Introduction

The Sitzer/Burnett legal case is a landmark antitrust lawsuit against the National Association of Realtors (NAR) and some of the largest real estate franchisors. The case alleged that the defendants conspired to inflate real estate commissions by enforcing a cooperative compensation rule, which required listing brokers to offer compensation to buyer brokers. They also claimed that this rule prevented sellers from negotiating fees that were paid to buyer representatives. In fact, commissions for both buyer and seller representatives have always been negotiable.

Nonetheless, on October 31, 2023 a federal jury found the defendants guilty and awarded approximately $1.785 billion in damages to the plaintiffs, which will be tripled to over $5 billion under antitrust law. The case represents a significant challenge to traditional real estate commission structures and could have far-reaching implications for the industry as well as buyers and sellers of real estate.

Background

The plaintiffs in the Sitzer/Burnett case argued that the National Association of Realtors (NAR) and various real estate franchisors engaged in a conspiracy to inflate commissions through a policy requiring listing brokers to offer compensation to buyer brokers, effectively setting a price floor for commissions. They contend this practice violates the Sherman Antitrust Act by limiting competition and inflating seller costs.

The defendants, including NAR and the real estate franchisors, maintain that their practices are lawful and that the cooperative compensation rule ensures that consumers receive comprehensive and equitable real estate services. They argue that this system promotes fair competition and is beneficial for the industry and consumers alike. The defendants are seeking to appeal the verdict, emphasizing their commitment to fair business practices and advocating for homeownership and consumer interests.

The Verdict’s Implications for Real Estate Agents

The Sitzer/Burnett decision has ushered in a period of uncertainty for real estate agents, particularly those representing buyers. The industry is grappling with how to handle potential changes to the commission structure and client interactions. Some brokers believe buyer agency agreements will become essential, and agents will need to articulate their value more clearly. There’s also a push for greater transparency around the negotiability of commissions. However, it’s not clear when these changes will be implemented due to pending appeals, and opinions vary on how the National Association of Realtors will navigate this transition​.

In the short-term, nothing is likely to change. But moving forward buyers should expect to sign representation agreements with their real estate agent. These simple agreements lay out the respective responsibilities of each party and how the real estate agent will be compensated. Any professional and ethical real estate agent will also offer a termination for convenience clause that allow buyers to exit the relationship if they are not receiving the level of service they desire.

Effects on Home Prices and Buyers

The Sitzer/Burnett trial’s verdict could lead to fundamental changes in the U.S. real estate industry, with potential impacts on home prices and buyers. If the verdict ultimately leads to lower commission rates, it could theoretically affect the overall costs associated with buying a home. If sellers are no longer responsible for compensating buyer agents, in theory that could bring selling prices down. However, it may be that buyers incorporate their agent fees into their offer price, allowing them to finance those expenses.

However, the full impact on home prices and buyers will largely depend on how the real estate industry adapts to these changes and whether any new regulations or industry standards are implemented following the verdict. Regardless, the primary elements impacting home prices are mortgage interest rates, supply and demand, and other macro economic factors. Agent fees account for a very small portion of transaction costs and changes to agent commission structure are unlikely to have a substantive impact on broader market prices.

What’s Next?

The Sitzer/Burnett verdict is not the final word on the case. The awarded money is intended to be distributed among the plaintiff class of Missouri home sellers. The plaintiffs may also push for policy changes that could have far-reaching effects on the industry, potentially altering practices around commission sharing and membership requirements for the NAR.

The defendants, NAR, Keller Williams, and HomeServices of America, plan to appeal the decision, which could prolong the case for years. They are also preparing for another significant lawsuit, Moehrl, set to go to trial in Chicago, which contends with similar issues as Sitzer/Burnett and involves potentially even larger damages. The outcome of the Sitzer/Burnett case might inform the strategies for Moehrl, but NAR insists that the recent verdict will not influence the upcoming lawsuit, remaining confident in their defense and the lawfulness of their practices.

In addition, the legal team representing the plaintiffs in the Sitzer/Burnett case have filed a new national lawsuit and named additional real estate companies and brokerages as defendants.

These developments suggest that real estate agents, especially buyers’ agents, will be operating in a landscape of legal uncertainty for some time. The final outcomes of these cases and any resulting policy changes will ultimately determine the future of commission structures and industry operations. For now, buyers and sellers are advised to speak with their trusted real estate agents to help stay informed and be prepared to adapt to new industry standards that may emerge from these legal battles.

Conclusion

In the short term home buyers can expect to sign formal buyer broker representation agreements with their real estate agent. They can also anticipate to increasingly shoulder the financial responsibility of compensating their representative agents. This makes it more important than ever to find the best representation possible when it comes to transacting in real estate. I commit to continue to help educate you on the details of the home purchase process, the risks you take on when making a residential purchase offer, and how to best think about the most important factors when buying a home.