– The Sitzer | Burnett trial is a commission lawsuit that challenges the real estate industry’s status quo.
– The plaintiffs argue that NAR and major franchisors conspire to suppress competition and keep commissions high.
– The plaintiffs’ attorney, Michael Ketchmark, has presented evidence showing that real estate companies discuss commissions and steer buyers away from low commission listings.
– The defendants argue that there is no collusion among industry players and that the plaintiffs willingly entered into contracts that included commissions for buyers’ agents.
– The defendants’ attorneys have pushed back against the idea of a conspiracy and characterized the plaintiffs’ case as an attempted “do-over.”
– The plaintiffs will wrap up their case soon, and the defendants will begin calling their own witnesses.
– The outcome of the trial will be determined by the jury.
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At the end of three long days in court, tensions boiled over Thursday evening.
Michael Ketchmark, an attorney representing a group of homeseller plaintiffs, had a question about witnesses in an ongoing class action trial. The defendants in the case include the National Association of Realtors as well as several major franchisors, and Ketchmark approached an attorney representing HomeServices of America with his question. He became increasingly agitated when he couldn’t get a straight answer.
“The frustration level is through the roof!” he eventually said, while turning to another attorney in the room. He then accused the HomeServices lawyer of not being an “honest broker” and hinted that he would be unrelenting.
“Be careful when the rabbit gets the gun.”
The moment highlighted the intensity and human drama of Sitzer | Burnett, a bombshell commission lawsuit that strikes at the heart of real estate’s status quo. At issue is a claim from the homeowner plaintiffs that NAR and franchisors such as Keller Williams conspire to suppress competition and keep commissions high. The case specifically revolves around the practice of having homesellers pay commissions to the agents representing buyers — a practice that has been historically common but which is increasingly facing challenges and change. The plaintiffs have taken issue with paying buyers’ agents, and a victory on their part could upend the industry.
After inching its way through the courts for years, the Sitzer | Burnett trial commenced at the beginning of last week in Kansas City, Missouri.
The trial is scheduled to run for two more weeks, but already, major themes are emerging. Among other things, the plaintiffs’ strategy thus far has tended to focus on the idea that big real estate names know the rules, but break them anyway — ultimately creating a scenario in which homesellers are effectively required to pay a fixed, industry-standard commission.
Meanwhile, the defendants — who as of Monday morning have not yet begun calling their own witnesses — have pushed back against the idea that major industry organizations are working together in some way or that they have a specific agenda when it comes to the size of agent commissions.
At the same time, the homeseller plaintiffs have emerged into the public spotlight for the first time, largely to portray themselves as regular, middle-class homeowners whose primary interest is changing a system they feel is unfair.
Catch up below with the trial’s biggest takeaways so far:
The plaintiffs’ arguments
Though five different homesellers are currently listed as defendants in the case, probably the biggest name to emerge from the proceedings so far is Ketchmark himself. Already a well-known attorney in his hometown of Kansas City, with many major victories under his belt, Ketchmark has been notable thus far in the bombshell trial for his sometimes-impassioned arguments and willingness — as the anecdote above illustrates — to occasionally take off the proverbial gloves.
It’s also worth noting that the plaintiffs get to present their case first, so it’s not entirely surprising that Ketchmark has emerged as a dominant force; the first week of the trial was dedicated to the plaintiffs’ version of events, with the defendants’ attorneys merely cross-examining Ketchmark’s witnesses.
So far, Ketchmark’s strategy has been similar with many of the witnesses he called: Present documents the defendant companies themselves have produced that mention commissions, then confront executives about why they have all this information if they aren’t, in fact, trying to maintain a conspiratorial status quo.
For instance, on the first day of witness testimony, Ketchmark called Gary Keller, who appeared via a video deposition. In the video, Ketchmark asked Keller about slides from a company conference, Keller’s book The Millionaire Real Estate Agent, a company training script, and even a past Inman article. All of these texts mentioned commissions, Ketchmark argued, as he worked to make the point that Keller Williams steers buyers away from listings offering low commissions and discourages sellers from offering lower buyer agent compensation.
Keller himself pushed back against Ketchmark’s characterizations, but Ketchmark’s implication appeared to be that major real estate players do have an agenda when it comes to commissions, and have openly discussed that agenda in the past.
Ketchmark made similar moves with other executives such as HomeServices of America CEO Gino Blefari, RE/MAX CEO Nick Bailey and former Coldwell Banker CEO M. Ryan Gorman.
Among other things, Ketchmark appeared to be using these lines of questioning in an attempt to establish that there is, in fact, an industry standard when it comes to agent commissions.
But he also worked to show that the industry is not supposed to be collaborating — or, in the language of the case’s complaint, conspiring — to set commission rates. For example, while questioning NAR Head of Engagement Rodney Gansho, Ketchmark brought up the trade group’s “Antitrust Compliance Guide,” which says that members should establish fees unilaterally without consultation or discussion with competitors. The guide also notes that agents should never use statements such as, “I’d like to lower the commission, but no one will show your house.”
The exchange was significant because it captures a major thrust of Ketchmark’s argument: That major industry players have antitrust documents and generally know what they’re supposed to be doing, even as the documentation from the franchisors suggests they’re not following the rules.
Whether the jury finds this strategy, and Ketchmark’s other arguments, compelling remains to be seen. The plaintiffs will wrap up their case on Monday, after which the defendants will begin calling witnesses.
