How the commission lawsuits may prompt intervention from DOJ and regulators

For Regina Braga, the president of Res/Title, the verdict in the Sitzer/Burnett commission lawsuit did not come as a surprise.

“We’ve definitely seen a movement in the last few years to be more ‘end-consumer friendly’ if you will — making sure that they are protected, not only in knowing their rights, but that they are protected from all the cost that is associated with the real estate transaction,” Braga said. “That was the whole point of the Consumer Financial Protection Bureau (CFPB) and the TILA-RESPA Integrated Disclosure (TRID) rule. So, the fact that we are now seeing things further in the process come down to agents and brokers — I was not entirely surprised by that.”

The heightened consumer protection focus from government agencies, combined with the Department of Justice’s ongoing legal feud with the National Association of Realtors and its recent involvement in the Nosalek commission lawsuit, has many in the industry expecting that the DOJ will get involved in the Sitzer/Burnett suit, and potentially others.

“I just see what happened in the Massachusetts suit [Nosalek] and I think that could mean that the DOJ will try to insert itself into any settlement or appeals process in this case,” Steve Murray, the co-founder of RealTrends Consulting, said. “They have already shown they would do it once, so I figure they will do it again.”

Based on the jury verdict in the Sitzer/Burnett lawsuit, Murray believes the DOJ will not be satisfied with the terms and the scale of changes outlined in RE/MAX’s and Anywhere’s settlement agreements and that it will get involved.

Unlike Murray, Marx Sterbcow, the managing attorney at Sterbcow Law Group, believes that the settlement agreements will be approved, but he supports Murray’s assertion that the DOJ will step in.

“The DOJ will certainly get involved,” Sterbcow said. “The goal in their minds is affordability and getting people into homes and the fact that real estate commissions haven’t gone down that much over the years even as home prices have to rise across the U.S., loosing 5%-6% of the sale price is substantial equity stripping in their minds.”

Statements made by Michael Ketchmark, the lead attorney for the plaintiffs in the Sitzer/Burnett and Gibson lawsuits, to Inman News earlier this week confirm Murray and Sterbcow’s suspicions.

Ketchmark told the publication that the attorneys for the plaintiffs have entered into “very significant and ongoing” conversations with the DOJ. He said that his clients and the DOJ share the same goals of making real estate part of the “free market” and stopping NAR from “rigging the system,” and that he believes this is a “real opportunity for change.”

In addition to the DOJ, real estate agent commissions may have caught the eye of yet another government agency. Multiple sources have told HousingWire that the CFPB may consider looking into real estate agent commission practices for potential Unfair, Deceptive Abusive Acts or Practices (UDAAP) violations.

The CFPB would not confirm or deny these allegations and declined to comment on the issue.

While Francis Riley, a partner at Saul Ewing LLP, does not believe the CFPB will ultimately get involved, he does see where the Bureau could possibly look for potential UDAAP violations.

“If it were to investigate based on a potential UDAAP concern, the concern could fall under “unfair” or “deceptive” practices,” Riley wrote in an email. “Specifically, based solely on the plaintiffs’ allegations, the Bureau may want to investigate whether the sellers were in fact deceived into believing they had to offer a larger commission percentage to buyers’ agents, which then led to the sellers incurring a higher commission paid by them out of the purchase price and/or requiring an increased listing price, making it more difficult – at times – to compete with another house being sold in the same market area.” 

Riley continued: “For buyers, the CFPB may want to determine whether not telling buyers that they could pay their agent a commission directly kept them from a leverage point for their negotiation of a lower purchase price – one that does not reflect the buyer agent’s share of the commission.”

One hurdle for the CFPB, if the agency chooses to take action, is that under the Dodd Frank Act, real estate commissions are a state issue and not under the direct jurisdiction of the bureau. However, Chuck Cain, a real estate attorney and the senior vice president of the national agency division at FNF Family of Companies, sees a way around this.

