Trust is the cornerstone of the agent-client relationship, but for some, it has been harder to come by these days due to the endless litigation the industry has been embroiled in.
For Peter Gustis, a Pennsylvania-based REALTOR® at Springer Realty Group, conversations about lawsuits and settlements have been unavoidable as he expresses concern about the impact of the settlement on the reputation of real estate agents.
“I’ve been as honest as I could be, and now you’re saying that technically I’m liable also because now that this is a blanket (settlement), I am also one of the bad actors here,” he says.
As such, Gustis often finds himself defending his reputation while educating clients on the lawsuit and the settlement. These concerns pushed Gustis to write a letter formally objecting to the Burnett verdict and subsequent NAR settlement that took effect Aug. 17.
He isn’t alone, as the lawsuit garnered opposition from a swath of people who have taken issue with different aspects of the lawsuit and settlement.
Battling perceptions
The aftermath of the Burnett verdict spurred a renewed focus on buyer agency. At the same time, NAR’s proposed settlement addresses several issues raised by the existing commission structure and business practices on that side of the transaction.
It also shed light on a large gap between the public’s perception and the reality of a buyer broker’s value, which has been a topic of debate in the courtroom and media.
“A lot of consumers are uninformed,” Gustis says. “They believe since they can search online…that they don’t need somebody to help them with due diligence, but there’s a lot more than just the due diligence.”
He also explains that many consumers may think they can rely on portals to guide their home search, but the information can be incorrect, which can complicate their process.
“If a consumer thinks that they don’t need due diligence when they’re purchasing, they’re, in my opinion, misleading themselves,” Gustis says. “You’re better off having somebody who’s educated, knows the job and will ask you what you want and need to help you achieve those goals.
While he acknowledges the possibility (or even likelihood) that there are bad actors in the industry, Gustis disagrees with there being a blanket ruling and settlement that deals with industry-wide changes. He argues that the shifts in business practices and policies could create more problems than it solves.
Industry-wide rule changes took effect Aug. 17. However, there is room for changes as the Department of Justice (DOJ) has until November to approve the final settlement, which leaves plenty of uncertainty surrounding future policy shifts.
Among the shifts in place is the elimination of buy-side commission offers from listing agents on multiple listing services, which Gustis believes will leave the compensation of buyer agents up to the interpretation of the listing agent or seller.
“When fair compensation is not offered to everybody equally, then it leaves it up to a scenario where they may not be treated equally because you’re getting different agreements, different things, different communication,” he says.
Gustis continues, “When you have fair disclosure, and everyone’s treated equally, it doesn’t matter who the agent or buyer is. Everybody’s getting treated equally. I’m just confused how things are going to get better with changing it to ‘we’re not going to tell you if you’re going to get paid or not.’”
Arturo Gonzalez is another real estate practitioner who took issue with the settlement, picking apart the allegations made by plaintiffs in his own formal objection to the agreement.
Calling out the lawsuit’s scrutiny of the existing commission structure, Gonzalez argues that sellers weren’t harmed based on how real estate transactions are financed because buyers are typically the ones bringing the money to the table.
“In (the previous) system, the commission for both buyer and seller’s (was) built into the structure as it is financed and in this manner it makes the system consumer friendly for the buyer to just come up with the initial down payment and this option has worked for decades,” he wrote.
Gonzalez’s objection further argues that NAR did not conspire, as plaintiffs and attorneys alleged in the lawsuit. Instead, he notes that the industry “lacked one piece of information” clarifying who pays the commissions.
Rather than having NAR make the sweeping rule changes it has in its settlement, Gonzalez thinks it would have been easier to add the disclosures into the contracts informing buyers that they are paying the commissions.
At the same time, Gonzalez challenges agent steering allegations by drawing parallels to how real estate commissions work with repossessed homes through banks and HUD.
His letter explains how banks and HUD list repossessed homes on MLSs with a real estate agent and how HUD has typically paid up to 5% to the buyer’s agent.
“It may seem that this practice of incentivizing agents through a higher commission may be a bad practice, but that’s a practice and precedent that has been set by banks and HUD as they have offered up to 5% just to buyer’s agent and that’s not including the listing agent compensation,” Gonzalez wrote.
Based on that argument, Gonzalez claimed that the proposed settlement changes, eliminating buyer broker commission offers on MLSs, would be a “disservice to the seller,” who would be unable to use that tool to promote their listing.
