Editor’s note: This is the fourth in a series of articles that will explore the effects of the landmark Sitzer/Burnett case, which was decided on Oct. 31, 2023, and has since reshaped the business practices for real estate brokerages and agents across the country.
Thursday marks the one-year anniversary of the jury verdict in the Sitzer/Burnett commission lawsuit, which found the National Association of Realtors (NAR) HomeServices of America and Keller Williams liable for artificially inflating agent commissions.
While the day is still fresh — and further disaster could still strike — HomeServices executive vice president Chris Kelly is hopeful that this Halloween will be better than last.
“I’m hoping that this Halloween, when I’m taking my kids around trick-or-treating, it won’t be nearly as stressful,” Kelly said. “I’m looking forward to a little bit less eventful Halloween.”
After a year that saw real estate brokerages and agents grapple with numerous changes and concerns as to how they would get paid in the future, Kelly said HomeServices is working with its employees to refocus their attention on consumers.
“For us, probably the biggest change has just been a refocus on the engagement that our agents have with the consumer at the inception of a real estate transaction,” Kelly said.
The business practice changes outlined in NAR’s settlement have been a massive positive for agents, according to Kelly, as it has become more important for them to talk with buyer clients at the start of the transaction process. They must more clearly define the parameters of the relationship and set expectations for how the process will work.
While many, like Kelly, consider the new practices a positive for agents and consumers, implementing them was no small task. Although many large brokerages had the education and training platforms already in place, the intensity and level of training required to get everyone up to speed in time for the business practice changes was something few had dealt with before.
But Kelly said that HomeServices faced a different challenge when it came to retraining agents.
“I think the largest challenge we faced was that despite this being a national settlement and a national rollout of new business practices, how those business practices were implemented in each individual state — which is something we dealt with being a nationwide brokerage —really vary,” Kelly said.
Individualized support
This challenge is not unique to HomeServices of America. At Compass, coaching leaders Courtney Smith and Ashley Donat said they have looked to navigate this challenge by relying on the expertise of top brokers and agents in each state.
“We’ve always married very strong national training with equally strong regional training,“ Smith said. “And in a scenario like this, where the regional differences are so vast, we have really relied upon our incredible brokers of record and amazing sales leadership team to deliver on those regional nuances.”
In addition to making sure agents and brokers are ready to handle the various challenges they may face based on the state they operate in, Smith and Donat said Compass is also working to help those who utilize different business models.
“Not every agent runs their business in the exact same fashion, so making sure that the information being delivered is able to be distilled in accordance with the type of business a particular agent has is so important,” Smith said. “We are trying to take into account everything from their business style to their office, state and regional nuances, and then all the way up to the national level.”
For James Dwiggins, the CEO of NextHome, agent education and coaching have been a central theme of this past year. While he is confident in the preparedness of his agents, he said the company has found some peers who have been woefully unprepared for the changes the industry has undergone this year.
“It has been hard because a lot of our peers were not properly educated. They didn’t have proper guidance and most of the companies were reactive,” Dwiggins said. “I am not blaming them; they just didn’t take as proactive of a stance on this as we did. This really showed me that there is a significant lack of leadership in this business from the top down and the guidance has been horrific at best.”
In addition to challenges posed by untrained agents, Dwiggins said the industry has also had to adapt to agents and brokerages that do things a little differently from each other.
At NextHome, agents are no longer engaging in cooperative compensation. Listing agents are only advertising their seller’s offer of buyer broker compensation if the seller instructs them to do so. Otherwise, NextHome agents are telling buyer’s agents to ask for compensation in their offer and the seller can consider it.
“The hardest part has been educating everyone that we are still willing to play in the sandbox, just under slightly different terms than we did before, and that our sellers are motivated to sell their homes and are willing to look at all of a buyer’s requests, but then they’ll figure out what is best for them and then we can all try to negotiate terms that make sense for everybody,” Dwiggins said.
Unlike other firms, NextHome did not find itself as a defendant in a commission lawsuit until April 2024, when the firm was added to the Gibson suit via an amended complaint. Less than five months later, the firm announced a settlement.
“We knew we were going to get sued, so it wasn’t a surprise,” Dwiggins said. “We knew the best course was settlement because the real estate commission system was rigged — we’ve known that for a long time. Settlement is always cheaper than going to trial, so that is what we prepared for.
“Now we are taking a deep dive into our company and making sure that we are not only following the terms of the settlement but thinking about how to change our practices to keep ourselves out of further litigation two or three years down the road.”
’Cream rises to the top’
Although many firms like NextHome that were named in copycat lawsuits over the past year chose to settle, white-label brokerage firm Side has taken a different path by continuing to pursue litigation.
“We had to look at it from our company perspective, which I think is what each company does, and then we all make an educated decision on what is best — whether it’s financially beneficial or some other reason as to why one way makes sense,” said Hilary Saunders, the co-founder and chief broker officer at Side.
“For us, at this point we just don’t see a reason to settle. I come from a litigation background and I think you have to look at every lawsuit as its own, and determine if it has any merits and address those if they exist. And sometimes you have one that is just baloney and a money grab.”
Saunders knows the past year has been challenging for real estate professionals, but one thing she is happy to see is that top agents are continuing to thrive despite the changes.
“There is a big cream-rises-to-the-top situation going on, where the top-performing, excellent Realtors in the their given markets are rising,” Saunders said. “They are being able to command higher compensation because they have bigger opportunity to define their worth. And the others, who aren’t really good at what they do, are racing each other to the bottom using a discount agent fee for representing buyers.”
At HomeServices of America, Kelly sees another reason to smile.
“There is a high degree of stickiness in the agent-consumer relationship because the consumer sees value in working with an educated professional when they are transacting,” he said. “For most of them, this is the largest financial and emotional transaction they go through any time in their lives. And what we have seen in this past year — and really since Aug. 17 — is that bond still remains strong,” Kelly said.
