Hawaii Real Estate
Hawaii Real Estate
Commission Lawsuits
The National Association of Realtors® and certain large brokerages are defending against several multidistrict class action private claims alleging that the cooperating broker commission, as currently structured or practiced, constitutes unlawful, anticompetitive price fixing or an unfair or deceptive act or practice. At the same time, NAR continues to battle the United States Department of Justice's Antitrust Division's efforts to reopen its investigation into NAR's "Participation Rule" and "Clear Cooperation Policy."Hawaii Realtors® President Kalama Kim interviews Jason E. Korta, the association's staff attorney, to determine what effect, if any, these lawsuits may have on Hawaii real estate practice.
Nothing in this podcast creates or confirms an attorney-client relationship, not does any information contained in this podcast constitute legal advice. You are urged to seek qualified legal counsel of competent jurisdiction for answers to all your legal questions.
COMMISSION LAWSUITS
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1259 Aʻala Street, Suite 300
Honolulu, HI 96817
Phone: (808) 733-7060
Email: HAR@HawaiʻiRealtors.com
Introduction [0:00]
E komo mai . Welcome to Hawaiʻi Real Estate, a poducast on the buying, selling, and leasing of real property in Hawaiʻi. Each episode of our podcast consists of a Real Data Report, which analyzes Hawaiʻiʻs most recent real property data, and a Focus Piece, which provides legal and other special insight into a matter of major and contemporary concern for Hawaiʻi real estate transactions.
The Hawaiʻi Real Estate podcast is produced by the Hawaiʻi Association of Realtors®, with support from its Legal Kokua program. New episodes of the podcast are released on the first Wednesday of each month.
Today is Wednesday, December 6, 2023. Our focus piece for this episode analyzes whether real estate commission lawsuits filed against the National Association of Realtors® and certain large brokerages in various federal courts across the county impact real estate practice here in Hawaiʻi.
But before we get to that, we look at how real estate sales fared in Hawaiʻi last month and analyze whether mortgage rates likely increase, decrease, or stabilize in the near future. Here is our Hawaiʻi Real Data Report:
Real Data Report [01:06]
Mortgage Rates
Let’s start our Real Data Report with a look at mortgage rates, which for the first time in about two years are falling. The 30-year fixed rate weekly mortgage average in the United States from November 2nd to November 30th dropped from 7.75% to 7.22%. During the same period, the 15-year fixed rate mortgage average dropped from 7.03% to 6.56%. So both the 30-year and 15-year fixed rate mortgage averages dropped over the past month by about a half a basis point.
A half basis point mortgage-rate decline is nothing to sneeze at. The median listing price for a home in Hawaiʻi is $849,500. Assuming a 20% down payment, the monthly payment to purchase that home with a 15-year fixed rate mortgage just declined by $177, and the monthly payment to purchase that same home with a 30-year fixed rate mortgage just declined by $251. Those are significant monthly savings that could create buyer demand, propel home prices, and quicken the pace of home sales.
But the real story is the trend reversal. Mortgage rates since early 2021 have generally been on the rise.
Last month’s weekly mortgage averages reverse that trend. Mortgage rates are now on the decline, and the market expects the decline to continue.
Just look to the ten-year treasury yield, which generally manifests the market’s inflation expectations. If the market believes that inflation will lower, the market will be more likely to accept a lower yield bond. So lowering yields on the 10-year treasury note indicates the market’s belief that inflation will decline.
Inflation, of course, is a main driver behind the Federal Reserve’s Open Market Committee’s decisions to raise or lower the target federal funds rate, the benchmark rate at which banks lend money. If the Fed expects inflation to top 2%, the Fed generally raises interest to combat the rising cost of goods and services. Mortgage rates have increased over the past couple years largely because the Federal Reserve keeps raising the target federal funds rate and, therefore, the cost of borrowing.
But the Fed has recently expressed that it has become leery about raising rates further.
Speaking to the Economic Club of New York before the Open Market Committee’s last meeting, Chairman Powell acknowledged the breakneck pace by which the Federal Reserve had raised interest rates and confirmed that decisions to raise interest rates further would be made with caution:
Turning to monetary policy, the FOMC has tightened policy substantially over the past 18 months, increasing the federal funds rate by 525 basis points at a historically fast pace [inaudible]. Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully.
In other words, unless there was a major change in inflation, the Federal Reserve’s Open Market Committee’s next meeting would not likely result in yet another interest rate hike.
And when the Federal Open Market Committee met in October it didn’t raise interest rates. Instead, it concluded the threat of inflation had subsidized sufficiently to conclude that the target interest rates should remain with their current target ranges.
