COURT UPDATE: Economist Disputes Evidence of Conspiracy, Price Fixing in Data

KANSAS CITY—As plaintiffs in the Burnett trial attempt to prove that rules propagated by the National Association of REALTORS® (NAR) and big corporate brokerages harmed consumers, both sides have gone to the numbers. 

If these rules—specifically the mandatory nature of buyer agent compensation—were stifling competition, it is likely those effects would appear in economic analyses looking at the amount of commissions consumers pay, along with many other factors.

Last week, the plaintiffs brought economist Dr. Craig Schulman, an associate professor at Texas A&M University who had access to data from multiple MLSs, to testify that this alleged conspiracy was indeed apparent in his analysis, focused on the “clumping” of commissions and a dearth of non-NAR competitors in the market.

But yesterday, NAR brought in its own expert witness, Dr. Lawrence Wu, a Stanford-educated economist who has also worked for big government agencies, to respond to these more quantitative allegations. 

Wu said his conclusion on the rules and their effect “are completely different” from Schulman. 

“If you’re a homeseller, what do you want? Homesellers want to sell their home as quickly as possible, as high as you can get,” Wu explained. “Buyer brokers know if they are successful, they will bring a buyer to the market…this just facilitates that process.”

Wu added that the “clumping” identified by Schulman did not by itself indicate a conspiracy, and that markets that are open and competitive can exhibit similar characteristics. He also pointed out that Schulman used data on what commission was offered, rather than what was finally paid, and showed that commission paid was lower than offered in about one-quarter of transactions, implying they are much more flexible than the plaintiffs have alleged.

Additionally, businesses often copy successful practices from other businesses, Wu pointed out, which would explain the “clumping.” He further posited that so-called “cooperative compensation,” where sellers pay both their own agent and the buyer agent, would continue even if the NAR rule in question were eliminated.

In fact, Wu went on to testify that cooperative compensation is an efficiency that helps both buyers and sellers through the course of a complex transaction—something that NAR has repeatedly focused on during the trial.

“Home buying is just a complicated process, and everyone needs help with that,” Wu said.

Scrutiny of these data points—the elasticity and consistency of commissions, and an almost total absence of discount brokerages—has a long history. Government agencies have cited them as foundations for past investigations, and independent academics claim to have found anticompetitive behavior also, though much of the work remains incomplete due to a relative lack of nationwide, accessible data. 

Earlier in the trial, NAR said that the organization has not studied commissions, though they did contract with a third-party researcher partly for that purpose. That analysis, known as the “D.A.N.G.E.R. Report,” leaned heavily on comparisons to other countries, where commission rates are only a fraction of what they are in the United States.

Schulman also relied on comparisons to other countries—specifically Australia—in arguing that the domestic real estate market is restrained by anti-competitive practices.

Wu claimed that Australia “is not a good comparison country,” and said that looking at United States markets that do not follow the NAR rules would be a better way to measure these factors (the plaintiffs later disputed whether regions cited by Wu are truly free from restraint).

He also disputed Schulman’s conclusions on whether the foundation of a conspiracy was present in the structure of real estate. While Schulman identified the MLS and NAR as playing a key role in allowing and enforcing price-fixing, Wu pointed out that there is no requirement to use agents, no requirement to use the MLS, and “no restriction on what homes the buyer can see.”

Wu added that he did not see any evidence of “steering”—where a buyer agent prevents their clients from viewing or pursuing properties with lower commission rates.

Wu also joined in on another, somewhat separate argument NAR has made consistently throughout the trial—that getting properties on the MLS and in front of as many buyers as possible is pro-competitive and pro-consumer at its base. Multiple NAR rules attacked by the plaintiffs, from mandatory buyer commission offers to “clear cooperation” requirements to list on the MLS, promote that kind of “transparency and clarity.”

“(There is) more competition if we have more buyers,” he said.

Lingering questions

With both economists offering strong arguments, lawyers on both sides sought to poke holes in the credibility of these experts. Last week, defense attorneys focused on Schulman’s lack of evidence around overt conspiracies between NAR and anyone else, getting him to admit that NAR does not mandate any specific amount of commission.

Yesterday, the plaintiffs’ lead attorney Mike Ketchmark attacked Wu directly, specifically his relationship with the defendants.

Wu admitted that both NAR and Keller Williams were given input on his presentation. Ketchmark asked if expert witnesses had their own “code of ethics,” with Wu responding that he is “committed” to giving a good analysis and opinion. 

Wu also admitted that he had gone through the testimony and analysis with defense lawyers in the days leading up to the trial (the defense later pointed out that Schulman likely did the same thing).

On a more quantitative level, Ketchmark pointed out that one of the years of data used by Wu wasn’t even in the period of time covered by the lawsuit, and questioned the “corrected data” underlying the analysis, calling it “garbage in, garbage out.”

Other data came from Keller Williams, Ketchmark claimed, and when Wu said he wasn’t sure, Ketchmark pounced.

“You came into federal court and you don’t know?” he demanded.

Ketchmark also pressed Wu on whether a survey he conducted included the question of what buyers who were low on cash would be willing to pay for an agent; Wu admitted this had not been asked.

The two areas that Wu had originally cited as being comparison markets that don’t follow NAR rules were New York City, and its independent “RLS” listing services, along with Northwest MLS in Seattle.

Ketchmark showed that while the RLS is not associated with NAR, it did still have a mandatory offer of compensation. When he pressed Wu on why that wasn’t made clear from the beginning, Wu pivoted to say that this actually showed that cooperative compensation evolves without NAR.

“(The) jury will have their instructions and make their decision as best they can,” Wu said.

REBNY, which governs the RLS, just this month changed its policies to “decouple” commissions, disallowing seller agents from splitting commission with buyer agents altogether, without any mandatory compensation offers to buyer agents.

Ketchmark also directly confronted Wu with the fact that a group of competitors cannot collude, and that people don’t usually pay for services provided to other people—meaning sellers paying for buyer agents.

“(T)he rule has good reasons to be in practice,” Wu answered. “The rule helps sellers get the best market price for their home.”

Testimony is expected to wrap up today, with the jury beginning their deliberations as early as Monday.

Stay tuned to RISMedia for more updates from the courtroom.

William Schmidt contributed to this reporting.