Burnett v. The National Association Of Realtors
Introduction
Introducing The Phillips Report-Burnett, a meticulously prepared dissection to unravel the flawed assertions against Realtors in Burnett v. The National Association Of Realtors. This edition of The Phillips Report is the second installment in a series of perspectives that extend the counterarguments explored in The Phillips Report: A Critical Examination And Rebuttal Of Claims Asserted In Commission Lawsuits Vs. The National Association Of Realtors. An industry authority has described The Phillips Report as the definitive guide on how to counteract the class action assaults against The National Association of Realtors.
Burnett v. The National Association Of Realtors | Regurgitation Of Defective Claims
Far from presenting original arguments, Burnett v. The National Association Of Realtors merely echoes the allegations forwarded in other legally deficient lawsuits, which appear to cite “consumer advocate” Stephen Brobeck, subsequently parrotted by Burnett’s expert witness Dr. Craig Schulman. Moreover, the choice to lodge the case in Missouri introduces further counterarguments.
Stephen Brobeck | A Pioneer Of Propagandists
Stephen Brobeck launched a contentious initiative to revolutionize the real estate sector, leading to a proposal that mandates direct payment of agent commissions by buyers. Over a period of five years, Brobeck has masterminded a misleading narrative, insinuating that U.S. real estate agents representing sellers are excessively compensated by highlighting commission “rates” instead of the actual expenses incurred. His strategy of scouring international markets for lower rates to validate claimed damages in class-action lawsuits glaringly overlooks key factors such as the average value of homes, currency exchange rates, and buy-side commissions/taxes in these markets.
Claims Of Damages Based On Comparable Foreign Markets
The flaws in Brobeck’s assertions become starkly apparent related to the Burnett case in Missouri. The complaint cites a 2002 study proclaiming, “Worldwide, we observe significantly lower residential commission rates in many other highly industrialized nations, including the United Kingdom (UK), Hong Kong, Ireland, Singapore, Australia, and New Zealand… In the UK, the [total] commission rates average less than 2%… In New Zealand and South Africa, [total] commission rates average 3.14%.“
“In Singapore, the [total] commission rates also tend to hover around 3%.”
Singapore vs. Missouri
Burnett’s intent to conflate fees and rates is misleading and deceptive. To illustrate this point, let us consider Singapore and claims that brokerage fees are significantly lower than in the U.S. The average value of a cluster house (townhome) in Singapore is approximately $2,504,215 when converted to U.S. dollars. Based on available data for 2020, Missouri’s average home value was approximately $210,000. A 3% commission in Singapore would yield a $75,126 fee, while a 6% commission in Missouri would result in a $12,600 fee.
Even if Realtors increased their rates to match the suspiciously similar average rate of 33% imposed by contingency-based law firms, the average fee is $69,300, which falls short of average selling fees in Singapore.
Alternative Brokerage Models | The Solution To Replace Antiquated Agents
Anti-Realtor propagandists proclaim that innovative brokerage models will eliminate two-sided commissions, and buyer rebates solve the dilemma of buyers subjected to non-negotiable fees.
Asked And Answered.
Entities like Zillow introduced the iBuying system as an antidote to the age-old dual-commission models, pitching the idea that sellers could deal directly with iBuying companies. This was thought to streamline the process, reduce fees, and provide better profits for users. Yet, in practice, the iBuying model was far from a success story. Instead of lowered costs, consumers were hit with higher fees, and iBuying agencies struggled to turn a profit, even in a favorable market. The model’s shortcomings were so apparent that giants like Zillow and Redfin retreated from this niche, while competitors like OpenDoor and Offerpad found themselves reducing their fees to remain competitive with classic Realtor systems.
The Federal Trade Commission’s (FTC) stance against OpenDoor further underscores the limitations of the iBuying framework. The FTC accused OpenDoor of conveying false promises to potential home sellers, insinuating they’d make more by selling to OpenDoor than they would in the open market. As it stands, the FTC claims OpenDoor’s pitches were misleading, resulting in most sellers receiving significantly less than they might have in a traditional sale. OpenDoor’s updated statement acknowledges, “*From September 30, 2020, our service charge will not exceed 5%. Charges are subject to revision and have historically been as high as 14%.” Similarly, Offerpad’s Express Cash Offer, touted as a way to skip dual realty commissions, still imposes a 6% fee, surpassing the National Association of Realtors (NAR) average.
The conclusion drawn is that both OpenDoor and OfferPad slashed their fees to compete within the competitive landscape offered by the MLS.
Moreover, the idea of offering commission rebates to buyers is often presented as a panacea to alleged issues with fixed commissions for buyer agents. Redfin is frequently highlighted as a shining example. Yet, it’s vital to acknowledge that Redfin selects specific markets tailored to its distinct operational style and employs advanced tech that’s usually beyond what most independent agents have access to.