When it made this decision, the Federal Reserve relied on its favorite measure of inflation, the Personal Consumption Expenditures Price Index, which when the Fed met in October, showed a 0.40% change from the preceding month and a 3.4% change from the prior year. The current PCE Price Index shows a 0.00%--0% change in the personal consumption expenditures price index—from the preceding month, and a 3% change from a year ago. In short, inflation is even lower than it was when the Fed last met and decided not to raise interest rates. So now the Fed has even more reason to keep interest rates stable or perhaps even to lower them.
Plus, the market believes that inflation will continue to lessen. Remember that the 10-year treasury yield generally indicates whether the market believes that inflation will increase or decrease. When the yield is low, the market believes that inflation will lessen. Because the 10-year treasury yield dropped this past month by from 4.875% to 4.352%, we can confidently conclude that the market, like the Fed, also believes that inflation will continue to abate.
The trend toward lowering interest rates that we first saw last month may very well then continue.
Home Prices
How are Hawaiʻi home sales doing in this changing real estate market?
Median listing prices in Hawaiʻi remain high. Compared to this time last year, the median listing price for a home in Hawaiʻi County is up by 6.53%, up in Maui County by 3.20%, and up in Kauaʻi County by 3.76%. Those year-over-year changes compare well against the nation, which during that same time saw only a 0.96% increase in median listing prices.
Monthly data looks particularly good for Hawaiʻi.
From October to November, when the nation saw median listing prices decrease by 1.18%, median listing prices in the City and County of Honolulu increased by 0.03%, increased in Hawaiʻi County by 4.34%, and increased in Maui county by 3.62%
All told, median listing prices throughout the state were the following for November 2023:
· in the City and County of Honolulu, $799,000;
· in Hawaiʻi County, it was $646,925;
· in Maui County, $1,372,500; and
· in Kauaʻi County $1,572,000.
Median Days on Market
Selling these homes is generally taken less time. On a year-over-year basis, the median days a home stays on the market in the City and County of Honolulu is down 5.66%; in Hawaiʻi County, it’s down 2.43%, and in Kauaʻi County it’s down 3.41%.
Active Listings
The active listings, however, remain low. On a year-over-year basis, active listings in the City and County of Honolulu are down by 1.76%; in Hawaiʻi County, they’re down 2.77%; in Maui County, they’re down 12.58%; and in Kauaʻi County, they’re down 6.8%.
All of this may change, of course, if mortgage rates continue to hold steady or decline as expected.
Focus Piece: Commission Lawsuits [07:19]
And now for our focus piece.
Topic Overview
The National Association of Realtors® and certain large brokerages are defending against several multidistrict class action lawsuits alleging that cooperating broker commissions, as currently structured or practiced, constitute unlawful, anticompetitive price fixing or an unfair or deceptive acts or practices.
A jury verdict in one case, Sitzer-Burnett, found the National Association of Realtors® and the other defendants in that case liable to the class plaintiffs for $1.7 billion. NAR has committed to appealing the verdict.
In the meantime, other similar real estate commission-based private lawsuits are pending throughout the county.
And complicating matters further, the United States Department of Justice’s Antitrust Division continues its efforts to open a second investigation into NAR’s Participation Rule (requiring brokers to offer the same commission to all buyer-brokers when listing a particular property for sale on an MLS) and “Clear Cooperating Policy” (requiring listing brokers to publish a property listing on an MLS within one business day of beginning to market that property).
In this focus piece, Hawaiʻi Realtors® President Kalama Kim interviews me, Jason Korta, the Hawaiʻi Realtors® staff attorney, about what impact, if any, these cooperative broker commission lawsuits, as well as the DOJ’s attempts to once again challenge NAR’s “Participation Rule” and “Clear Cooperation Policy” could have on real estate practice in Hawaiʻi.
Disclaimer [8:45]
Nothing in this podcast creates or confirms an attorney-client relationship, nor does any information contained in this podcast constitute legal advice. You are urged to seek qualified legal counsel of competent jurisdiction for answers to all your legal questions.
OK, with that, please enjoy Kalama Kim’s interview of me, Jason Korta, on the real estate commission lawsuits.
Welcome Message
KALAMA KIM: You’re in for a treat today. You’re about to view a video of me interviewing legal counsel of Hawaiʻi REALTORS® Jason Korta, and it’s going through the evolution of lawsuits that are happening throughout our industry and throughout our country that might have an impact on business.
