As the fight to preserve the agent compensation structure rages on, real estate leaders and advocates were dealt another courtroom loss in a critical antitrust lawsuit with potentially disastrous consequences for the industry.
A Missouri federal judge recently denied a motion by HomeServices of America (HSOA), the National Association of REALTORS® (NAR), RE/MAX and Keller Williams to compel arbitration in the Burnett/Sitzer class action lawsuit.
U.S. District Court Judge Stephen Bough asserted in a July 19 court order that HomeServices, which initially filed the motion, had “ample opportunity to raise its intention of asserting its arbitration rights” but ultimately waived them by fighting the allegations in federal court.
“Having followed this course, must live with the consequences,” Bough wrote in the order.
HomeServices did so after Bough granted the plaintiffs a class certification in April, opening the door for hundreds of thousands of home sellers to join in on the case if they paid a broker commission on listings featured on one of four local MLSs named in the lawsuit.
At issue is a longstanding multiple listing service (MLS) policy commonly known as the “Participation Rule” or “Buyer Broker Commission Rule,” which mandates that brokers list buyer agent compensation as a prerequisite to listing a property on certain multiple listing services.
The home sellers claimed in the case that NAR and industry franchisors conspired to inflate seller costs through the policy.
According to Bough’s recent order, plaintiffs—including class representatives Rhonda and Scott Burnett—used Reece & Nichols Realtors, Inc. and BHH KC Real Estate LLC to sell their homes.
Both firms, wholly owned by HSOA, used form listing agreements with sellers that included different versions of arbitration agreements through the past eight years. HomeServices contended that it had a right to compel unnamed class members to arbitrate in the case because it has a “close relationship” with both brokerages, and the plaintiffs lumped the three companies together as a single unit in their filing.
HomeServices and other defendants tried instead to have the dispute between the brokers and the “unnamed class members” handled by a private arbitrator in federal court and to halt court proceedings until arbitration was completed.
Ultimately, the court sided with the plaintiffs, citing a September 2021 decision by the 8th Circuit Court that affirmed that the company had waived its right to arbitration.
“We have little doubt about what HomeServices was trying to do,” read an excerpt from the order. “If there was a possibility that the case would end in federal court, it was uninterested in switching to arbitration. Indeed, it has never seriously disputed that it knew about the arbitration clause long before it moved to compel arbitration. Yet it decided to pursue the case in federal court anyway.”
The commentary went on to critique HomeServices’ “preference for litigation over arbitration” throughout the lawsuit and suggested that the company tried to keep its right to arbitration “in its back pocket.”
“It is not as if HomeServices lacked opportunities along the way,” wrote the 8th Circuit Court. “A party cannot keep a contractual right to arbitration in its back pocket and pull it out only when it is ready for a do-over.”
HomeServices declined to comment for this story, but the court order indicates that the company argued that it didn’t waive its rights but was unable to “move to compel arbitration of claims by absent members until the class was certified.”
The court decision adds another wrinkle to an already convoluted web of legal battles the real estate industry has faced in recent years. The Burnett/Sitzer case is one of two significant federal antitrust lawsuits targeting the existing agent commission structure and NAR policies that have upheld it.
In response to RISMedia requests for comment on the recent court ruling, an NAR spokesperson says that the denial of HSOA’s motion doesn’t impact the case as it stands for the association.
“NAR continues to believe the pro-competitive, pro-consumer local MLS broker marketplaces serve the best interests of buyers and sellers,” says Mantill Williams, a spokesman for NAR.
Williams adds that “listing brokers making offers of compensation to buyer brokers gives first-time, low/middle-income and all homebuyers a better shot at affording a home and professional representation.”
That aligns with arguments made in a recently publicized study that HomeServices commissioned to examine the potential implications of indulging the proposed “decoupling” of agent compensation.
The report, which also highlights and criticizes arguments made by plaintiffs and their supporters, found that a commission structure based on buyers paying their agents would significantly suppress homeownership among large segments of the population like minority buyers and those in the low- and middle-income bracket.
“The issues at stake here impact all REALTORS® and are not specific to any particular brand,” Williams says. “Because we know we are working in the best interest of consumers, we’re confident we will prevail.”