The defendants’ arguments
The defendants in the case include NAR, as well as Keller Williams, HomeServices of America, and HomeServices subsidiaries BHH Affiliates and HSF Affiliates. Anywhere and RE/MAX are also defendants, but have proposed settlements filed with the court, so they don’t have representation at the trial.
Unlike the plaintiffs, who have all had Ketchmark at the lectern representing them, the defendants each have different attorneys working the case. And, as mentioned above, the defendants have not yet had a chance to call their own witnesses.
For all of these reasons, the defendants’ overarching strategy is arguably less obvious at this point in the trial.
Still, it’s clear that the industry players are pushing back against Ketchmark’s strategy. When confronted about Keller Williams’ materials that discuss commissions, for instance, Keller suggested such content was “a model to describe the flow of money” — implying it’s not a guideline on how to handle specific commission situations.
Variations on this defense came up on multiple occasions, with industry leaders saying that comments and materials mentioning commissions were meant as hypothetical examples or to make some more general point, and not as evidence that everyone is in cahoots to keep commissions uniform.
The defendants’ attorneys have also argued that the plaintiffs knowingly entered into contracts that provided commissions for buyers’ agents, but now want to get that money back. For example, attorney Timothy Ray, who is representing Keller Williams, said during his opening remarks that the case effectively amounts to an attempted “do-over” on the plaintiffs’ part.
Personnel from the defendant companies have also said in court that they don’t enforce NAR rules.
The takeaway from all of these comments is that the defendants are generally pushing back against the idea that today’s commission landscape is the result of cooperation, or conspiracy, among major industry players. In this version of events, attempts to paint a conspiracy would essentially amount to misreadings of corporate texts that the defendants have at times characterized as innocuous or irrelevant to the issues in the suit.
The defendants in the case will get to start calling their own witnesses this week after the plaintiffs wrap up. At that time, their strategy should become even clearer. And eventually, of course, a jury will decide who made the most compelling case.
The homeseller plaintiffs
Up until last week, one of the more notable things about Sitzer | Burnett was that the actual plaintiffs had virtually no public profile. Unlike some big lawsuits, where plaintiffs appear in news articles and TV reports to make their case, the homesellers who filed Sitzer | Burnett kept a very low profile. That made it difficult to understand the internal logic that led to the case in the first place.
But that changed last week when four of the five plaintiffs took the stand. For the most part, the plaintiffs portrayed themselves as middle-class homeowners — they’ve respectively worked as a police officer, a school teacher and an attorney, among other things — who were happy to pay a commission to their own agents.
However, the plaintiffs also tended to characterize the practice of paying buyers’ agent commissions as unfair to homesellers and, in some cases, financially burdensome.
Critically, multiple plaintiffs also indicated they did not think they could negotiate commissions.
Such comments offer insights into the case’s origins, and they shed light on Ketchmark’s legal strategy. Though company executives who testified tended to portray the industry’s commission system as relatively loose and flexible, the plaintiffs themselves indicated that they perceived something different that was more rigid and fixed. If the jury believes those comments, it would bolster Ketchmark’s argument that the industry has acted to suppress competition and keep commissions uniformly high.
It’s impossible to know how the jury might respond to last week’s arguments, as well as the wealth of testimony that still lies ahead. But the case has been labeled a bombshell from the beginning because the stakes are high; a poll Inman ran last week indicated widespread belief among industry pros that a win by the plaintiffs would drive down commissions. Inman readers have also been evenly divided on who they think will actually win.
At this point, then, the only thing that’s certain is that the bombshell could be big.
Property Chomp's Take:
The ongoing class action trial, Sitzer | Burnett, is causing tensions to rise in the real estate industry. The case, which involves the National Association of Realtors (NAR) and major franchisors, revolves around the claim that they conspire to suppress competition and keep commissions high. Specifically, the plaintiffs challenge the practice of having homesellers pay commissions to agents representing buyers. The outcome of this trial could potentially disrupt the industry.
The trial, taking place in Kansas City, Missouri, has already revealed major themes. The plaintiffs' strategy has focused on proving that big real estate names are aware of the rules but break them anyway, effectively forcing homesellers to pay a fixed, industry-standard commission. The defendants, on the other hand, deny any collaboration or specific agenda regarding agent commissions.
Attorney Michael Ketchmark, representing the homeseller plaintiffs, has been notable for his impassioned arguments and aggressive questioning of witnesses. His strategy involves presenting documents from the defendant companies themselves that mention commissions and confronting executives about why they possess this information if there is no conspiratorial intent.
Ketchmark has questioned industry leaders such as Gary Keller, CEO of Keller Williams, and Gino Blefari, CEO of HomeServices of America. He aims to establish that there is an industry standard for agent commissions, while also proving that the industry is not supposed to be collaborating to set commission rates.
On the defendants' side, NAR, Keller Williams, HomeServices of America, and their subsidiaries have not yet called their own witnesses. Their strategy appears to be pushing back against Ketchmark's arguments and emphasizing that comments and materials mentioning commissions are not evidence of collusion but rather hypothetical examples or general points.
The trial is set to continue for two more weeks, and the jury will ultimately decide the outcome. The intense courtroom atmosphere and the high stakes involved highlight the potential impact of this case on the real estate industry.
To stay updated on the trial's developments and gain insights into the future of real estate, professionals can participate in the upcoming Virtual Inman Connect on November 1-2, 2023, and Inman Connect New York on January 23-25, 2024. These events will feature discussions on AI, capital, and other industry trends, providing valuable tools and preparation for the future.