KALAMA KIM: The reason that I am telling you this first is because as we go through it, you’re going to hear a lot of legal information, and it’s important to note that this is not concluded. That we are only in the very beginning of what’s going to happen. That we’re not telling you to make any change to your brokerage firm’s practices, or how you individually run your business—that’s, you get to decide that. We want to make sure that you’re aware of the information, and that you can prepare, as needed, as it comes through. So, as you hear this interview and get more information, keep that in mind, because we are in inning number one of nine inning or maybe extra innings of a baseball game, and you don’t know what’s going to evolve over time. So think about that as you watch this interview and absorb all the information so that you can continue to be a professional practitioner in real estate.
Introduction
KALAMA KIM: Aloha members. I’m Kalama Kim, you’re 2023 Hawaiʻi REALTORS® President. On October 31st, we heard about a verdict in a class action lawsuit in Missouri, and that verdict may have consequences that will affect our industry moving forward because it was against the National Association of REALTORS® and some national real estate brands. So I’m here today with Hawaiʻi REALTORS® legal counsel Jason Korta, have him ask/answer a few of our questions. Welcome, Jason.
JASON KORTA: Thank you, Kalama.
KALAMA KIM: Are you ready for our questions?
JASON KORTA: Fire away.
KALAMA KIM: We even wrote them down, just to be sure—because I know, with lawyers, we need to be precise.
JASON KORTA: We’re a very onery people.
KALAMA KIM: (laughing), ha-ha, OK.
KALAMA KIM: Here’s the first one. As I mentioned, NAR, in news outlets, reported a verdict of a large sum of money, and I know it’s against NAR and a few national brokerage firms on October 31st. Can you tell us more about that lawsuit and what was ruled?
JASON KORTA: Sure. You’re referring to the Sitzer-Burnett verdict, which was a $1.7 billion judgment rendered in Missouri. That verdict actually may increase or decrease, depending on how the judge decides certain post-trial motions. There is an opportunity to what they call, “treble it,” which means triple it, but the judge has to make certain legal findings before that. Also, as is the case with all jury verdicts, the judge could reduce the amount awarded, so it could be below $1.7 billion.
JASON KORTA: The point I think is, the point that you made, which is that it’s a large verdict, and it was issued recently, I believe October 31st of this year. The jury believed that the practice of offering unilateral cooperating broker commissions that are effective non-negotiable was sort of an act of price fixing, or at least something meant to stabilize commissions between brokers or to even increase them above what normally the market would support.
KALAMA KIM: And to, follow-up question here, because it was a ruling against NAR—
JASON KORTA: Yeah.
KALAMA KIM: Does that mean that, as an NAR member, it’s a ruling against me, or just the association?
JASON KORTA: That’s an excellent question. So, first, we have strong indications from our NAR president, as well as arguments made by NAR attorneys in related but separate cases, that NAR will appeal the verdict in Burnett. So it doesn’t apply to members for that reason—for sure.
JASON KORTA: And we’re in sort of a “wait-and-see” pattern right now, which I’m sure is quite frustrating to people listening. It’s quite frustrating to me, as well, but the legal process works slow [sic]. So, yeah.
KALAMA KIM: And what does NAR say it’s going to do next?
JASON KORTA: NAR’s president has committed to appealing the verdict, and they are taking actions in separate but related cases that support the conclusion that they are maintaining that commitment to appeal the Sitzer-Burnett verdict.
KALAMA KIM: OK, so when an appeal happens—.
JASON KORTA: Yeah.
KALAMA KIM: Is that a short process, a long process?
JASON KORTA: It’s a long . . .
KALAMA KIM: (laughing).
JASON KORTA: laborious, treacherous process with onery people.
JASON KORTA: There was a post-trial motion schedule set up in that Sitzer-Burnett case that is going to run through March of next year, so through March of 2024. At that point, the judge will take all those motions, the written papers that the parties file in support of their case, under advisement, and then render a decision. This is where we’ll find out, for instance, whether there will be a higher or lower verdict, and whether the judge will implement any potential nationwide rules. So we’ve got a while to go before there can be any kind of what they call, “injunctive relief”—that’s just an order by the court to do or not do something. Long story short, it won’t be until at least April of next year before we hear anything from a federal judge saying that any practice must or must not be changed.
KALAMA KIM: And then when you said, “appeal,” that’s not the appeal. The appeal would happen after we know what the judge is going to do.
JASON KORTA: Yes, thank you, Kalama. That’s a very good point.
JASON KORTA: So this . . . the first part is still not done yet.
KALMA KIM: (laughing).