As per Redfin’s Form 10-Q from March 2023, the company ceased offering commission refunds across all its markets following a successful test run, with 2022’s average refund per deal standing at $1,336. While Redfin operates in affluent property markets and provides its agents with state-of-the-art tech packages worth $25,000 annually (resulting in Redfin agents earning twice as much as their traditional counterparts), they only managed to offer modest refunds averaging $1,336 per client. This is even more surprising considering Redfin enjoys added revenue from other services like mortgages, a luxury that standard agents typically don’t have access to.
Adversarial Transactions
Contrary to the assertion made by Plaintiffs that real estate transactions are adversarial, leading to the ineffectiveness of sellers contributing to buyer agent’s commissions, we propose a different perspective. Real estate transactions, by nature, are fundamentally collaborative. All parties—buyers, sellers, buyer’s agents, and seller’s agents—are united in pursuing the same outcome: to finalize a transaction under mutually agreed-upon pricing and terms.
Furthermore, A study by Redfin published on January 5, 2023, titled “A Record Share of Home Sellers Are Giving Concessions to Buyers,” announced that “Home sellers gave concessions to buyers in 41.9% of home sales in the fourth quarter—the highest share of any three-month period in Redfin’s records, which date back to July 2020.“
Plaintiffs named in a duplicative case filed in Illinois confirm.
As mentioned in the “DEFENDANTS’ RESPONSE TO PLAINTIFFS’ REQUEST FOR CLASS CERTIFICATION AND SELECTION OF CLASS REPRESENTATIVE, (DRPRCC)” dated 06/14/22, in summary, when acting as sellers, the named Plaintiffs occasionally covered some costs for the buyers: Moehrl paid $3,000, Ramey provided $10,000 to encourage deal closure, and Ruh covered $5,000 for closing costs.
Conversely, when these Plaintiffs were buyers, sellers often bore some of their expenses: Moehrl received a $2,500 credit; Ramey got an offer for a home warranty and later requested the seller to handle $6,000 in closing costs; Umpa benefitted from a $15,000 subsidy and a separate $3,500 credit.
Claiming A Diminishing Role Of Buyers Agents | Advancements In Technology
Plaintiffs posit that technological progress “should have” resulted in reduced buyer agent fees as buyers typically locate their desired property online before reaching out to an agent. This implies a streamlined process involving just a single tour, escrow, and closing.
OpenDoor educates the Plaintiffs by publishing a study revealing significant efforts by buyer agents.
“Want to Buy Your First Home? Get Ready to Tour 15 Houses and Make at Least 5 Offers.”
“A new report from Opendoor, a residential real estate platform for buyers and sellers, underscores the lengths first-time homebuyers have been going to find a house.” “The company commissioned a nationally representative survey of 1,000 first-time homebuyers, and spoiler alert: They’re putting in tons of time and energy” “THE HOMEBUYING HUSTLE DOESN’T STOP AFTER REFRESHING ZILLOW A BUNCH OF TIMES. Finding a worthwhile listing is merely the first of many steps, likely laden with disappointment for first-timers.” “Next comes the logistics of viewing the homes. The average first-time buyer toured 15 properties — virtually or in-person — AND 33% OF RESPONDENTS TOURED 20 OR MORE, ACCORDING TO THE REPORT” “Rejection shouldn’t only be expected, it’s all but guaranteed. Almost every first-time homebuyer that Opendoor surveyed said they lost out on a property that they were interested in before finally finding their current one — 98% overall, and 99% for millennials.”
Listing Concealment | Steering
The crux of the commission concealment/steering claim seems to be based on a single MLS platform that may have included commissions as one of many filters for real estate listings. However, conveniently, the Plaintiffs fail to mention that these same MLS entities syndicate to national portals like Zillow, which collectively receive around 400 million visitors per month.
Portals do not filter or conceal properties based on commissions. Steering fails.
Missouri Consumers | Inferences Of Incompetency
The Phillips team categorically condemns any suggestion that the citizens of Missouri cannot operate a search engine, thus incapable of gaining insight on commission structures. In a comprehensive analysis of online search behaviors, the 30-day auto-suggest data from AnswerTheWeb via Google revealed a significant number of displays, 4,400 to be precise, related to “real estate commission Missouri.” The number of home sales in Missouri amounted to only 7,312 in May 2023. The data illustrates engagement by Missouri consumers in seeking information about commission structures, signaling their understanding and interest in these matters. Furthermore, this data solely represents Google’s search metrics, omitting other prominent search engines like Bing, further substantiating the argument that consumers are proactively educating themselves on real estate commission structures and their ability to negotiate commissions.
