, the only remaining defendants left in both lawsuits were the National Association of Realtors, HomeServices of America (Berkshire Hathaway), and Keller Williams. The nearly two-week trial was eventful, with interesting testimony from former and current leadership of the NAR and the powerhouse defendant brokerages. One comical exchange came when NAR CEO Bob Goldberg was cross-examined by the plaintiffs’ lead attorney, Michael Ketchmark. Ketchmark attempted to make an analogy that NAR’s price-fixing was similar to the ongoing antitrust legal drama of chicken price-fixing that (probably) only anti-trust lawyers are familiar with. When Ketchmark questioned Goldberg with the chicken-producer analogy, Goldberg responded that the two are an “apples and oranges” comparison. Ketchmark then asked whether NAR had violated the law by inflating prices, and when Goldberg said that he couldn’t say, Ketchmark asked, “Do you need me to explain antitrust law?” Goldberg replied, “No. I need you to explain to me chicken law.”
Cross-examination of NAR Director Rodney Gansho proved more effective for the plaintiffs. Ketchmark produced a 2018 email Gansho had written in which he told attorney Mitch Skinner of the Council of MLS that “continued failure” to follow NAR’s mandatory rules could result in charter revocation for the local association that owned and operated the MLS. The local association could also remove officers from the MLS because they have “effective control” over it. At one point, Gansho inadvertently provided Ketchmark with some ammunition. According to his testimony, when HomeServices’ Jon Coile or anyone else serves on a NAR committee, they owe a fiduciary duty to NAR. Ketchmark immediately seized upon this as an aspect of the alleged conspiracy between NAR and other corporate defendants, to which an exasperated Gansho replied, “There’s no conspiracy here!”
On October 31, 2023, the jury returned the verdict form below, naming all remaining defendants as responsible for knowingly and voluntarily joining a price-fixing conspiracy. Damages were anticipated to be $1.78 billion and that is exactly what the jury awarded on the verdict form. Also, because the Sherman Act antitrust law permits private plaintiffs to recover treble damages, the damages could amount to well over $5 billion in total. NAR has publicly stated they intend on arguing to reduce those damages and to appeal the verdict, although they have not specified on what grounds they will base their appeal. (This is not uncommon as it’s a pending legal matter and they don’t want to give the plaintiffs extra prep time).
Because the case will likely go into fighting in the 8th Circuit of the U.S. Appeals Court, the only binding practice changes and money spent so far will be the settlement agreements previously made. The jury’s damages are only monetary and if they become binding, would not change practices themselves. However, Ketchmark indicated he intends to pursue injunctive relief (an order from a judge to do or stop doing something) to change business practices relating to commissions in the real estate industry. The Moehrl case will be tried in Chicago next year, and this jury verdict will surely be detrimental to NAR and the remaining defendants in that case as the claims are similar.
Immediately after the verdict was reached, the same law firm representing the Burnett class of plaintiffs filed a new lawsuit, also in the Western District of Missouri (Kansas City). The new suit is Gibson v. NAR et al., and includes NAR, Compass, eXp, Redfin, Weichert Realtors, United Real Estate, and other brokerages. A recent report by Keefer, Bruyette & Woods research analysts heading into the Burnett trial estimated that an expansion of these commission lawsuits throughout the country could increase the potential damages against NAR and other defendants to more than $400 billion. It appears that the beatings will continue, and morale is not improving.
As you can imagine, these lawsuits were a topic of discussion at the recent California Association of Realtors (CAR) legal affairs forum at CAR’s annual meeting in September. While the future of NAR looks rather bleak, CAR and local associations have been researching solutions that balance the market needs of affordability for buyers, and choice and negotiation for sellers. While we can’t make any predictions on what the future might hold, buyer agent commission looks to become a *more negotiable aspect of contract negotiations than it currently is and of course, there will always be more disclosures.
The information presented in this article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately to determine your best options.
Recent and Popular Articles From Our Blog:
• May 10, 2022 – Using the 1031 to Reinvest
• August 23, 2022 – Understanding Private Road Maintenance
• January 10, 2023 – Website Accessibility Requirements
• February 14, 2023 – Understanding Mediation and Arbitration in RPA
• April 4, 2023 – Understanding Liquidated Damages in a Home Purchase Contract
• June 20, 2023 – Understanding the Lis Pendens
• June 27, 2023 – Do’s and Don’ts Guidelines to a Dental Practice Transition