JASON KORTA: The post-trial motions that are going to run through March of next year, and then following that, yes, they’ll appeal the verdict.
KALAMA KIM: And that appeal takes months? Years? Decades?
JASON KORTA: Years, mostly, yeah.
KALAMA KIM: Years.
JASON KORTA: So there are three levels of the federal court system. There’s the trial court system, that’s what you can envision, you know, when you’re watching Law and Order at home. There’s a witness on the stand, people stand up and say, “I object,” you know, that kind of thing.
KALAMA KIM: (laughing).
JASON KORTA; Yeah, that’s what we just went through. The next step would be what’s called the court of appeals. And then there’s still one more step after that—they could appeal to the Supreme Court.
KALAMA KIM: Mmmhmm.
JASON KORTA: So, all told, this thing could take, four, six years.
KALAMA KIM: And have both parties, and that means both parties, the plaintiffs, the class action group that’s suing, and defendants, and that’s NAR and other national brands, like Home Services, and like Keller Williams, that were included in the plaintiffs’ ruling, with, so, they can all appeal. Both sides, like, if they, if the judge says, “No, I’m reversing this ruling,” then the plaintiff could appeal, too.
JASON KORTA: Yeah, right.
KALAMA KIM: So, likely, we’re at the very beginning stages of all of this.
JASON KORTA: Yes, yeah.
First Group of Lawsuits: Seller-Side Lawsuits [15:35]
KALAMA KIM: You mentioned some other lawsuits that we’re dealing with . . . what, what are, what similar lawsuits, what’s going on with the different lawsuits out there.
JASON KORTA: I think it’s helpful to break them into groups. There are a few of them out there. I’ll mention the most important groups.
JASON KORTA: So the one that’s in that same group as that Sitzer-Burnett case, the one that we were just talking about there, there’s another case called Moehrl—that’s a case out of the Northern District of Illinois, another federal case, and it’s based on the same principles that the Sitzer-Burnett case is based on. They’re alleging that there’s basically price fixing that occurs because of these commission offers that are unilateral and basically non-negotiable.
JASON KORTA: That case had a hearing recently, and the hearing was on a proposed settlement between RE/MAX and, umm—
KALAMA KIM: Anywhere.
JASON KORTA: Thank you (laughing).
KALAMA KIM: (laughing).
JASON KORTA: So, quick step back.
KALAMA KIM: Mmmhmm.
JASON KORTA: The decision we were speaking about in Sitzer-Burnett likely will not apply to those two parties, RE/MAX and Anywhere, because they’ve entered into a proposed settlement agreement. Now, the reason that I say, “likely,” is because it hasn’t been approved by the court, OK? The settlement agreement is for both cases, though, which is sort of the reason why these two cases are linked. They linked, not just because they’re alleging kind of the same things, but also because the settlement agreement sort of straddles both of them.
JASON KORTA: There was a hearing in the Sitzer-Burnett case on I believe the 20th of November on whether to accept it, and the judge ordered that it be preliminarily accepted.
KALAMA KIM: Mmhmm.
JASON KORTA: Fast forward a week. There was a hearing in Moehrl, that other case, and they had a hearing on basically the same thing, and the judge said, “I don’t want to accept it or reject it until we know more about what’s happening in that first case, the Sitzer-Burnett case.” And we know the post-trial motions there will run through at least March. So now we’re waiting in both cases for that process to finish.
JASON KORTA: The major difference between the two, like I said they’re very similar in that they allege basically the same thing, the major difference is that Moehrl is just a larger case.
KALAMA KIM: You’re, ahh, the first case, was in Missouri, the one that they already ruled on . . . .
JASON KORTA: That’s right.
KALAMA KIM: The second one, said we’re going to wait on part of the settlement until we know that happens to the first.
JASON KORTA: Yeah.
KALAMA KIM: And I think they said that they’re not going to do anything, and they’re not going to go to court until the end of next year . . . .
JASON KORTA: Yes, so that Moehrl court, that second case, that hearing I mentioned that occurred after the 27th, I think it was the 27th of this month, of November, they began discussing when the trial would occur, and the judge informed the parties during the hearing (I sat in and listened to the hearing) she said that she was beginning scheduling trials for the fall of next year, the fall of 2024, and they still hadn’t scheduled the trial at that point. So I would say that the earliest that we can expect a trial to occur in that second case is fall 2024, and in fact it would likely occur later, if it actually reaches trial.
KALAMA KIM: Oh, wow.
JASON KORTA: And it may not even reach trial. Right, so we’ll see.