“If you are involved with a ‘covered person’ who is, in fact, in the jurisdiction of the Bureau, in regard to what they see as UDAAP activity, the Bureau has made it quite clear that they believe they have complete jurisdiction over those parties,” Cain said. “So, in this case, anything that is on a real estate settlement statement has the potential of being in the jurisdiction of the Bureau under a UDAAP argument.”

While Cain in unsure if the CFPB may take this course of action, based on previous statements made by the Bureau he recommends acknowledging it as a possibility.

In the face of even more potential legal challenges, at least of the corporate defendants has looked to up its legal game. On Wednesday, Keller Williams announced that it was welcoming former U.S. Solicitor General Paul Clement to its legal team.

“I am delighted to be representing Keller Williams in this high-stakes appeal,” Clement said in a statement. “The verdict here raises serious legal issues and poses a threat to a wide range of business by converting practices enshrined in state law into per se antitrust violations.”  

Clement has argued over 100 cases at the U.S. Supreme Court throughout his career.

In the context of the real estate industry, the recent verdict in the Sitzer/Burnett commission lawsuit has raised concerns for many professionals. The focus on consumer protection and the involvement of government agencies like the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) have brought attention to the practices of agents and brokers.

Regina Braga, the president of Res/Title, acknowledges the trend of making real estate transactions more consumer-friendly. The goal is to protect consumers from excessive costs and ensure transparency in the process. This is evident in the implementation of the TILA-RESPA Integrated Disclosure (TRID) rule and the ongoing legal disputes involving the National Association of Realtors (NAR) and brokerages.

Steve Murray, co-founder of RealTrends Consulting, believes that the DOJ will likely get involved in the Sitzer/Burnett lawsuit, based on their previous involvement in the Nosalek commission lawsuit. The DOJ’s focus on affordability and equity in the housing market makes their intervention probable.

Marx Sterbcow, managing attorney at Sterbcow Law Group, agrees that the DOJ will step in due to their commitment to ensuring fair practices and preventing equity stripping. The DOJ’s involvement could lead to significant changes and a real opportunity for change in the industry.

Michael Ketchmark, the lead attorney for the plaintiffs in the Sitzer/Burnett and Gibson lawsuits, has confirmed ongoing discussions with the DOJ. The shared goals of making real estate part of the free market and preventing manipulation by NAR suggest that the DOJ’s involvement could be a catalyst for change.

In addition to the DOJ, there are indications that the CFPB may also look into real estate agent commission practices for potential violations. The focus on Unfair, Deceptive Abusive Acts or Practices (UDAAP) aligns with the CFPB’s mission of protecting consumers. While the CFPB has not confirmed these allegations, it is a possibility worth considering.

Francis Riley, a partner at Saul Ewing LLP, believes that the CFPB may not ultimately get involved but acknowledges potential UDAAP concerns. Deceptive practices related to commission percentages and their impact on sellers’ costs and listing prices, as well as the impact on buyers’ negotiation power, could be areas of investigation.

One hurdle for the CFPB is that real estate commissions fall under state jurisdiction. However, Chuck Cain, a real estate attorney, suggests that if a “covered person” is involved, the CFPB may have jurisdiction over UDAAP activities. This means that anything on a real estate settlement statement could potentially fall under the CFPB’s jurisdiction.

As the industry faces potential legal challenges, companies like Keller Williams are taking steps to strengthen their legal teams. The addition of former U.S. Solicitor General Paul Clement demonstrates the seriousness of the appeal process. Clement’s extensive experience in arguing cases at the U.S. Supreme Court will be valuable in navigating the legal complexities of the case.

In conclusion, the verdict in the Sitzer/Burnett commission lawsuit has sparked discussions about the practices of agents and brokers in the real estate industry. The involvement of government agencies like the DOJ and the potential involvement of the CFPB signify a shift towards consumer protection and transparency. The outcome of these legal challenges could lead to significant changes in the industry, ensuring a fair and equitable marketplace for all parties involved.