Sitzer/Burnett Lawsuit: The Second Bombshell Lawsuit

The Sitzer Burnett lawsuit is the second-biggest real estate lawsuit going on in the US.

Sitzer Burnett has been certified as a class action lawsuit. It is called the ‘bombshell’ lawsuit, which can upend the US real estate market.

Joshua Sitzer and Amy Winger were the initial plaintiffs in this case. They listed their home on the MLS and offered a buyer agent commission. This commission was bigger than what they paid their own agent.

The buyer agent helped negotiate the listing price down. That’s obviously working against the seller’s interest. Still, Sitzer just HAD to pay the buyer agent.

Why?

As real estate professionals, here’s what you need to ask.

Why does Inman call Sitzer Burnett a ‘bombshell’ lawsuit?
How is it different from the Moehrl lawsuit?
What would happen if NAR loses this case?

Why is Sitzer Burnett the ‘Bombshell’ Lawsuit?

The Sitzer/Burnett lawsuit has the capacity to turn the real estate market upside down. If ruled in favor, the NAR and all the Realtors, Agents, and MLSs affiliated with it will need some serious policy reforms.

Here’s how.

This story starts on November 14, 2017. Joshua Sitzer and Amy Winger sold their Kansas City home. To list their home, they hired a real estate agent from Keller Williams. The agent listed their home on the Heartland MLS. The sellers offered a 5.5 percent commission, out of which, 3 percent ended up in the buyer agent’s pocket.

The Sitzer home was listed for 600,000 dollars. However, after negotiation with the buyers and their agent, the price was brought down to 590,000 dollars.

If the house were to be sold for the listing price, the buyer agent would have gained a commission worth 18,000 dollars. However, at closing, the buyer agent received 17,700. That’s just 300 dollars less than before.

On the other hand, the seller had to reduce 10,000 dollars from the listing price.

So, who is the true loser here?

The buyer broker worked for the buyer. That broker helped negotiate the sale price down. But Sitzer had no power to negotiate the buyer broker’s commission. He just HAD to pay the full commission.

Sitzer wondered why.

In the end, it all came down to a rule implemented by the National Association of REALTORS. It is known as the Adversary commission rule or the buyer-broker commission rule.

On April 29, 2019, Sitzer filed a class action suit in the Western District of Missouri Court. The lawsuit primarily challenges the buyer-broker rule. It accuses the National Association of REALTORS and real estate giants –

HomeServices of America, an affiliate of Berkshire Hathaway
Keller Williams Realty
Realogy, America’s largest brokerage, owns and operates top franchises like Century21, Coldwell Banker, and Sotheby’s
And RE/MAX;

of implementing and enforcing the alleged anticompetitive rule.

Along with them, the lawsuit also names –

Heartland MLS
Mid-America Regional Information System MLS or the “MARIS MLS”
Southern Missouri Regional MLS
Columbia Board of Realtors MLS or “CBOR MLS”;

as co-conspirators, along with all the brokers who own and operate these MLSs.

The Plaintiffs are being represented by 3 different law firms

Williams Dirks Dameron LLC
Boulware Law LLC, and
Ketchmark and McCreight P.C., all of whom have a record for settling multi-million dollar cases in various fields of litigation, including antitrust and class action lawsuits.

The defendant brokerages and NAR are represented multiple attorneys, one of them being Jack Bierig of ArentFox Schiff LLP. Jack is known for successfully representing the American Medical Association and American Dental Association in copyright cases.

Apart from Jack Bierig, Charles Hatfield is representing the Defendants from Stinson LLP. Charles has represented Fortune 1000 in several cases and handled multiple cases before the Missouri Supreme Court.

Sitzer’s lawsuit alleges antitrust and malpractices violations under –

Section 1 of The Sherman Antitrust Act
Statute 407.020.02 of the Missouri Merchandising Practices Act, and
Statute 416.031 of The Missouri Antitrust Law

On May 6, 2022, the lawsuit was amended for the third time to include more plaintiffs. But Joshua Sitzer and Amy Winger are no longer a part of the class action lawsuit. As of now, 9 plaintiffs represent Sitzer’s lawsuit.

Scott and Rhonda Burnett from Kansas City, MO
Ryan Hendrickson from Belleville, IL
Jerod Breit from Indianapolis, IN
Scott Trupiano of St. Louis, MO
Jeremy Keel from Kansas City, MO
Shelly Dreyer from Carl Junction, MO
Hollee Ellis from Ozark, MO
Frances Harvey from Columbia, MO

What Would Happen if the Plaintiffs Win this Case?

Firstly, the Adversary commission rule will see its end. Sellers will not have to pay inflated commissions to attract buyer agents.

Second, the NAR and corporate defendants will have to pay the damages. And they are definitely not a small amount!

For example, assuming that the average selling price of homes in Kansas or Missouri is 230,000 dollars and the sellers pay 3 percent in commissions, that equals about 6,900 dollars per transaction.

Multiply that with the about 900,000 home sales since 2015, that’s 6.2 billion dollars!

Under the Missouri Antitrust law, the court can award treble damages. Which means plaintiffs get triple the total damages, and that’s 18.6 billion dollars!

That’s not even considering the fees of the lawsuit and attorneys.

In their defense, the Plaintiffs have relied on the expert testimony of Dr. Craig Schulman. In his testimony, he demonstrates that if the adversary commission rule were to be absent, the real estate market would look much like Australia, or other countries that do not have the buyer-broker commission rule.

To summarize, in a market without the adversary commission rule-

Sellers won’t have to pay buyer agents
Buyer brokers would be eliminated or used very rarely
Buyers would pay the buyer agent’s commission if they use one
Sellers would pay much lower commissions

The hearing of the Burnett versus NAR class action lawsuit is set to begin in February 2023. During this time, the plaintiffs and the defendants are to gather the evidence before the hearing begins.

Do you think the age-old commission structure will go through serious reforms in the future? Let us know in the comments below.