KANSAS CITY—Tempers flared among legal teams yesterday as plaintiffs’ lead attorney Mike Ketchmark sought to drive home claims of economic conspiracy when he called expert witness Texas A&M professor and economist Dr. Craig Schulman to the stand on day four of the Burnett v. National Association of REALTORS® (NAR) et al class action trial.
In a two-plus hour testimony, Schulman provided seemingly damning evidence that corporate defendants Keller Williams, HomeServices of America, RE/MAX and Anywhere Real Estate colluded on a system to create price stabilization in real estate commissions, and that NAR MLS policies enabled steering as a means of keeping rates fixed—claims that could potentially violate the Sherman Antitrust Act.
However, before court ended for the day, NAR lead attorney Ethan Glass forcefully cross examined Schulman to debunk the claims he put forth during his testimony. Prior to Schulman’s appearance, and before jurors returned to the courtroom after the lunch recess, attorneys for both sides huddled with Judge Stephen R. Bough to discuss not mentioning how much expert witnesses are paid.
Schulman paints a picture of economic conspiracy
In preparation for his testimony, Schulman reported that he and his team of researchers spent thousands of hours analyzing a data dump of every transaction from the corporate defendant’s brands that were listed on the four Missouri MLSs in question (Heartland MLS, Southern Missouri MLS, Columbia MLS and MARIS) between April 2015 and June 2022. He also reviewed filmed testimony, association policies and corporate training materials to reach the conclusion that competitors conspired to control and fix prices.
Schulman explained to Ketchmark and the jury that for an economic conspiracy to happen three key facets must be in place: control, detection and punishment. In this case, control was allegedly achieved via the NAR Cooperative Compensation rule, which states that NAR-member listing agents must make an offer of compensation in the form of a specific percentage commission to buyer’s agents when they list a property on an MLS. Schulman posited that this rule allowed the corporate defendants to drive commission prices above what would have otherwise emerged in a competitive market.
According to Schulman when such price stabilization is in place, “those prices don’t respond at all to the housing market; whether it’s hot or slow, prices are stuck. It doesn’t adjust to market forces.”
Schulman testified that to arrive at his conclusion of collusion and price fixing, he reviewed several years’ editions of NAR’s Handbook on MLS Policy. “The cooperative compensation policy is the trunk of the tree that helps support (price fixing),” he said. “This is the core rule that puts it in place and they (NAR) have other rules that help support it.”
Ketchmark has sought to illustrate this dynamic—and that defendants were aware or complicit in price fixing—with other testimony. Michelle Figgs, a former analyst for Keller Williams, wrote in her notes during a meeting of top Keller Williams executives that “Gary believes strongly in collusion theory for why commissions are stable. ‘Co-opetition.’”
Defendants sought unsuccessfully to exclude that testimony as hearsay, due to the fact that Figgs admitted she was not sure whether Gary Keller made that statement himself, or whether someone else did.
Ketchmark questioned Schulman about NAR’s role in the economic conspiracy, given that they do not operate as a brokerage. Schulman alleged that NAR extends control over price fixing via the MLS. “Until recently, every MLS had to send rules to NAR for approval,” he said. “Now they just have to certify that they follow the rules in the MLS Handbook.”
And NAR’s economic incentive to help control the alleged conspiracy comes by way of the $150 annual dues the association collects from each member, alleged Schulman, which he calculated to be $225 million total based on 1.5 million members. Additionally, “The MLS forces every seller to pay the buy side,” he said, “and in Missouri, the MLS system is the way to sell a home. That’s how they exert control over sellers.”
According to Schulman, the MLS also provides the perfect vehicle for the second ingredient necessary for a conspiracy, detection. When competitors collude to fix prices, there are those who may seek to benefit by cutting prices, he explained. Parties in the collusion, therefore, must have a way of detecting such price cutters. “This is built into the way the MLS operates,” said Schulman. “You have to post an offer of a commission rate. If the offer is below standard, everyone can see it.” Thus, the MLS allows co-conspirators to easily detect who isn’t playing along, he claimed.
This environment sets the stage for conspiracy component number three, punishment, continued Schulman. In order for price fixing to succeed, he explained, there must be a way to “punish” those who don’t participate. In real estate, “steering is the mechanism for punishment,” he said. “The buyer’s agent can see the offered rates” and they can steer their buyers away from those listings that have a lower rate.
Ketchmark posited that listing agents are trained to tell clients that no one will sell their home if the commission rate offered is too low—that clients are “putting yourself at a disadvantage competitively when you reduce your commission.”
“That’s the threat of steering,” said Schulman. “That’s what they’re describing.”
Ketchmark asked Schulman, “Who are the co-conspirators?”
“Every single one of the agents and brokers that enforced and supported the mandatory compensation rule,” he said. “They all worked together in keeping the rule alive and functioning.”
