On Oct. 31,2023 the Sitzer/Burnett case was decided in the U.S. District Court for the Western District of Missouri. The jury, after less than three hours of deliberation, found the National Association of Realtors (“NAR”) and certain large real estate brokerages liable under antitrust laws for conspiring to fix or uphold inflated commission rates.

The plaintiff sellers alleged that NAR and certain large brokerages engaged in anticompetitive behavior by forcing them to sell their properties pursuant to a system requiring them to pay a commission that is split between buyer and seller agents. The plaintiffs claimed such practice led to inflated fees which amount to about 6% of the selling price. The plaintiffs also asserted that the current method of compensation encourages buyer agents to “steer” potential home buyers away from homes that offered lower commission rates. Witnesses for the defense pointed out that steering isn’t common, especially in a market where inventory is low. 

A few weeks prior to the trial, NAR announced a new policy that listing may offer as low as 0% commission in the Multiple Listing Service. This abrupt change of policy by NAR leading up to the lawsuit was characterized by the plaintiff’s counsel as an “admission of guilt” and used against the defendants.

The judge awarded the plaintiffs 1.8 billion in damages and has the option, under antitrust law, to triple the damages. Although the defendants are appealing the verdict, the effect of the verdict is already rippling across the nation, including in our local Silicon Valley market.

On the heels of the Sitzer/Burnett verdict, the same plaintiffs’ attorney immediately filed a nationwide copycat class action suit in the U.S. District Court for the Western District of Missouri against several other national brokerages including Compass and Redfin. The plaintiffs’ attorney stated: “Our goal is to take the message from Missouri across the nation and return the process of selling homes to the fair market and allow people to reap the benefits of technology and to stop this conspiracy from affecting people in our country. It’s been a glorious day.”

The effect of these cases will certainly change the way some buyer agents are paid for their services in a residential real estate transaction. Sellers and their listing agents in California are now free to decide what amount of commission will be offered to the buyer agent, if any, with respect to a listing. While many sellers will understand the benefits of offering a standard commission to the buyer’s agent, buyer agents will need to prepare for the scenario in which their client makes an offer on a home for which zero, or a reduced, commission to the buyer agent is offered in the listing. It is clear that buyer agents will now need to discuss this possibility with their clients and come to an agreement with their clients regarding the agent’s compensation in the event insufficient commission is offered in the listing. 

Below are some changes likely to take shape with respect to the relationship between buyers and their agents:

• Buyer agents may opt to address their compensation with a Buyer-Broker Agreement. This is a negotiated agreement between the buyer and his or her agent which sets forth, among other things, the terms under which the buyer agent will be compensated and the amount of such compensation. This agreement is legally required in 14 states and may eventually be required in California.

• Some local listing agents may tout the model of representing both the buyer and the seller at the same time on a particular property, thus “double-ending” the transaction. Buyers may perceive that they are better off working directly with the listing agent, and listing agents may lower their commission if they represent both the seller and the buyer. There may be legal concerns about a conflict of interest, however, when a buyer is represented by an agent who is employed by or works directly for the listing agent because the listing agent has a fiduciary duty to the seller. It remains to be seen whether the Department of Justice will ultimately crack down on allowing listing brokers and agents to “double-end” residential transactions.

• Some buyers may try to handle the home buying transaction themselves. Given the complexities of the documentation, disclosures, investigation, lender approvals, legal concerns and other aspects of a purchase transaction in California, buyers should be advised against buying a home without robust professional representation.

• Buyers may engage a real estate attorney to represent them in their home buying transaction. While a real estate attorney may be invaluable to assist with a legal issue arising in the course of a purchase transaction, attorneys are not experts in the local real estate market and do not, generally, have the beneficial relationships with the listing agents which a high caliber buyer agent has.

• Some brokerages or buyer agents may decide to offer home purchase negotiation for a flat fee or based on hourly billing. Buyers in California will likely sacrifice the expertise and skill a local reputable buyer agent brings to the table by hiring a flat fee, discount or hourly buyer agent.

An experienced buyer agent is still invaluable to a successful purchase transaction in California. In addition to helping a buyer find the home that meets the buyer’s wants and needs, a dedicated buyer’s representative helps with the entire purchase process, including: the negotiation of the price of the home and terms of the purchase; the extensive paperwork; finding off market properties; analyzing the various reports and the condition of the property; spotting concerns with the property; and the escrow process. Despite the many changes to the industry over the years including the use of the internet to search for properties, Redfin’s discount model, Zillow, etc., the data show that most savvy buyers have continued to engage agents they can trust to educate them on the local market and successfully negotiate the purchase of their dream homes.

Now, more than ever, it is important that buyers partner with an agent who:

• has an upstanding local reputation,
• has strong relationships with other local agents,
• has extensive knowledge of the localized market,
• clearly articulates his or her services and value to the buyer, and
• the buyer trusts to handle the many issues that may arise in a purchase transaction in California and achieve a successful closing.