Week one of the Sitzer/Burnett class action lawsuit has drawn to a close, in a case that has the potential to shake up the industry and change the way US agents are paid.
The case is against the National Association of Realtors (NAR), Keller Williams and HomeServices of America, with the plaintiffs, represented by home sellers Christopher Sitzer and Marlene Burnett, alleging that NAR conspired to require home sellers to pay a standard, inflated commission to the buyer’s agent.
According to Inman, the case’s primary goal is to challenge the long-established practice of cooperative compensation.
If cooperative compensation is banned, up to 80 per cent of realtors might leave the industry, according to industry analyst Mark Reynolds.
Here are three key things to know after the first week.
The first week saw the plaintiffs contend that the traditional practice of offering a standard commission to buyer agents, artificially inflates costs and stifles competition in the real estate market.
Four of the five named plaintiffs have testified before the jury.
According to Nowbam, Hollee Ellis was the first to take the stand and said she paid a 6 per cent commission on her home sale but the buyer’s agent’s portion worked out to more than 20 per cent of the net equity of the sale.
“It was a hard pill to swallow that we would walk away with so little,” Ms Ellis said.
“I’m not against buyers’ agents.
“The buyers who chose them and who they’re working for should pay them.”
Jeremy Keel also shared his testimony regarding the impact of buyer agent commissions in his real estate transactions.
Mr Keel’s home sold for US$205,000 and he paid a 6 per cent commission — 3 per cent to the Keller Williams agent he hired and 3 per cent to the buyer’s Reece Nichols agent.
Mr Keel said he thought it unfair that he was paying for the agent whose job it was to help the buyers get a better deal.
He said his goal wasn’t financial gain but rather a desire to help future homebuyers.
“After my first experience selling a home, I was exposed for the first time to how it works and I didn’t think necessarily that it was fair,” Mr Keel said.
Homebuyer, Jerod Breit testified that, while he was satisfied with the service he received from his RE/MAX agent, he learned, after joining the lawsuit, that he’d ended up paying more than the 5.5 per cent he’d agreed to – with 2.7 per cent going to the buyer agent.
“It made me feel stupid,” Mr Breit said.
“It was preloaded on the contract, and I thought I was signing what I needed to sign.”
Rhonda Burnett, also took the stand to share her experiences as a homebuyer and seller, revealing that she had paid a 6 per cent total commission on her home sale.
She said the contract with this agent asked her to “circle” the commission rate she was willing to pay; her options were 7 per cent, 8 per cent, 9 per cent, 10 per cent or a blank—which had 6 per cent written in it.
Ms Burnett said that while 6 per cent was obviously lower than the rest, she took issue with the fact that she was given no other option and was told “nothing was negotiable”.
She listed her home for US$275,000, ended up selling it for US$250,000, and paid a total of US$15,298 in agent commissions.
“I paid the buyer’s broker to negotiate against me and my husband, which resulted in a lower sales price,” Ms Burnet said.
“She did a good job for him [the buyer], but I had to pay her commission.”
Pre-recorded testimony from National Association of Realtors CEO Bob Goldberg, HomeServices of America CEO Gino Blefari, and Keller Willams Co-founder and Executive Chairman Gary Keller pushed back against the notion of a concerted effort to keep commissions inflated and hurting home sellers financially in the process.
According to Inman, Mr Keller spoke about how Keller Williams trains its agents and how it discusses commissions.
He said that the training was not about setting commissions but rather modelling the flow of money.
CEO of HomeServices of America, Gino Blefari, also appeared via video deposition and said how he trained agents in his organisation and revealed that he pre-wrote 6 per cent commissions into listing agreements.
Other executives from major real estate companies, including RE/MAX, Coldwell Banker, and Keller Williams, also provided testimony during the trial.
They faced questions about the content of their training materials and whether they encouraged the standard 6 per cent commission structure.
Their testimonies suggested that the 6 per cent figure was commonly used in training materials but was meant as an example rather than a fixed standard.
Industry and media weigh in
The trial has gained huge public attention and intense media scrutiny.
CEO of Redfin, Glenn Kelman, believes that the trial alone may not be enough to eliminate cooperative compensation.
“A seismic change might require Department of Justice (DOJ) intervention,” Mr Kelman said.
“This could lead to significant industry transformation.”
Media analyst Sarah Anderson said this trial’s impact is far-reaching.
“It’s stirring conversations and raising concerns about real estate practices,” Ms Anderson said.
Legal commentator James Williams emphasises said the case is gaining huge attention from the public.
“This trial is challenging the industry’s core and is under the spotlight of public interest,” Mr Williams said.
According to real estate attorney John Thompson, the trial is of “utmost national importance”.
“It could revolutionise how real estate transactions are conducted,” Mr Thomspon said.