Google Search Results | Referral Firms Claiming To Pre-Negotiate Commissions
When searching the phrase “are real estate commissions negotiable,” the Google results include:
- Upnest: “Avoid High Commission – Low Commission Local Agents”
- Bankrate: “How to successfully negotiate a real estate commission”
- Rentec Direct: “How to Negotiate Real Estate Commission With Your Agent”
- Clever Real Estate: “Negotiating Realtor Fees: 10 Tips for Reducing Commission”
- Felix Homes: “All real estate commissions are negotiable”
- HomeLight: “Real estate commission rates aren’t set by law and are absolutely negotiable”
- Angie’s List: “There aren’t any laws that set real estate commission rates, so you are free to negotiate”
- Realtor.com, a partner of NAR: “Commissions are always negotiable”
Many of these firms pay a premium for top-of-result “sponsored” positions, paying a high cost per click.
AnswerTheWeb estimates the PPC costs of the following queries:
- “Are real estate commissions negotiable” $13.86/click
- “What are real estate commissions in California” $17.33/click
- “Real estate companies with low commission” $32.19/click
- “Real estate commission New York” $54.18/click
The sum of auto-suggest displays pertaining to variations of “real estate commissions” total an astronomical amount of 302,810 instances.
Consumers are informed.
Plaintiff’s Expert Witness | Dr. Craig Schulman | Berkeley Research Group
The Plaintiff’s claims of monetary damages and antitrust accusations appear to rely on testimony by Dr. Craig Schulman from the Berkely Research Group (BRG.)
David Eisenstadt, managing director at Berkeley Research Group and a former senior economist at the Justice Department’s Antitrust Division, appears to disagree with Schulman, contributing to a Business Insider article published on Jun 26, 2023.
Eisenstadt’s opinion was shared by a real estate attorney, who also contributed to the article.
Eisenstadt: “But a victory for the plaintiffs is far from guaranteed, some experts say. Since the NAR doesn’t mandate that brokers representing the seller promise a specific amount to their buyer-agent counterparts, the plaintiffs will have to prove that requiring any compensation at all hurts sellers, David Eisenstadt, a managing director at Berkeley Research Group and a former senior economist at the Justice Department’s Antitrust Division, told me. The defendants could then argue something like this: If a seller is able to offer a commission of as little as $1, that’s basically the same as offering zero dollars, so that requirement really isn’t that onerous at all. The defense could also argue that sellers should pay the buyer agent’s commission because they actually benefit the most from their service, Eisenstadt said — namely, bringing forth a buyer who’s willing to shell out hundreds of thousands of dollars for their home.”
Moreover, “There are really strong efficiency reasons for sellers to pay the buyer-broker commission at settlement, rather than the buyer,” Eisenstadt said.
Stephen Brobeck | Culmination Of Contradictions
In January and February of 2021, Brobeck participated in two studies:
On January 28th, 2021, Brobeck published an opinion on the impact of decoupling commissions, resulting in buyers paying buyer agents direct. In the study titled “CFA Predicts Impact on Consumers and Real Estate Brokers If Courts Require Uncoupled Commissions.”
The study entirely undermines claims in all class-action claims.
First, Brobeck cavalierly presumes that mortgage lenders and Government Sponsored Enterprises (GSEs), such as Fannie Mae and Freddie Mac, would endorse the financing of buyer-broker commissions, disregarding the explicit prohibition of this structure by the VA loan program. He asserts that to afford new homes; buyers need to include agent commissions in their mortgages.
Under the current framework, buyers have the opportunity to fund fees and commissions using a mortgage.
Brobeck’s admission that there would be a negligible change in loan sizes following decoupling indicates that the transaction economics would largely remain unaltered; thus, hallucinatory claims of damages implode.
Finally, Brobeck reveals significant shortcomings in the service quality offered by alternative brokerage models by stating, “Discounters will increase market share, but this share will remain relatively small because most consumers want effective personal service from a single Agent. While technology can routinize much paperwork, most Buyers and Sellers will still desire the assistance of a professional who can guide and reassure them.”
Interestingly, despite publishing as many as 52 posts to which Brobeck has contributed, Inman News conveniently overlooked covering this particular study.
On Wednesday, March 29, 2023, Andrea V. Brambila, from Inman, was notified that the Consumer Federation of America (CFA) had published a study on January 28, 2021, that included significant contradictions of claims made in other publications. Inman appears unwilling to force Brobeck to elect a position.
Brobeck | Rex Homes Study
On February 25, 2021, Stephen Brobeck was part of a collaborative research paper titled: “Obstacles to Price Competition in the Residential Real Estate Brokerage Market.” The study, which acknowledged the financial backing from the National Association of Realtors (NAR) critic, “Real Estate Exchange (REX),” included a claim that lack of effective price competition caused home buyers and sellers to pay commissions that were inflated by over $30 billion annually, with a suggestion that the figure could have escalated to as much as $50 billion in 2019.