Schulman concluded his testimony by sharing graphs generated by scrubbing volumes of data from the four Missouri MLSs in question for the timeframe named in the lawsuit, April 2015 – June 2022. Over the course of the seven-year period, across all MLSs, the average buyer commission rate was 3% in 95% of transactions, he reported. He also looked at non-MLS participant data and determined that they “haven’t been able to get a foothold.”
“It tells me something fishy is going on,” said Schulman. “This is one of the clearest cases of price fixing and collusion I’ve ever seen. At the core is the mandatory compensation rule and the threat of steering that keeps it going.”
Other independent academics have previously identified evidence of this kind of market behavior, and how it punishes discount brokerages, although research has been limited by a lack of access to listing data.
With that in mind, Ketchmark asked Schulman what the appropriate damages should be for the plaintiffs. “Every single penny sellers had to pay (in buy-side commissions) is a measure of antitrust damages,” he responded, which for members of the class totals more than $1.7 billion.
Notably, this estimate is much smaller than the Moehrl lawsuit, which is broadly identical to Burnett but covers a larger geographic area. Estimates of damages in that case were estimated closer to $14 billion.
Glass comes out swinging
While Ketchmark had theatrically dominated the courtroom thus far as he laid out the plaintiff’s case, NAR lead defense attorney Ethan Glass forcefully took center stage as he cross examined Schulman, seeking to uncouple the association from the accusations lobbed at the corporate defendants.
To that end, Glass quickly hit the economist with a rapid-fire series of questions that forced him to agree that he had no proof or opinion that NAR had conspired with any of the corporate defendants, including HomeServices of America or Keller Williams.
“Let’s focus on the facts,” said Glass. “You have not seen a single document with the defendants discussing commissions with each other. You have not seen testimony showing the defendants discussing commissions. You have not seen any document showing any defendant discussing with other defendants a particular amount that a seller was going to pay to a buyer’s agent.”
When Schulman wavered on his response, Glass quickly queued up a video clip of the economist’s recorded deposition from August 2022, which drew ire from Ketchmark. Judge Bough admonished both attorneys and allowed Glass to play the clip, in which Schulman confirmed that he had not seen any documents or testimony of defendants discussing with one another how much commission a listing broker should charge to the seller.
Glass used the analogy of stock brokers cooperating to buy and sell stocks to emphasize the need for buyer’s and seller’s agents to work together to sell homes for clients. He also described the sub-agency system that existed prior to the mid 1990s in which every real estate agent’s allegiance was to the seller.
“Under the sub-agency system, buyers were unrepresented,” said Glass. “Buyer’s agents worked with buyers but they had a fiduciary responsibility to the seller. The free market drove that buyer’s should have their own real estate agent.”
“NAR did not impose the change in the market that led to buyer’s agency,” he added. “It was the market that led to buyer agency.”
To mitigate Schulman’s accusations of antitrust violation, Glass displayed and read specific rules in NAR’s publication Real Estate Brokerage Essentials, which warn agents against price fixing in plain language. He also tackled Schulman’s “trunk of the tree” analogy head on by reading the cooperative compensation rule aloud.
“This rule has no price in it. It doesn’t obligate sellers to do anything,” he said. Schulman countered, however, that there is an “implication” that the seller cannot be listed on the MLS if their agent does not make the offer of buyer compensation.
“No rule by NAR mandates any particular amount of commission,” returned Glass, to which Schulman replied, “Correct.” Glass emphasized that the rule exists because “cooperating participants have a right to know what their compensation will be before they begin their services.”
Glass and Schulman went on to spar about the economist’s testimony that NAR and the MLSs serve as vehicles to control the alleged price fixing. Glass pointed out that there are approximately one million agents who are not members of NAR and, therefore, not required to list properties on the MLS and abide by their rules. Home sellers, he argued, have a choice to use a non-NAR member agent in order to bypass laws that govern cooperative compensation.
“They’re not reasonable choices,” responded Schulman. “It’s like [choosing between] a fresh pack of bubblegum and a used piece of bubble gum under the table.”
Glass also reviewed the REALTORS® Code of Ethics with Schulman and the jury, underscoring the fact that REALTORS® pledge to protect and promote the obligation to serve their clients, which doesn’t relieve them from treating all parties honestly and fairly. The Code of Ethics goes on to say the REALTORS must advise clients regarding cooperation and the amount of compensation to buyer’s agents, text that existed before the rule was changed.
Glass’ cross examination of Schulman is expected to continue this morning, with further cross examination from attorneys representing Keller Williams and HomesServices of America. Ketchmark hopes to conclude the plaintiff’s case after calling at least three more witnesses today. The defense is expected to begin presenting their case on Monday, Oct. 23.
Stay tuned for ongoing updates from Kansas City.
