In a landmark ruling in the Burnett v. NAR case, the judge ruled against the National Association of REALTORS and brokerages in the amount of $1.7B. This case could permanently change the way realtors get paid and place the onus of compensating buy-side realtors on the home buyers, amounting to thousands of dollars in additional costs for them. James Kleimann, Managing Editor of HousingWire was in the Missouri courtroom for the verdict and NFM TV got his reaction on what the next steps might be.

Full Transcript is Below:

– The main thing to focus on over the next couple weeks, couple months, is the process of injunctive relief. So the judge in the case, Judge Bough, 5th District in Missouri, he will determine what essentially happens to this rule. The NAR’s 1996 cooperative compensation policy, which the jury found represented a conspiracy that this rule had been used to inflate or stabilize commissions. There are a couple scenarios here. Let’s start with the worst case scenario for the industry. The worst case scenario is that the judge decides that this entire rule and the practice associated with it goes the way of the dinosaur. It is extinct, it is done, buyer agents cannot be compensated by seller brokers. I should say more specifically, that seller brokers cannot compensate buyer brokers. You know, the brokers are the ones who hand out the commissions on both sides, so that practice would be eliminated, and then eventually, what would happen is if a buyer does choose to have representation, and I still think they would in a lot of cases, they would need to come up with that money out of pocket themselves. So, that is the worst case scenario. I’d say the best case scenario is that the judge looks at the cooperative compensation policy and says, you know, what we’re instead going to do is put disclaimers for sellers that they do not have to provide anything more than a penny, or a zero if they want, whatever that number might be, to buyer representatives, and that is solely the discretion of the seller. And that would be probably the closest approximate to the practice that currently exists in America right now, as opposed to the rule that governs it.

– Do we have a sense for whether there will be an appeal? And if there is, how long this could be dragged out before any substantive changes to how commissions work?

– All of the defendants, HomeServices of America, Keller Williams, and the NAR have vowed to appeal. The NAR is almost certain to appeal, and the NAR, you know, last we checked, had about a billion dollars in assets, not all of that as cash. All of the defendants would need to put up a bond if they are going to appeal these cases. These cases, if they do go through the appeals process, will take probably a couple years, probably more than a couple years. You know, I’d say it’s likely three, four, or maybe five years.

– Well, so could any, if that happens, and they get into that cycle of three, four, five years, is it status quo until then? Is there anything that can happen to temporarily change that dynamic pending the outcome of the appeals?

– Yeah, a lot can happen. So, even if there is an appeal, and we expect there to be an appeal, the injunctive relief that will be issued by Judge Bough is going to be the X factor here that is going to determine whether the practice of cooperative compensation in all practical settings, sellers essentially incentivizing and compensating buyer agents, whether that continues.

– In terms of the judge rendering a decision, do we know how long that’s gonna take? Is that, could that happen any minute? Is it gonna be a couple of weeks? What’s the consensus?

– Yeah, I don’t think it’s gonna happen tomorrow or anything like that. I do think it’s probably gonna take place within 2023, so, probably within the next month, they’ll have, you know, a court hearing to determine injunctive relief, and that is going to be probably the most significant outcome. Even from this case, forgetting all the dollars and cents involved, the most significant action that could come out of this case is a judge who has wide latitude here. He can basically ban the practice nationally if he chooses to, or he can take a very light touch, but that is going to set the tone and the tenor for a lot of other cases, and a lot of other potential litigation. There are gonna be a lot of other copycat claims that are made. There are gonna be a lot of other lawsuits. We only talked about Missouri, right? And then Illinois, but there are cases all over the country that would probably be filed by other attorneys, so the threat is pretty widespread.

– I’m curious how the process of determining the injunctive relief unfolds. Is this a whole nother set of defendants and plaintiffs, and more data for the judge to look at to make that decision, since that wasn’t necessarily at the epicenter, given that no one knew if it was gonna be guilty or not? Like, or does the judge already have everything he needs at that point, and it just becomes about him studying a little bit more?

– Yeah, my understanding, Greg, is that he will be taking the evidence that has been entered into the case, and using that evidence and the arguments that have been submitted and approved, he will be making a determination, one, whether the monetary, you know, judgment remains, what the jury said. He could change it, he could lower it, he could do a lot of things. In terms of the rule, as I said, he has wide latitude. He could do quite a bit with the rule, but it will be based on the evidence presented in the case. It will not be based on the looming threat of the Department of Justice, or what could take place in Illinois next year with the other, I should say, one of the other commission cases.

– So they convinced the jury, clearly, that there was a conspiracy to inflate commissions. Did they convince you when it was all said and done?

– No, it didn’t. No, and here’s the reason why. So we talk about this rule that came into effect in 1996, but we didn’t talk as much about the practice, which came into effect in the late 1800s. Real estate agents on the sell side have been compensating buyer agents for well over 100 years, nearly 150 years, maybe even longer. The reason that there is this, in my opinion at least, why people believe that there is a conspirator element is because each of the stakeholders on the real estate side are individually incentivized to keep up a model that has created a very efficient marketplace.

– is where folks can keep their finger on the pulse. What are they gonna see when they go there? How often are you gonna be updating these unfolding events?

– Yeah, we’re producing about four to five stories covering every element, and how is the title industry impacted? Is there evidence that buy-side agents do steer clients if the commissions are below market? We are doing data dives, we’re looking at how LOs benefit. Why hasn’t the mortgage industry spoken out about the loss in the Sitzer/Burnett case? We’re looking at different tranches of the industry that are gonna be more affected than others, especially that the low to middle income borrowers and buyers are going to be definitely the most affected by these judgements. So, we’re looking at every element, we’re looking at the bonding process for appeals. Yeah, we’re gonna have a number of stories every day for the next couple weeks.

– James Kleimann, Managing Editor of HousingWire, cannot thank you enough. I know our audience appreciates it. I hope that you’ll come back as this continues to unfold, and we’re gonna go directly to to keep seeing what is happening in real time. Thanks so much.

– Thanks so much, Greg.

– I’m Greg Sher from NFM TV. Hope you’ve enjoyed this, and we will see you again soon.