Lawyers In TAR Commission Case Sound Off
Julie Pettit, founder of the Pettit Law Firm in Dallas, is leading the litigation to upend the Texas residential real estate industry as we know it.
Pettit has joined co-counsel, Michael Hurst of Lynn Pinker Hurst & Schwegmann, also based in Dallas, in representing homebuilder QJ Team and holding company Five Points Holdings. The two plaintiffs have accused Texas brokerages and real estate associations of engaging in a “concealed conspiracy” through the mandatory offer of compensation rule, implemented in 1996 by the National Association of Realtors. This is the latest offshoot of the Sitzer/Burnett case, which led to a $1.8 billion verdict against NAR, Keller Williams and HomeServices of America.
Pettit and Hurst, who style themselves as consumer advocates, sat down with The Real Deal to discuss their plans for the case and how they hope to reform residential real estate transactions in Texas.
This interview has been edited for space and clarity.
The NAR verdict has triggered a flurry of other antitrust lawsuits like yours. What prompted you to file this case?
MH: We dealt with [real estate] stockbrokers and brokerage fees decades ago, and there was litigation and ultimately legislation that addressed a competitive market as it relates to commissions and securities broker cases. However, there was no parallel law, litigation or piece of legislation as it relates to real estate broker commissions for residential sales. At the end of the day, the wave of laws, lawsuits and statutes are put in place in large part to protect the consumer. We think this is the big wake-up call for the industry.
The list of defendants already includes more than two dozen companies and associations. Will there be more to come?
JP: We expect that it will expand. Even since the filing of a lawsuit, we’ve been contacted by potential plaintiffs and real estate agents informing us of additional companies they suggest should be included based on antitrust practices they’ve encountered. So, I would expect that the list of plaintiffs and the list of defendants will likely be different in the somewhat foreseeable future.
Have your phones been busy?
JP: The response has been overwhelmingly favorable. We’ve had consumers reach out to us who believe that they were part of the price-fixing scheme. They are upset about it and want to be part of the class-action suit.
Within the suit, Hexagon Group and the Michael Group are accused of violating the Texas Deceptive Trade Practices Act, but it is light on specifics. What are the alleged violations?
JP: We name those two because they are the listing agents that were in privy with our plaintiffs and the transactions we’ve sued upon. The provision of the Texas Deceptive Trade Practices Act that we’ve sued under is Section 17.50a3, which prohibits unconscionable action. We think that the action taken is unconscionable because sellers are not able to freely negotiate.
Additionally, it’s section 17.46e12, which prohibits representing that an agreement involves rights or obligations that are prohibited by law, which would be in this case violating antitrust.
We’ll be expanding on this at some point, but what I will say is that if you look at the listing agreement in Texas that a seller is required to sign, we believe that there are parts that would be prohibited by law.
One of the arguments against the antitrust claims is that consumers do have other options, such as FSBO, Zillow and other platforms, to buy and sell homes.
JP: We certainly disagree. This has been coming down from the NAR for quite some time. People need their properties to be listed on the MLS. Typically, if a seller wants to list on the MLS and not pay a 3 percent fee to a buyer’s agent, they’re hit with pushback. So, while there may be agents who say it’s really negotiated, and sellers don’t have to do that, that doesn’t seem to be the case.
You also allege the defendants prevent competition from lower-cost MLS alternatives.
JP: We think that there should be alternatives to the MLS. If you rewind the clock, before the days when these listings were online, you would find a buyer’s agent taking homeowners to 20-30 properties where they actually buy one, but those days are gone. Now, buyers are doing a lot of the legwork themselves and finding the properties online that they want to buy. So the value of the required condition simply isn’t there like it used to be.
You asked for a jury trial. HomesUSA owner Ben Caballero suggested this is an attempt to court disaffected consumers. What’s your response to that?
MH: You’re talking to two virulent jury trial advocates. The right to trial by jury in civil cases under our Seventh Amendment is one of the greatest rights in our Constitution. It’s not specific to this case, it’s specific to just about every case that we try. Besides, this case is going to be largely based upon the selection process, if you will, of people who might be biased or prejudiced for one side or another during the jury selection process.
How would you like this to change commision structures if you win?
JP: We’re not looking for the elimination of commission. If a buyer wants to hire an agent to represent them and set up a property, and If they want to pay 3 percent commission then that’s fine. However, if they don’t want to pay 3 percent, then they should be able to negotiate that. We’re not saying that the commission should be eliminated wholesale, but rather it should be negotiable. Sellers shouldn’t be pressured into having to pay 3 percent for fear that their house isn’t gonna sell if they don’t.
That’s not your only objective in winning this case, right?
JP: Obviously, we’re suing for damages, but it’s not just that. We think that Texas consumers have been part of this price-fixing scheme for too long, and we’re ready for it to come to an end. We’re hoping to make a change in this industry. It’s the only industry where homeowners or consumers have to pay for the representative of their adversaries. That’s not the way that this system should work, and so we are advocating for consumers in that regard. We’re hoping that this will change things if we come out on top. It’s overdue.