KALAMA KIM: Mmmhmm. And when you say, “it may not even reach trial,” it may be settled, there may be other thing—
JASON KORTA: Yeah, uh-huh.
KALAMA KIM: Yeah, ok, alright. And you were grouping, so those two are grouped together. You were grouping other lawsuits, there are other lawsuits?
JASON KORTA: Yes, that’s right. Yeah, but one more in that first group. There’s one called Burton, b-u-r-t-o-n. That’s sort of like a copycat—
KALAMA KIM: And there’s nothing to do with former HAR Hawaiʻi REALTORS® President Burton.
JASON KORTA: Hmm (laughing), no, that’s right.
KALAMA KIM: OK, we’ve got to put humor in this. I hope you’re watching Burton. OK, let’s hear about this Burton lawsuit.
JASON KORTA: It alleges basically the same things that were alleged in the Sitzer-Burnett one and in the Moehrl one, but it’s filed in South Carolina, the district of South Carolina.
KALAMA KIM: OK.
JASON KORTA: And it was filed 5, maybe six days after we got a verdict in the Sitzer-Burnett case. It was a copycat-style case. This happens a lot in civil cases, and particularly in class actions, of which this is, there will be other attorneys just sort of just watching what’s happening in the nation, and they see something that works, and they go, “Ah!” (snicker), “Does this exist where I am, and if it worked someplace else, could it work for me?”
KALAMA KIM: Sure.
JASON KORTA: Right, and there is a tendency to duplicate after there is some kind of precedent showing success.
KALAMA KIM: That’s why we have lots of McDonalds on the island.
JASON KORTA: Yeah—
KALAMA KIM: Right?
JASON KORTA & KALAMA KIM: Because it worked.
KALAMA KIM: [inaudible] OK.
Second Group of Lawsuits: Buyer-Side Lawsuits [20:04]
KALAMA KIM: Alright, and then, are there other types of lawsuits?
JASON KORTA: Yeah, thank you, so there is, what I put into a second group of lawsuits, and this one is Gibson v. National Association of REALTORS®. It was filed on the day the verdict in Sitzer-Burnett came out, so Halloween of this year, and the reason why it’s in a separate group is because, as opposed to the Sitzer-Burnett and Moehrl cases and this copycat one from South Carolina, which are alleging damages on behalf of sellers, this Gibson case is on behalf of the buyers. So they’re saying that the buyers would have paid less of a commission and are owed money because, you know, this should have never happened, you know, money awarded to buyers.
KALAMA KIM: Which, if there is no conspiracy, they would have—
JASON KORTA: Paid
KALAMA KIM: Paid
JASON KORTA: Less.
KALAMA KIM: paid less for the property that they bought because it was built into the price.
JASON KORTA: That’s the argument.
KALAMA KIM: OK.
JASON KORTA: So now it’s—we’re getting both sides of it now. Sellers are already, you know, and now enter the buyer’s side.
KALAMA KIM: OK, alright.
Third Group of Lawsuits: U.S. Department of Justice’s Antitrust Lawsuits
JASON KORTA: We have one more major group. That is the DOJ, the Department of Justice, the federal Department of Justice. This takes a quick background. So, a couple years ago, NAR entered into an agreement with the DOJ about our “Clear Cooperation Rule” and “Participation Policy”. We were ready to follow the settlement. The DOJ, according to some federal law from a long time ago, has to put these kinds of settlements up for notice and comment.
JASON KORTA: We have standard forms come out, right, with proposed changes? Every time we do it, we put them up for notice and comment. We say, “This is what we think we’re doing. What do you feel about it?”
JASON KORTA: The DOJ, because of this federal law, has to do the same thing with these kind of settlements. So they put it up, and they got back comments that they considered to be too negative, and didn’t support the decision that they had made to enter into an agreement.
JASON KORTA: There was also a change in administration. We went from President Trump’s administration to President Biden’s administration. And so I think that the combined forces of those two things led the DOJ to not only abandon the proposed settlement with NAR on these two rules, but then to actually seek to file a new action against them.
JASON KORTA: And NAR, reasonably said, “Wait, a second (laughing). We already had an agreement here.” Right? “Honor your agreement.” And so they filed a case in the district court, which has been appealed now to the D.C. Circuit Court of Appeals on that issue: basically, what the meaning of the word “closed” means.
JASON KORTA: So the Antitrust Division of the Department of Justice “closed” their case against NAR about these two rules, the question is, when they say, “closed,” can it ever be opened again? NAR’s argument—
KALAMA KIM: Double jeopardy.
