Podcast Summary
Real Estate Commission Conflict of Interest Case: The standard real estate practice of sellers paying both listing and buyer agent commissions raises potential conflicts of interest, as seen in the Burnett vs. NAR case.
The real estate industry's standard practice of having sellers pay for both the listing agent and the buyer's agent's commissions can create a potential conflict of interest. This was the focus of a case, Burnett vs. the National Association of Realtors, which gained attention in 2019. The case was brought by Mike Ketchmark, a personal injury lawyer with a knack for winning large verdicts, who was brought on board due to his jury appeal. The Burnetts, a couple in Kansas City, had sold their house for $250,000 and paid approximately $15,000 in commission. They were unaware that they were essentially paying for both sides of the transaction, leading to potential incentives for both agents to secure high commissions. This practice, though common, raises questions about transparency and potential conflicts of interest in the real estate industry.
Lawsuit Challenges Traditional Real Estate Commission Structure: A class action lawsuit alleges real estate agents colluded to maintain high commission rates, potentially violating antitrust laws, and could change the US housing market
The traditional real estate commission structure in the US, which often results in buyers paying a significant fee to the agent representing the seller, has been under scrutiny for potential illegality. Mike Ketchmark, a personal injury lawyer, took on a case where a couple, Rhonda and Scott Burnett, felt they had been overcharged with a 3% commission. Mike discovered that this wasn't an isolated incident but a system-wide practice in Missouri, and he expanded the class action lawsuit to represent 500,000 Missourians. The allegation is that real estate agents on both the buyer and seller sides colluded to maintain high commission rates, which could be a violation of the Sherman and Clayton Antitrust Acts. This case, if successful, could significantly change the housing market in the US.
Mike Lawler's Unconventional Approach to Taking on the NAR: Attorney Mike Lawler challenged the real estate industry giant, NAR, by presenting his case to mock juries and using relatable metaphors, ultimately leading to a jury trial despite the organization's formidable legal team and industry control.
The National Association of Realtors (NAR) is a powerful and influential organization in the real estate industry. With over a million and a half members, it is the largest professional organization in the country and sets industry standards, including trademarking the term "realtor." When attorney Mike Lawler took on a case against the NAR, he was up against a formidable opponent, as evidenced by the 123 defense lawyers involved in a routine call. Mike believed that the high commissions paid to buyer's agents were at the heart of a price-setting conspiracy and ran mock trials 18 times to test his arguments. The NAR's control over multiple listing services, allowing only realtors to post listings, further solidified their position in the industry. Mike's unconventional approach to taking on this behemoth involved presenting his case to mock juries and using relatable metaphors to make his point. Ultimately, Mike's determination to bring the case to a jury trial, rather than settling behind closed doors, showcased his unique perspective and tenacity as a trial lawyer.
Potential for Anti-Competitive Practices with Agent Commission Disclosures: Real estate agents' commission disclosures on MLS can lead to steering, potentially limiting competition and resulting in anti-competitive practices. However, agents argue they deserve fair compensation for their services and that taking commissions from both seller and buyer is a reasonable business model.
The practice of real estate agents disclosing their commission rates when listing homes on Multiple Listing Services (MLS) can lead to steering, where agents may influence their clients to focus on properties with higher commissions, potentially limiting competition. Critics argue that this can result in anti-competitive practices, as sellers' agents may encourage them to offer higher commissions to attract buyer's agents and ensure maximum exposure for their listings. However, real estate agents argue that they provide valuable services during the home buying process and should be compensated fairly for their work. They also believe that taking commissions from both the seller and buyer is a reasonable way to cover their costs and ensure they can continue to provide expert advice to their clients. The debate continues as the outcome of a trial on this issue is still pending.
Real Estate Agents' Focus on Customer Satisfaction Misses the Mark in Antitrust Case: The antitrust case against real estate agents hinges on collusion, not customer satisfaction. Price-fixing, as shown in the case of chicken producers, is illegal in any industry, including real estate.
