NAR might have more paths to victory in commissions cases
Defendants presented opening arguments during week one of the Sitzer/Burnett trial. An industry lawyer sees two additional ways they might prevail in court.
- NAR has repeatedly said the current commission system allows for negotiation and is good for consumers.
- Home sellers are the plaintiffs in the Sitzer/Burnett case (among others), but are they really the ones damaged by inflated commissions?
- Antitrust violations are at the heart of the case, but there are ways for defendants to potentially weaken those claims.
The National Association of Realtors has laid out its plan for victory in Sitzer/Burnett, one of the landmark lawsuits that could change the way agents get paid.
Sellers sign agreements that detail who is getting paid for what, the argument goes, and NAR doesn't force anyone to do anything, much less set the price of commissions. There is no "conspiracy,"
But if NAR's arguments don't sway the jury currently hearing testimony in Missouri, are there other approaches the association and remaining defendants could take? The answer is "yes." But those paths come with their own sets of challenges and caveats.
The wrong plaintiffs?
The plaintiffs in the commissions lawsuits are home sellers. But one could argue that sellers in those cases have not actually been damaged because the buyers are the ones who are actually paying the agents.
Ed Zorn, chief counsel for California Regional MLS and a Knoxville-based broker, said for-sale-by-owner transactions can illustrate this point.
Zorn completed four FSBO deals last year, and in one, he had a representation agreement with a buyer and was going to make 2% — $10,000 — on a $500,000 transaction. Since baking the commission into the sales price would allow it to be financed, Zorn proposed that approach to the seller.
"I went to the seller and said, 'Do you care if we move the price from $500k to $510k?' He's like, 'I don't care. It's the same to me either way, right?' Right." Either way, Zorn said, the seller gets $500,000 and the buyer pays the commission they agreed to pay.
There are many similar transactions, Zorn said, that could be used to convince a jury that the buyer is the one who actually pays commissions. "If NAR can prove the buyer is the one paying the fee, the sellers lose," he said, because they aren't being damaged.
So why not go that route? One reason may be other commissions litigation still lurking from the buyer's side, though the Leeder vs. NAR case faces a pretty significant hurdle: A Supreme Court ruling that restricts indirect purchasers of services from bringing an antitrust case. Under the current system, homebuyers typically are not paying directly for agents' services.
Another potential avenue for NAR and the other defendants to pursue goes to the heart of the venerable Sherman Antitrust Act, which was passed in 1890 and is based on "the constitutional power of Congress to regulate interstate commerce." There are nuances, but essentially the law requires antitrust cases to have scope beyond a single state.
Interstate commerce, when it comes to the buying and selling of homes, has historically been tied to loans, and "loans are certainly impacted by interstate commerce," Zorn said. But in this case, the issue isn't how the deal is funded. The issue is whether or not a seller in a single state paid too much.
"The only thing you could argue is that a portion of the commission is going to corporate defendants, which may be in some other state," Zorn said. But that might only be a few hundred dollars per transaction, which Zorn said would have "a nominal impact on interstate commerce."
That kind of constitutional argument is more likely to come up in the context of an appeal and would likely need to go all the way to the Supreme Court, an arduous journey. But NAR has made one thing clear: They're in this for the long haul.