JASON KORTA: Yeah, NAR’s argument is, they use this useful metaphor, they say that, “Look—if a parent tells a kid: go in the room and close the door, because they’re grounded, right” Is it, does the child comply with the rule, are, is the kid listening to the parent if they go into the room, close the door, and less than a half second later open the door, and walk out?”
KALAMA KIM: (snicker).
JASON KORTA: Have they complied with the rule? Right? Is that closing the door like the parent means, or do they have to keep it closed for at least a certain amount of time? You know? And so that’s what’s at issue in the D.C. Circuit.
JASON KORTA: Now, the D.C. Circuit is aware of what’s happening in these other groups of litigation. Right? So they, I don’t think coincidently at all, held a hearing on this very issue last Friday.
JASON KORTA: So, you remember that, on November 20th, Sitzer-Burnett had a hearing about this proposed settlement in their case. Then, Moehrl, the other case that’s related to Sitzer Burnett, had a hearing the week after, which I believe on Thursday. And then on the following Friday, so the next day, the federal government has a hearing on this, what this “closed” means.
KALAMA KIM: Waiting on each piece.
JASON KORTA: They want to see what’s going to happen.
KALAMA KIM: And we still don’t know what’s going to happen.
JASON KORTA: That’s right.
KALAMA KIM: They’re all just checking up on each other, waiting on each piece.
JASON KORTA: That’s right.
JASON KORTA: And the last thing I guess I’ll say about the D.C. Circuit one, you can tell from the judge’s questioning (I sat in on the hearing there, too) that they were not particularly respective to the government’s case. And they were looking for some kind of reason, which they didn’t, which didn’t seem apparent from the hearing, that would support the antitrust division’s request to reopen the case.
D.C. CIRCUIT COURT JUDGE: Does the DOJ ever do what NAR says they did here?
D.C. CIRCUIT COURT JUDGE: Do you have any concern at what DOJ is doing here will make it harder for future DOJs to convince parties in NAR’s shoes that when DOJ says it will close an investigation, it will stay closed for more than a half minute?
D.C. CIRCUIT COURT JUDGE: Can you point me to a precedent where the government has made a promise in exchange for consideration to close an investigation, and the court has said that the government can reopen the investigation?
JASON KORTA: We don’t have an answer on that hearing yet, because we don’t have answers on anything (laughing), unfortunately (laughing).
KALAMA KIM: Right.
JASON KORTA: But there will be an order issued in that court eventually, probably in a few weeks.
KALAMA KIM: Thanks for putting them in those groups.
JASON KORTA: Yeah.
KALAMA KIM: So, in the first group, is conspira--, claiming there’s a conspiracy that all REALTORS® and brokerages firms and NAR members are conspiring to charge around the same amount of money to the sellers on commission.
JASON KORTA: That’s right.
KALAMA KIM: The second group is similar, except it’s from the buyer point of view—that is conspiracy to charge a certain amount, and then the buyer ends up paying that indirectly through the purchase price.
JASON KORTA: Yeah.
KALAMA KIM: And then the third group is the Department of Justice, and they’re saying that, “Yes, we set--, came to a settlement against the practices that you had, some of it antitrust practices.
JASON KORTA: Yeah.
KALAMA KIM: We didn’t want to comply with the settlement, but now we’re fighting back-and-forth. If we’re going to comply with the settlement. And all three of these are ongoing and will continue for years.
JASON KORTA: Yeah.
KALAMA KIM: There’s other lawsuits that we’re reading about, and those are against state entities—
JASON KORTA: Yes.
KALAMA KIM: state associations, but they’re the similar copycat arguments, right?
JASON KORTA: Very much so.
KALAMA KIM: OK, so we didn’t mention those because they fall into . . . .
JASON KORTA: Yeah.
Impact on Hawaiʻi [26:31]
KALAMA KIM: So here’s the tough question: “Do we have to change anything we do right now?”
JASON KORTA: That’s a little bit of a dicey one for me to answer. I don’t want to be giving legal advice to people saying, “You should change your behavior based upon what’s been happening in these court cases, or based upon statutes or regulations. That really should be a decision for you to make on your own.
JASON KORTA: But we can give guidance on whether there are actual changes to our law. Nothing changes our law. Our law is the same as it was before these cases existed.
JASON KORTA: You’ll remember when we spoke about Sitzer-Burnett and Moehrl, there was two parties that entered into a proposed settlement agreement, RE/MAX and Anywhere Real Estate, their proposed settlements would be nationwide. So, if accepted by the court, and, again, we won’t know until probably at least April of next year, then it’ll pseudo affect us here in Hawaiʻi, because, to the extent that they practice here in Hawaiʻi, those two groups at least would have to follow the procedures outlined in the proposed settlement agreement.