That real estate agents' arguments in the antitrust case, focusing on customer satisfaction, missed the point. Mike, the plaintiff's lawyer, emphasized that the issue was collusion, where real estate agents were allegedly agreeing on prices, which is detrimental to consumers. He used the analogy of chicken producers to explain this concept, emphasizing that such price-fixing is illegal in any industry. Furthermore, Mike challenged the argument that clients could negotiate realtor commissions, using video evidence of industry leaders instructing agents to insist on a non-negotiable 6% commission. The most shocking revelation came in the form of a profanity-laced video clip from a real estate CEO, explaining his technique for refusing to reduce commissions, which the court allowed as evidence despite objections from the defense.
Alleged collusion between realtors in Kansas City leads to fixed commissions: An economist discovered 92.6% of home sales in Kansas City had identical buyer's agent commissions, indicating potential price fixing, with potential implications for the housing market.
There was an alleged collusion between realtors in Kansas City, Missouri, and other markets in the state, leading to fixed commissions for buyer's agents. This collusion was revealed through data analysis by an economist, who found that in over 92.6% of home sales in Kansas City, the buyer's realtor received a consistent 3% commission. This collusion was considered one of the clearest cases of price fixing the economist had seen. The trial's outcome could have significant implications for the housing market, as the jury had the power to enforce the law and prevent such collusive practices. The case serves as a reminder of the importance of competition and fair pricing in markets.
Being informed, prepared, and understanding unique complexities lead to positive outcomes: Effective communication, future-focused insights, and understanding the nuances of a situation can lead to significant outcomes in business, literature, and law.
Being prepared and understanding the unique aspects of a situation can lead to significant outcomes. RSM, an NPR sponsor, emphasizes the importance of having advisors who can fully understand your business and provide future-focused insights. Grammarly, another NPR sponsor, highlights the power of effective communication and how it can save time and make a bigger impact at work. In the novel "The Glass Hotel," author Emily St. John Mandel discusses how a sense of belonging can contribute to deceitful schemes, such as the Bernie Madoff Ponzi scheme. In the legal world, being prepared and understanding the nuances of a case can result in substantial damages, as seen in the Missouri real estate antitrust case, which resulted in a $5.4 billion verdict. These examples underscore the importance of being informed, prepared, and understanding the unique complexities of a situation to achieve positive outcomes.
Real Estate Companies Settle Antitrust Lawsuits for Hundreds of Millions: Real estate settlements include changes to seller compensation for buyer's agents, written agreements for commission payments, and potential outcomes of lower commissions or workarounds in the industry.
The National Association of Realtors (NAR) and several realty companies have agreed to pay hundreds of millions of dollars in settlements after being accused of violating antitrust laws by setting commission rates for buyer's agents through multiple listing services (MLS). The settlements include changes to the way real estate business is conducted, such as sellers no longer being required to offer compensation to buyer's agents, and all Realtors being required to provide prospective homebuyers with a written agreement outlining commission payments. While some believe that this could lead to the disappearance of buyer's agents, others think that commissions may not come down significantly or that the industry will find workarounds. The impact on the housing market remains to be seen, with potential outcomes including lower commissions and savings for consumers, or commissions staying the same and consumers negotiating with agents for lower rates or a la carte services.
Real Estate Commission Lawsuit Settlement Notifications: Up to 50 million home sellers in the US might be eligible for a refund from a real estate commission lawsuit settlement. Check realestatecommissionlitigation.com for more information.
If you sold a home in the United States within the last few years, you might be eligible for a refund from a real estate commission lawsuit settlement. The estimated number of eligible individuals is around 40 to 50 million. Home sellers are being notified via postcard or can check the website realestatecommissionlitigation.com for more information. The team handling the settlement is still determining the distribution process. Meanwhile, in economics news, Japan's economic downturn in the 1990s is a cautionary tale about long-term recessions. This episode was produced by Willa Rubin, edited by Keith, engineered by Valentina Rodriguez Sanchez, fact-checked by Sierra Juarez, and featured interviews with various experts. For those interested in fashion, NPR sponsor Mizin and Maine offers comfortable, machine washable dress shirts with the promo code MONEY for a 25% discount on orders over $130. Discover cardholders can enjoy 24/7 U.S.-based live customer service, and the Alfred P. Sloan Foundation supports this podcast.
