On October 31, 2023, the jury in a federal court lawsuit entitled Burnett v. NAR pending in the Western District of Missouri rendered a verdict of $1,785,310,872 in damages for class action plaintiffs against the National Association of Realtors and big brokerages, including Re/Max, Keller Williams, and Berkshire Hathaway. The lawsuit alleged that the NAR and big brokerages conspired to inflate real estate commissions and force sellers to pay buyer commissions, in violation of federal regulations against unreasonable restraints on trade.
Some, like the Wall Street Journal, predict this means an exodus of realtors from the profession, and the end of buyer representation as we know it. Our prediction is much less drastic – the verdict reflects a much-needed change in the industry concerning transparency with respect to compensation of agents, which will ultimately benefit both agents and their clients. In this article we discuss the details of the Burnett v. NAR case and what the verdict means for the future of the real estate industry.
What Was The Burnett v. NAR Case About?
Burnett v. NAR is a federal court case initiated in 2019 in the United States District Court for the Western District of Missouri. It is a class action lawsuit asserting violations of the Sherman Anti-Trust Act, a federal anti-monopoly law that prohibits unreasonable restraints on interstate trade and commerce. The defendants in the case include the National Association of Realtors, Re/Max, Keller Williams, Berkshire Hathaway, and other big brokerages.
The crux of the lawsuit is that the NAR and big brokerages engaged in unlawful practices by requiring that sellers pay the buyers’ broker’s commission. In a typical real estate transaction, the total commission is agreed upon between the property seller and the listing agent, with the total commission generally being 5%-6%. At the close of the transaction, both the buyer’s representative and the listing agent are typically paid out of that 5%-6%, with each side typically receiving 2.5%-3%.
The lawsuit alleges that the typical commission practice, which is established and maintained by the NAR and big brokerages, results in: (1) inflated cost of selling a home, (2) forces home sellers to offer high buyer-broker commissions to induce buyer brokers to show their homes, (3) results in commission percentages remaining the same despite increased housing prices, resulting in inflated total commissions, (4) eliminates price competition between buyer brokers by eliminating the need for buyer representatives to compete with one another based on commissions, (5) inflates home prices by restraining the ability of buyers to compete by lowering buyer-broker commissions, and (6) substantially increases the profits of big brokerages at the expense of sellers and inflated home prices. The class action plaintiffs allege that these practices violate federal anti-trust laws.
A copy of the complaint filed with the federal court can be found here.
The Jury’s Verdict And What’s Next In Burnett v. NAR
After hearing the evidence and argument from both sides, on October 31, 2023 the jury rendered its verdict awarding almost $1.8 billion in damages against the NAR the big brokerages. The jury found that the NAR and big brokerages conspired to force sellers to pay commission for the buyer’s representatives, that this practice inflated commission rates, and that home sellers could have paid less for real estate brokerage services if this practice did not exist. It determined that these practices caused home sellers damages of $1.8 billion over the period between April 29, 2015 and June 30, 2022.
A copy of the jury’s verdict can be found here.
The case, however, is far from over. The defendants have multiple avenues for challenging the jury’s verdict, including requesting that the court reduce the total damages, or that it overturn the jury’s verdict entirely. Even if the District Court leaves the jury’s verdict intact, the defendants have the right to appeal to Court of Appeal. Indeed, the National Association of Realtors has announced that it intends to appeal the verdict. In short, it may be several years before the jury’s verdict is final, and there is a possibility that the verdict will be overturned.
What Burnett v. NAR Could Mean For The Real Estate Industry
The jury’s verdict in Burnett v. NAR will potentially significantly change the landscape for how real estate commissions and the real estate industry work. If buyers are required to pay for their own representation, it could mean a variety of things, including (1) reduced compensation for buyer representation, (2) an exodus of experienced agents from buyer representation due to reduced compensation, and/or (3) an increase in buyers requesting dual representation (asking the listing agent to represent both the buyer and seller) in order to save on costs. Many doom and gloom experts are predicting that the lawsuit means the end of buyer’s agents.
The reality, however, is the Burnett case likely means that relatively minor changes will be made to real estate practices. Listing agreements typically already contain the disclosure that real estate commissions are negotiable. It is likely that listing agreements will add a simple disclosure stating that sellers are not required to pay for buyer representation, thereby eliminating the primary theory of the Burnett v. NAR lawsuit, i.e. that sellers were required to pay for the buyer’s broker. Another potential change is that listing agreements will no longer include compensation for the buyer’s representative. As an alternative, the buyer representative’s compensation can be detailed in the buyer’s offer to purchase the property, thereby continuing the practice of sellers paying for buyer representation but changing the timing of the agreement.
Ultimately, the Burnett v. NAR lawsuit represents a needed change in the real estate market – both buyers and sellers should be aware that they have options when it comes to compensation of their representatives, consumers should be aware that commissions are not set in stone, and agents should expect to be flexible when it comes to compensation depending on the needs of their clients. Indeed, here at Esquire Real Estate Brokerage, we are always flexible when it comes to compensation – we often offer reduced commission rates to buyers who come to us with a specific property in mind that they’d like to purchase, and to sellers who retain our services after identifying a buyer for their property. Home buyers and sellers are entitled to flexibility of compensation depending on the level of service they require, and agents should be willing to accommodate accordingly.
Please call or email us at 213-973-9439 or info@esquirereb.com to further discuss the Burnett v. NAR lawsuit, or how Esquire Real Estate Brokerage can help you in the Southern California real estate market.
