KANSAS CITY-Even at this very early stage in the trial, with only two days of testimony (and the majority of that pre-taped video), the legal strategy adopted by both the plaintiffs and the defendants is beginning to crystalize in the potentially landmark Burnett class-action lawsuit in federal court in Kansas City, Missouri.
Yesterday, the class representatives for the plaintiffs—recent homesellers in the Missouri area—took the stand live to tell their stories, guided by lead attorney Mike Ketchmark, who has so far demonstrated a flair for the dramatic.
The plaintiffs’ case hinges on convincing a jury that the major corporate brokerages conspired with the National Association of REALTORS® (NAR) on rules that limited competition and harmed consumers, focused specifically on buyer agent compensation and the fact that sellers pay both agents. Two companies, RE/MAX and Anywhere, have already settled the case, paying out $130 million collectively.
For most of Wednesday, class representatives Hollee Ellis, Rhonda Burnett and Jeremy Keel described in great detail their experiences selling their homes in the past few years, and why they feel the current structure of real estate commission victimizes consumers.
“We were willing to pay the seller’s agent. Our problem was paying a buyer’s agent to work against us,” said Burnett.
That appears to be just one aspect of the plaintiffs’ case, as they seek both to hone in on the alleged unfairness of real estate transactions for sellers, as well as how those dynamics were created and enforced through an alleged conspiracy involving NAR and big corporate brokerages.
In video testimony yesterday, Ketchmark pressed NAR CEO Bob Goldberg on whether “trade association venues are common places for hatching unlawful antitrust conspiracies,” and attempted to pin leaders of HomeServices of America and Keller Williams down on alleged commission-fixing practices.
RISMedia spoke to two lawyers familiar with the case, who were granted anonymity in order to share candid legal opinions. These lawyers described the plaintiffs’ two lines of argument—that real estate executives have engaged in overt price fixing, and that the NAR and MLS rules have anti-competitive, commission-inflating effects on the market—as essentially one line of attack.
Key to the foundation of NAR’s defense is the rule by which antitrust behavior is scrutinized. When Judge Stephen R. Bough rejected a motion for summary judgment in December 2022, he ruled that the “per se rule is applicable here,” because of the possibility that defendants have “engaged in a horizontal price-fixing scheme” by enforcing mandatory offers of buyer agent commission.
A “per se” analysis does not require further examination of a rule or arrangement’s market effects, meaning NAR and the brokerages cannot argue that their rules and practices have pro-competitive or positive effects—those practices are violations of the law if proven.
On the other hand, a separate “rule of reason” analysis would allow these arguments and evidence. NAR stated in its trial brief that it will “continue to argue…in the jury instructions conference, and elsewhere, that the evidence shows that the jury should consider this case under the Rule of Reason, and not per se.”
One lawyer who spoke to RISMedia speculated that some of the attacks by the plaintiffs may be in preparation for the inevitable appeal, if there is a decision that the “per se” analysis should not have applied to this case and a “rule of reason” analysis is used instead.
Hearts and minds
Just as important as the legal foundations of the case is the human element, which was what the plaintiffs focused on yesterday. In the end, it will be a group of nine everyday people who decide the case, and how each side presents to the jury will always be a vitally important factor.
Ketchmark worked hard to bring out the details of the class representatives’ lives on the stand. Ellis, who took the stand first, talked about her upbringing in a small town of 1,500 people. Her mother was a REALTOR® for 30 years.
Ketchmark presented documents showing that when Ellis sold her home in 2016, over 20% of her equity ended up going to two agents. He asked if she believed she could have negotiated.
“I never knew that was an option,” said Ellis.
Burnett, a mother of three who grew up in Atlanta, hired a longtime friend to sell her house. She was presented with a sales contract that offered commission payments of 7%, 8% or 10%, along with a blank box in which 6% was already written.
She said she was explicitly told that “nothing was negotiable.”
Keel, another longtime Missouri resident and a lawyer (specializing in elder care law), also said he was unaware of the ability to negotiate commissions. Although he said he had no complaints about his agent—also an old friend—he said that he doesn’t believe “the system is set up correctly.”
“I don’t think it’s fair. I think it should change,” Keel added.