KALAMA KIM: The point was, we don’t’ give advice on how you should do your own practice.
JASON KORTA: Right.
KALAMA KIM: And, and that, it doesn’t change the laws that governs us and how we run our business, and we should continue to run our business with, umm, compliance with state law, with our fiduciary responsibility, and with our ethical requirements that we have as a REALTOR® member.
JASON KORTA: Right.
KALAMA KIM: Right.
KALAMA KIM: Now, I would say, if I could add this, and chime in if you’d like, that we should be prepared . . .
JASON KORTA: Yeah.
KALAMA KIM: for scenarios from our clients, for sellers reading the news and saying, “Well, I read the news about this lawsuit. Does that mean that I no longer pay you commission to give to the buyer’s side?” or a buyer saying something similar and reading the news and saying, “Wait a minute, do I have to pay my own commission now?” And, so while we can’t give advice on how people should practice in their individual business, in their individual brokerage firms, I think we should be aware that those scenarios might happen.
Danger Zones [28:33]
JASON KORTA: Yes, that’s a very good point. Umm . . . I can at least give you what I call “Danger Zones”. Right? So—
KALAMA KIM: OK.
JASON KORTA: So things that are at issue in the litigation. Alright, so we’re not saying that you should change your practice because of this, but we can say that these are things that have come up, there have been, there’s a judgment in Sitzer-Burnett against it, and if you want to avoid the areas that have at least been at issue in those cases, we can at least outline those to you right now.
KALAMA KIM: OK.
JASON KORTA: Not saying that you should change your practice, just here are some “Danger Zones.”
JASON KORTA: One would be steering. Right? So that would be [exhale] you’re a buyer agent, or a buyer-side agent, right? And you go on to the MLS, and you look for those commissions that are highest, and only show those to your client, because it would be best for you, right? That would be a danger area. The argument is that you should be acting as a fiduciary for your client, and it shouldn’t really matter what the commission rate is. So that would be a danger area.
JASON KORTA: And another—
KALAMA KIM: And!
JASON KORTA: Yeah?
KALAMA KIM: Our, um, National Association of REALTORS® Codes of Ethics Article One, it’s worth working in the best interest of your client—
JASON KORTA: Right.
KALAMA KIM: by steering what you would be paid under commission, well that would be the opposite of Article One.
JASON KORTA: Right, yeah. Another thing that would fall under that Danger Zone of “steering” would be refusing to work with a listing broker who refuses to offer a cooperating broker commission. That is most definitely going to be at issue in that Gibson case. That is the second category of cases, the one that deals with buyers. In that case, they’re introducing something like 600 phone calls that REX Real Estate—
KALAMA KIM: Mmmhmm.
JASON KORTA: had received, they were the real estate brokers, I’m sure people will remember, that wouldn’t offer cooperating brokerage commission.
KALAMA KIM: OK.
JASON KORTA: And, there are many voicemails where there—none from Hawaiʻi that I could hear—but there were many voicemails where, they were all from someone saying, “Hey, my client is interested in this property. It’s not on the MLS. What’s going on?” And they would say, “Oh, yeah, it’s not on the MLS. We don’t do that, but we encourage you to make an agreement with your buyer.” They would just, in less than pleasant terms, basically hang up on the person.
KALAMA KIM: And you’re saying that because REX had told them that they’re not offering commission to pay for representation to buyer—
JASON KORTA: Right.
KALAMA KIM: and issued agreement from [inaudible].
JASON KORTA: Right, so they’re introducing that as evidence of alleged steering.
Rex Automated Answering Service: Thank you for calling REX. This call me be recorded. Please hold while we connect you to the next available REX agent.
Rex Automated Answering Service: Connect with a dedicated REX agent—
REX AGENT: Thank you for calling REX, this is Logan.
BUYER’S AGENT: Hey, I’m calling because I see an active listing on your website here, but it’s nowhere to be found in our MLS.
REX AGENT: Alright, I do see that one here, and, umm, the reason why you didn’t see it on the MLS is because we actually don’t advertise any of our properties on the MLS. So, with that being said, our seller’s aren’t obligate to pay that buyer’s agent commission. However, we’d never want you to work for free, umm, typically with a buyer agent in your position, the way your compensated would be by the buyer, but we do make that process very simple with our offer online submission process.
