Attorneys spar over evidence of collusion in commissions trial
On Day 4 of the Sitzer/Burnett trial, an expert witness for the plaintiffs said the current commissions system is a "clear case" of collusion and price fixing.
- The first week of the landmark commissions trial is wrapping up, with the plaintiffs making their case for a conspiracy and anticompetitive practices.
- An expert on data and economics said NAR’s cooperative compensation rule is the foundation of the alleged conspiracy.
- The lead attorney for NAR argued that no evidence of such a conspiracy exists.
KANSAS CITY, Mo. — An expert witness for the plaintiffs provided powerful testimony at the Sitzer/Burnett trial on Thursday afternoon, asserting that there is strong evidence of a conspiracy among the defendants to keep buyer agent commissions inflated.
Craig Schulman, an associate professor at Texas A&M and the director of Berkeley Research Group, studies econometrics — a discipline which looks at the outcomes of economic theories that help forecast trends. Asked about the commission fee structure currently in place for residential real estate, he told the nine-member jury that it was "one of the clearest cases" of collusion and price fixing he had ever seen.
His analysis, however, was subject to a heated cross examination by the defense, who questioned whether any evidence existed.
The trial, which is wrapping up its first week in U.S. District Court, pits home sellers in Missouri against the National Association of Realtors, Keller Williams and HomeServices of America. The sellers allege that NAR and others participated in anticompetitive practices by forcing them into a system where they pay a commission that is split between buyer and seller agents.
Commission structure hampering competition, says plaintiffs' expert
Schulman spoke broadly about the commission fee structure system, particularly how agents get a percentage rather than a flat fee, and how it contributes to inflated prices.
During the nearly four hours of testimony, he provided examples of how the commission system contrasts with most other ways of pricing a product. As an example, he asked jurors to imagine if gas stations adopted a similar system where the price of gas was based on the value of the car that's filling up.
In studying the housing market in Missouri, Schulman said there are signs that something is impacting the competitive marketplace. Like most states, home prices are outpacing inflation, and there is an incentive, he said, for home prices to keep going up while the current fee structure is in place. If a buyer agent is receiving a 3% commission, a house that sells for $100,000 earns that agent $3,000. If the house later sells for $300,000, the commission goes up to $9,000.
NAR also has an incentive to keep this system in place, Schulman said, because of the revenue it can generate. The cooperative compensation rule is the foundation, or the "trunk of the tree," in controlling this conspiracy, he said.
Schulman said having this kind of control, including over who is allowed access to MLS data, is a key revenue generator for the association. It was noted in the testimony that NAR members pay membership fees of $150 a year. With 1.5 million members, that's $225 million in annual revenue.
Defense attacks assertions, says no evidence exists
The cross examination came from Ethan Glass, NAR's lead attorney. Glass was quite animated throughout the questioning, providing a stark contrast to Schulman, who kept his answers brief. When asked repeatedly if there were any documents suggesting that any of the defendants were discussing a conspiracy or price fixing, Schulman said no.
In its line of questioning, the defense also drove home the point that home sellers understood what they were getting, and paying, when hiring an agent and signing a contract.
The plaintiffs are expected to continue presenting evidence on Friday and into next week. The trial is expected to be completed in the second week of November.
Want to know more? Follow all of our Sitzer/Burnett trial coverage here.