Barack Echols, an attorney with Chicago-based Holland & Knight who cross-examined the class representatives on behalf of Keller Williams, focused on the value of agents as well as on places where the plaintiffs had been able to negotiate. He pointed out that Keel had sold another home, and paid only 5% commission, attempting to show that 6% is not a fixed rate (although Keel said he did not negotiate the 5% commission, either).
Robert MacGill with Indianapolis-based MacGill PC, is representing HomeServices in the case. He pointed out that Ellis chose to hire a real estate agent again as a buyer despite being unhappy with the system, as she still relied on “cooperative compensation.”
“I do believe cooperation is necessary to reach a common goal,” said Ellis, “but the seller’s agent works for me, the buyer’s agent works for the buyer.”
In another interesting exchange, MacGill questioned Burnett on her attempts to work with a discount brokerage, as well as highlighting disclosures in her original contract that said she was “free to shop around.”
Notably, Burnett explicitly declined to work with a flat-fee firm, with MacGill showing an email exchange where Burnett favored finding a real estate professional with expertise in marketing to the particular area.
“You believed you needed to compensate the agent for expertise that agent brought to marketing the house in that neighborhood,” said MacGill.
“Yes. We were willing to pay the seller’s agent. Our problem was paying a buyer’s agent to work against us,” replied Burnett.
In redirect, Ketchmark noted that the flat-fee firm still would have charged 4%, and would have been listing Burnett’s property on the MLS.
“The reason you’re paying 3% was because they would list it on the MLS, which is at the core of this lawsuit,” he said. “Either way, you have to pay the buyer’s agent because of this NAR rule.”
A long road ahead
There are many elements of the case that have yet to show up in trial. Yesterday, in pre-taped testimony, Ketchmark pressed Goldberg on how the Real Estate Services (RES) advisory group functions, and separately highlighted the fact that Keller Williams is a member of that group.
HomeServices President and CEO Gino Blefari was also shown being questioned on his company’s involvement in formulating NAR rules.
Proving that there was a conspiracy to create or enforce the rules that the plaintiffs are saying created anti-competitive restraints will be vital. Ketchmark, in his opening statement, also teased evidence that Keller Williams knew that relatively stable commissions were due to “collusion” between brokers.
Another portion of the plaintiffs’ case that has yet to fully materialize is alleged steering—buyer agents who prevent their clients from viewing properties that offer lower commission splits. RE/MAX and Anywhere, in their settlement agreements, changed their policies to prevent agents from sorting listings by commission.
Ketchmark has claimed that NAR rules and brokerage policy create this scenario, and that Keller Williams and HomeServices have acknowledged it in training materials.
The lawyers familiar with the case who spoke to RISMedia said that there is no obvious way those accusations fit into the legal argument that the plaintiffs are making—that NAR and corporate brokerages illegally conspired to constrain competition.
Rather, this kind of evidence is likely meant to paint the whole industry in a corrupt light, and give the jury a generally unflattering picture of the current structure of organized real estate, they both said.
The lawyers added that the alleged steering is also broadly evidence that incentives for agents aren’t lined up with incentives for consumers, and appears self-serving to the consumer (and to the jury). And while it is possible that the judge could direct the jury not to take the steering evidence into consideration when they deliberate, it is likely too late at that point, as jury members will have absorbed the information.
Another aspect of the case that is somewhat non-intuitive is the role of the MLSs. While four are referred to in the lawsuit, they are not legally defendants in the case.
Because these so-called “covered MLSs” have not had their day in court, and are not named defendants, there will be no direct impact on their policies, one of the lawyers said—only indirectly through changes to NAR or brokerage policy.
As far as the defense, it is unclear how much NAR or the other defendants will seek to lean on the pro-competitive arguments in favor of their rules, which so far have been muted. In his opening argument representing NAR, Ethan Glass of the Washington D.C.-based law firm Cooley focused mostly on a defense against the conspiracy charges, characterizing NAR rules as open and transparent.
“The NAR rule is designed to help MLSs operate better. Participation requires cooperation with other participants. Evidence will show that cooperation evolved from the free market. Nothing NAR does says who pays whom how much,” he said.
“NAR didn’t invent agents paying other agents.”
Stay tuned for ongoing updates from Kansas City.
