The Burnett vs. NAR trial verdict is in, with the plaintiffs emerging victorious, and the defendants having been found guilty of conspiring to artificially inflate commissions. It’s a result that could have serious, historic and long-lasting ramifications for the residential real estate industry. That is assuming the defendants, led by the National Association of REALTORS®, lose on appeal.
Reaction was swift from some of the country’s highest-ranking industry executives.
“I’m disgusted by the decision, and it’s clear to me that the jurors were fooled,” said an angered Anthony Lamacchia, broker/owner and CEO of Massachusetts-based Lamacchia Realty. “Michael Ketchmark (plaintiff lead attorney), with all his antics, seemed to have an impact, and the jurors’ decision has negatively impacted buyers.”
Lamacchia was asked what he will say to his hundreds of agent employees. “I’m telling our people not to worry,” he said. “That we’ll adjust, we’ll train them, and we’ll get through this.”
He added that more lawsuits were likely. “There’s no question because now all these plaintiff firms are going to smell blood. But I think we’ll win on appeal because it will be the judges deciding. That I feel confident about. But in the interim, it’s going to cause disruption because it’s going to be all over the news. So now we’re going to have tons of homesellers that are going to question things, and say they don’t want to pay the buyer’s agent, and all that.
“It worries me because they’re disrupting something that didn’t need to be disrupted. We have a very solid, transparent system, and they’re screwing it up.”
Lamacchia felt it was unfair to have a Missouri jury deciding a case for Missouri residents. “It was ridiculous, and that’s why it will go to a higher court.”
Jessica Edgerton, chief legal officer and executive vice president of industry and learning for Leading Real Estate Companies of the World®, was more measured in her response, but equally concerned.
“I think the verdict is wrong, and I feel very comfortable saying that straight out,” she said. “I think it’s difficult for a judge to communicate these kinds of jury instructions to a jury of individuals. Of course there’s going to be an appeal. My concern is, and I know the National Association of REALTORS® (NAR) will work very hard to make this not so, but that the injunctive relief sought will not be carried through with an appeal, and that will come down on the industry quickly and hard.
“The other concern I have is that we are going to very quickly see a proliferation, with wildfire being the more accurate term here, of copycat cases, and that will be very ugly. So my initial reaction is concern and disappointment.”
Edgerton remarked that while NAR did “a valiant job” in putting up an excellent defense, it might have been behind the eight ball from the start.
“All juries in antitrust cases tend to favor the little guy, and the little guy in this case were the plaintiffs,” she said. “So things were stacked against us from the start. My hope and expectation is that we’ve had four years to prepare for this, so many leaders in our industry have been preparing for this. There has not been enough done on the government regulatory side of things to prepare for this.
“I think we are going to be facing, especially in this economic and inventory climate, some real devastation for buyers who are going to find that their hopes for homeownership are further afield. The people particularly harmed by this are first-time homebuyers, minorities and veterans, those people that we and, purportedly the plaintiffs, were trying to protect.
“The plaintiffs’ attorneys are going to be extremely well compensated in the names of consumers, but in the end, the consumers that matter the most, who are pursuing dreams of homeownership, are hurt.”
Regarding rank-and-file agents nationwide, Edgerton said there will likely be some attrition on the buy side.
“It’s going to be a lot more difficult,” she conceded.
Ken Trepeta, president and executive director of the Real Estate Services Providers Council (RESPRO), admitted that “enough evidence was presented that could lead a jury to have concerns, and they did what they did. Putting aside money damages, there are any number of outcomes. At a minimum, there will be an order that this policy, the offer of compensation rule, needs to cease. It’s really the requirement to disclose the split, basically. That probably goes away. But will it be mandatory or optional?”
Trepeta cautioned that any appeal will be based on law, and not on evidence that may or may not have been submitted in the trial.
“The jury’s facts can’t be appealed,” he said. “You can’t go to the Appellate Court and say you’re going to show more evidence showing the jury was wrong. Only if there were elements of the case where no evidence was presented, or there were errors of law, are the two main reasons for an appeal.
“So the likelihood that this will be reversed on appeal is generally not strong. Judges are given a lot of latitude. The judge would have to have really misinterpreted an element of the law and presented it that way, and it was material to the outcome of the case.”
How far the judge goes in his award process will be fascinating, said Trepeta. “Also, this doesn’t get rid of commissions or commission splits, necessarily.”
Craig Cheatham, president and CEO of The Realty Alliance, took exception to the jury only taking a few hours to reach a verdict.
“The speed at which this jury reached unanimity may speak to the need during the appeal proceedings for defense counsel to both educate jurors more effectively and to connect more successfully with the person on the street – especially if the next pool again contains primarily renters, not buyers and sellers,” he said.
“Shifting the focus from “faceless” corporate entities to first-time homebuyers, real estate salespeople and regular people as those actually affected by upending the current system would appear to be a necessity going forward, as well.
“When an attorney recruits plaintiffs and wins over juries by having them imagine some wrong has been done, only to have the result of a judgment – if not eventually and rightfully overturned – produce actual harm for consumers in the future, we have a true miscarriage of justice.”