The commission inflation is either $50 billion or it is not.
Billions to Bust | Brobeck | Brambila-Inman News
On July 10th, 2023, Andrea V. Brambila, Deputy Editor at Inman News, published an article titled “Marginal agents’ with fewer sales now claim quarter of commissions.” This article cites a study by Brobeck titled “Too Many Real Estate Agents For Too Few Home Sales: New CFA Report Documents the Costs to Industry and to Consumers.”
Brobecks study and Brambila’s article were published on the same day. This suggests collusion.
It appears that Brambila and Brobeck, by publishing these studies, intended to bolster the prevailing adverse depiction of traditional real estate agents by introducing a new supposed issue of having an excess of agents.
Brobeck’s study, however, draws perplexing conclusions. It seems to outright deny any assertion that U.S.-based agents are inappropriately profiting, proclaiming notably that the “RELATIVELY LOW INCOMES OF MANY FULL-TIME AGENTS” result in a “MEDIAN NET INCOME OF ALL SALES AGENTS” amounting to “$25,000.”
Such an annual income, equating to $12.35 per hour for a full-time worker, falls short of meeting the minimum wage standards in many states.
Brobeck and Brambila’s work is frequently referenced in class-action lawsuits. Therefore, on behalf of traditional real estate professionals, we express deep gratitude for this significant misstep.
Brobeck’s Compensation: A Cy Pres Connection?
Stephen Brobeck is prominently vocal about the need for transparency in commission rates on real estate websites tailored for consumers. However, when it comes to his personal monetary incentives, there’s a noticeable lack of clarity. Brobeck’s name is conspicuously absent from the Consumer Federation of America’s Form 990, leaving his compensation sources undisclosed. On another intriguing note, Brobeck might potentially be a beneficiary of cy pres awards – residual funds in class-action suits distributed to organizations indirectly serving the class when complete compensation isn’t practicable.
Any attempt by Brobeck to receive fees from any settlement will be met with vehement opposition and challenges.
Delusions Of Damages
Burnett states, “Plaintiffs seek treble damages under federal antitrust law, threefold damages under the Missouri Antitrust Law, punitive damages under the MMPA, injunctive relief, and the costs of this lawsuit, including reasonable attorneys’ fees, and demand a trial by jury.”
Moreover, violations of Missouri antitrust law can result in “both fines and county jail sentences.”
SIMPLY PUT, TREBLE DAMAGES OF ZERO REMAIN ZERO.
Mr. Moehrl can confirm, as cited in the (DRPRCC) “Plaintiff Christopher simultaneously signed both a listing agreement and a buyer representation agreement, anticipating that his buying and selling activities would occur around the same time. In these transactions, while Mr. Moehrl paid $10,530 as buyer-broker commission for the sale of his house, he saved $17,550 in buyer-broker commissions when purchasing a home. This indicates that, rather than incurring a loss, Mr. Moehrl actually experienced a net gain due to the Cooperative Compensation Rule.”
Rules Governing the Missouri Bar and the Judiciary – Rules of Professional Conduct
RULE 4-3.3: CANDOR TOWARD THE TRIBUNAL
(a) A lawyer shall not knowingly: (3) “offer evidence that the lawyer knows to be false. If a lawyer, the lawyer’s client, or a witness called by the lawyer has offered material evidence and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal. A lawyer may refuse to offer evidence, other than the testimony of a defendant in a criminal matter, that the lawyer reasonably believes is false.“
The Phillips Report was sent via email to parties supporting the plaintiffs. It has been verified that emails were opened and the included study links were accessed by the recipients. Upholding RULE 4-3.3 is critical; engaging in perjury is fraught with risks.
Conclusion
In conclusion, “The Phillips Report | Burnett v. The National Association Of Realtors” firmly underscores that the litigation lacks substantial merit and largely mirrors erroneous assertions put forth in similar, fundamentally flawed lawsuits.
Author Anthony Phillips
Anthony Phillips, co-founder of Luxury Real Estate Advisors, is renowned in the luxury real estate market of Las Vegas, providing top-tier services to global clients, including private equity firms. In addition to leading 12 Las Vegas HOA Boards, his performance at premier locations earned him a spot in MGM Resorts International’s Elite Developer Circle. As an authoritative voice in real estate, his views have appeared in publications like Forbes and American Genius. Before his current venture, he was an executive at Del Webb, aiding in the construction of over 11,000 homes.
Phillips continually enhances his expertise through Executive Education programs at Cornell University and MIT. He hails from the influential Phillips family of New England, known for their varied contributions to law, academia, business, politics, and consumer rights.
Mr. Phillips does not speak on behalf of the defense.