By: Elizabeth B. Elmore and Emmanuel “Seth” Backus
On Tuesday, October 31, a federal jury in Missouri delivered a ruling that may impact the real estate industry throughout the country. In Burnett v. N.A.R., et al., a class of home sellers brought an action against several real estate firms claiming that listings contained artificially inflated broker commissions. Here, the jury deliberated, found for the plaintiff homeowners, and ordered defendants to pay nearly $1.8 billion in damages. One of the named defendants, the National Association of Realtors (“NAR”) has already appealed the ruling in the United States Circuit Court of Appeals for the Eighth Circuit.
At trial, plaintiffs argued the named defendants in the case had created a system that inflated agent commissions by including the price of commissions in the overall listing price. Typically, buyer’s and seller’s agents split a commission evenly, which is usually between 5%-6% of the sale price of the property. Here, plaintiffs argued the defendants created a system in which sellers agreeing to higher commissions served as a condition precedent to gain access to the Multiple Listing Service (“MLS”) where properties are commonly listed and advertised for sale.
NAR and the other defendants responded to this argument at trial and in public statements following trial stating that commission prices have always been and continue to be negotiable at any time during the transaction. Furthermore, defendants also maintain that by including negotiable commission prices in the overall listing price of the property, a “split-fee” system creates a more accessible and inclusive market for potential buyers by not requiring them to pay broker fees out of pocket. According to defendants, this creates a system of rules surrounding the MLS that “prioritize[s] consumers, support[s] market-driven pricing, and promote[s] business competition.” NAR and other defendants argue this gives buyers who may already be bogged down by other expenses attributed to the home-buying process more ability to participate in the market.
While the jury’s determination found the defendants liable for $1.8 million in damages for what plaintiffs characterized as an anti-competitive business model, Burnett v. N.A.R., et al.’s nationwide effect on the real estate industry remains to be determined. Currently, the verdict is only applicable law in the Western District of Missouri. In response to the October 31 verdict, another group filed a proposed class action in Illinois against NAR and seven other brokerage associations claiming a similar cause of action. As stated above, NAR has already filed an appeal to the United States Circuit Court of Appeals for the Eighth Circuit. Any decision at the federal appellate level will provide a more definitive and far-reaching guidance for the real estate industry.
To keep up to date on developments in the real estate field, please contact a member of the Jackson Kelly PLLC Real Estate Team.