Sitzer vs NAR (National Association of REALTORS) – Good or bad for consumers?

In an article published yesterday, I referenced the Sitzer vs National Association of REALTORS law suit and said I would have a more in-depth discussion about that suit and here it is.  The lawsuit was filed by Joshua Sitzer, Amy Winger, Scott and Rhonda Burnett and Ryan Hendrickson on June 21, 2019 against the National Association of Realtors and the parent companies of major real estate companies and franchises including Coldwell Banker, ReMax, Keller Williams and Berkshire Hathaway Homeservices.

The Sitzer lawsuit was filed in the United States District Court for the Western District of Missouri sought to be certified as a class action lawsuit on behalf of “all persons and entities who listed properties on one of four Multiple Listing Services…and paid a broker commission from at least April 29, 2015 until the Present…“.   The four MLS’s listed in the suit that this applies to are:

  • Heartland MLS (Kansas City, MO)
  • MARIS MLS (St Louis, MO)
  • Southern Missouri Regional MLS (Springfield, MO)
  • CBOR MLS (Columbia, MO)

Last Friday, April 22, 2022, Stephen R. Bough, a Federal Judge for in the Western District of Missouri, issued an order granting the class action status for the lawsuit the Plaintiffs sought.

What does the class action ruling change?

It now means instead of just the plaintiffs that filed the suit being eligible to receive reimbursement for treble their damages (treble damages are awarded on anti-trust suits) every person that sold a home, using an agent with one of the real estate firms named as a defendant and through one of the four MLS’s listed, from April 29, 2015 to the present, is now eligible to receive treble damages.

So, what was done wrong?

The lawsuit alleges that the the defendants “have conspired to require home sellers to pay the broker representing the buyer of their homes, and to pay an inflated amount, in violation of federal antitrust laws and the Missouri Merchandising Practices Act.”

How was this done?

The lawsuit focuses on what is referred to in it as the “Adversary Commission Rule” which describes the rule that the National Association of REALTORS® require the above listed MLS’s to adopt which states in order for a listing agent to enter their listing in the MLS they must offer to pay the buyer’s agent a commission.  Now the irony here is that real estate companies that are members of the MLS are required to put all residential listings in the MLS that they have an exclusive right to sell, or exclusive agency listing agreement on.  Pretty much all the listing agreements used by REALTORS® are exclusive right to sell listing agreements so this leaves the listing agent (and their seller client) very little choice but to offer to pay the buyer’s agent, otherwise the listing can’t be put in the MLS and if the agent doesn’t put a listing of the aforementioned type in the MLS they would then be in violation of MLS Rules and subject discipline including a fine of up to $15,000.00 per violation.  To show how uncommon other types of listing agreements are, the St Louis Association of REALTORS®, which is where all members of MARIS MLS would typically get their forms as they meet the regulatory authority requirement for compliance, does not even offer anything except an exclusive right to sell listing form.

No minimum commission amount is required though..

When an agent or broker objects to the idea that they cannot put their listing in the MLS without offering to pay the buyer’s agent they are often met with the answer that they are not being told how much to offer, that as little as $1,00 would meet the requirement.  Granted, this is true and can be done although being a partner in a real estate company that likes to think out of the box and be innovative, I can say that bucking tradition in this industry is not always easy.  For example, if you look at the chart I created at the very bottom of this article, the average buyer’s agent’s commission rate paid on homes sold in St Charles County from 2005 through 2021 was 2.7% the entire period.  The chart plots the data by month but you’ll see it’s a rather boring looking chart with just a straight line. For all 204 months I charted data for, each month had the same average rate of commission 2.7%.  If you’re a seller and your agent shares info like this with you but assures you that you don’t have to offer 2.7% that you could just offer $1.00 commission to the buyer’s agent and still get in the MLS do you think you would really see that as a viable option?

What’s next?

Since we’re talking litigation, nothing is going to happen fast or soon.  It will still be many months before a trial and a decision is made and there is a chance the parties could reach a settlement before the trial.  Granted, I think the chance of that is lower than my chance of receiving a call from Elon Musk inviting me to take a ride in space with him, but I guess it is a possibility.  Assuming they don’t settle it, then the court will settle it.  No doubt the loser will appeal and then we’ll have to wait and see how far the appeals process goes.

What will change for consumers as a result of this?

Like I said above, we’re a long way from a final verdict on this matter and the changes that may come about as a result will vary greatly based upon who prevails in the lawsuit of course.  Thus far I see nothing out of NAR that makes me think they are going to back down on any of the rules/issues in question until which time they may be forced to.

Having said that, I do think there are positive changes happening in the industry though some perhaps as a result of the suits and attention on these issues and some that may have started before but gained traction as a result of the recent activity.  Our company, MORE, REALTORS® falls in the latter category.  For years we have focused on being innovative and thinking out of the box.  We’ve promoted transparency in real estate transactions for consumers and have focused a ton of effort on educating consumers on the process.  For example, some of the things MORE has implemented in the past few years that I think are very pro-consumer include:

  • We offer seller’s an option to NOT pay a buyer’s agent commission but yet still have MLS access.
  • To help consumers be informed we have shown the amount of commission a buyer’s agent is being offered by the seller on our St Louis Real Estate Search website for some time now.
  •  We utilize an online real estate auction platform (HomeAuctionMLS.com?agent_id=2107) that is totally transparent for all parties involved.  It also offers sellers a great way to market and sell their home without being forced to pay the buyer’s agent’s commission.

St Charles County Average Rate of Buyer’s Agent’s Commission – 2005 – 2021

St Charles County Average Rate of Buyer's Agent's Commission - 2005 - 2021

 

 

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