Gonzalez did not immediately respond to RISMedia’s inquiries for this story.
An alleged money grab
Accusations of price-fixing in the Burnett case—and several other commission-focused litigations—have been a source of ire and rebuke among real estate practitioners for years, as many have called the allegations meritless and misleading to consumers at large.
Anthony Philips, CEO of Las Vegas-based Luxury Real Estate Advisors, is among them, calling the ruling “an astonishing injustice” in a letter of objection to the settlement sent to the courts in April, calling for Judge Steven Bough to vacate his verdict and void the settlement.
Phillips argued that the claims and allegations made against the real estate industry were part of a “sophisticated propaganda campaign” designed to mislead the public with “false statements, half-truths and conflation of economic models.”
While some blame lawsuits like Burnett/Sitzer for the scrutiny and mistrust real estate practitioners have been under, Phillips believes the PropTech sector is also a culprit.
“They made enough noise to get the attention of the Department of Justice, so then they’d go ahead and open up the inquiries, and then they use the fact that the Department of Justice is now doing an investigation as a key point to all the litigation,” Phillips says.
That was impetus for his formal objection to the settlement and lawsuit verdict as he tells RISMedia that he strongly disagrees with disparaging marks made by the sector against real estate to build up their brands.
Phillips’ letter suggests that that was largely propagated by advocates and industry leaders that were used by plaintiffs to corroborate their allegations and assertions. He specifically calls out Redfin CEO Glenn Kelman and Stephen Brobeck, a senior fellow at the Consumer Federation of America (CFA), lambasting their critiques—and alleged contradictions—of the existing commission structure.
“Then to compound that, you get a bunch of lawyers now that think that we are ripping people off when we charge 4.93%, yet they charge 33%,” he says.
His letter emphasized issues with using commission percentages as a definitive economic measure to determine agent income and calculate alleged damages to class members.
Philips ultimately claimed that using percentages was meant to blur economic measures.
“In reality, a ‘commission’ should be understood as a specific monetary amount, whereas ‘rates’ and ‘percentages’ represent proportional values or fractions,” Philips wrote in his letter.
Phillips also criticized the legal fees allocated to the lawyers representing the plaintiffs, pointing out attorney Michael Ketchmark’s “exorbitant” fees, have yet to receive final approval but will likely reach into the tens of millions.
“This uneven narrative propagation creates a significant imbalance, potentially swaying public opinion and influencing the judicial outcome, thus undermining the fairness and integrity of the legal process,” Phillips wrote.
The letter also claims that Ketchmark’s firm and its co-counsel justified the amounts, stating that the lead plaintiffs agreed to this upfront compensation “similar to real estate listing agreements.
Real estate agents aren’t the only ones who have taken issue with the settlement, and how it has played out. This same sentiment aligns with a mix of objections coming from several class members—recent homesellers—who also formally objected during the spring.
That includes Diane Knizer, a qualified class member in the Burnett lawsuit who sent a handwritten letter in May objecting to the settlement. Specifically, Knizer disagreed with paying attorney fees out of the settlement amount.
“Doing so inflates the settlement amount in the exact same way that the payment of REALTORS® fees out of home sale proceeds wrongly inflates the value of home prices,” she wrote. “The defendants should be required to pay the full settlement amount in addition to attorney fees.”
Knizer believes that the defendants should be responsible for those fees. In a recent interview with RISMedia, she emphasized that by making settlement class members pay the attorney’s fees, NAR would be skirting that liability.
“It’s so obvious that it’s the same profile; it’s the same unfair expense being put upon the settlement class,” she says.
South Carolina resident Cynthia Goralski echoed similar sentiments, stating that attorney fees and costs are too high.
“It just seemed voluminous,” she says. “I understand there are many people involved, but you’re not putting up a separate argument for each person. Everyone has the same thoughts on it. Everyone came in, and everyone purchased or sold a home, so the ones that sold are paying for both sides, and that’s the continuous story for everyone else in that Class Action Act. So you’re not changing it for each individual person. One argument, and it just seems like it was an awful lot of money.”
That was also among the points in an April letter obtained by RISMedia outlining her objections to the settlement. Among her list of points, Goralski indicated that class members weren’t receiving enough relief for the harm suffered while also claiming that plaintiff attorneys were being paid too much.
“What’s going to happen is the attorneys are going to make out very well, and all the other hundreds of thousands of people that bought and sold from that period (won’t),” she says.