BUYER’S AGENT: Don’t, don’t worry about it. I won’t bother to show it. Who, who’s your local agent, though, because I’ll make sure to tell people not to work with them.
JASON KORTA: That is, has been, and likely will continue to be an issue in these kind of cases.
KALAMA KIM: So the first one was, you have a buyer, you see the co-op commission that’s being paid for each property, and you, instead of thinking, “What’s best for my buyer?” or, “What should I show the buyer?” it’s steering them to the one that’s paying the higher commission or [inaudible].
KALMA KIM: And the second is from the buyer’s side, where you’re inquiring about a listing, and then either finding out that it’s not paying a co-op, or saying, “Well, you’ve got to pay a co-op, otherwise I’m not going to bring a buyer . . . .” So, same thing, but from different directions.
KALAMA KIM: Those are “Danger Zones” because they don’t comply with our Code of Ethics, they don’t comply with the law.
JASON KORTA: Right.
KALAMA KIM: And that didn’t change.
JASON KORTA: Exactly.
KALAMA KIM: That’s how we’ve been practicing for a long time.
JASON KORTA: Yeah.
KALAMA KIM: OK.
JASON KORTA: And that parries into a related concept, which is one that has been spoken a lot about by national leadership, which is “showing your value.” If there is a situation where there is no cooperating broker commission, you would be in a position where you would have to “show your value” to the buyer. Broker saying, you know, “I’m showing you this property. There is no cooperating broker commission. But, you know, I’m bringing these services to you. And basically convince them, perhaps through a buyer broker agreement or otherwise, that a commission should be paid, either by the buyer, or they should negotiate somehow separately with the seller. So that, I think is what—
KALAMA KIMA: Under the confines of a buyer brokerage agreement.
JASON KORTA: Right, exactly.
KALAMA KIM: And that was a recommendation also. Under the National Association of—to work with a buyer brokerage. What we call a buyer representation contract.
JASON KORTA: Yeah.
KALAMA KIM: and agreement.
JASON KORTA: That’s related to a third thing, which, again, not a recommendation, but kind of a “Danger Zone,” making sure making sure that the buyer is aware of what the commission is, and how it’s paid. So you can do that, for instance, through a buyer broker agreement perhaps, or in the listing agreement, or otherwise.
JASON KORTA: It’s just—one of the things alleged in these cases is that brokers were saying, “You don’t have to pay anything. It’s actually free.” And the other party says, “Well, that’s really not true, because it’s baked into the price of the home. They are in effect paying for it by having a higher price. And that was one level of attack against them.
KALAMA KIM: And I remember in 2021—
JASON KORTA: Yeah.
KALAMA KIM: NAR, we made, we agreed to a rule change nationally for the REALTOR® rules that we would not claim, market, and say that our services are free, because they’re not.
JASON KORTA: Right.
KALAMA KIM: And you wouldn’t want them to be free.
JASON KORTA: Right (laughing), right.
KALAMA KIM: OK.
JASON KORTA: Yeah.
Keeping Informed [34:00]
KALAMA KIM: How do we keep abreast of the impact of these lawsuits? Because you mentioned these dates.
JASON KORTA: Yeah.
KALAMA KIM: We’re going to go on with our lives. We have this thing called Christmas and New Year’s coming up, we’ll get distracted [inaudible]. How do we make sure that we keep up to date?
JASON KORTA: You keep watching for videos with me and Kalama . . .
KALAMA KIM: (laughing).
JASON KORTA: and in each subsequent video my hair will get grayer and thinner . . .
KALAMA KIM: (laughing).
JASON KORTA: to the point that I will be probably be a bald crazy person.
KALAMA KIM: I didn’t even know we were doing more videos.
JASON KORTA: Yes, well (laughing) . . . . We are monitoring all these cases diligently and closely.
KALAMA KIM: So keeping up [inaudible], we have the newsletters that go out [inaudible]. Maybe we’ll do a few more videos.
JASON KORTA: Yeah.
KALAMA KIM: Is there anything that an individual REALTOR® can do to help the association and our industry? I—let me answer that from my part.
JASON KORTA: That’d be great.
KALAMA KIM: Yeah, because I know you would say, “Follow the law. Follow the practices, and watch for those ‘Danger Zones.” And you’ve already said that.
JASON KORTA: Yeah.
KALAMA KIM: I’ll say this: be engaged in our industry. Even have your renewal coming up. Opt. in for things like RPAC, investments. So, as we invest into our industry, we can use that money to continue to lobby for fair treatment. To lobby for things that are going to protect your industry and private property rights. I’ll tell you right now, it’s moving, evolving, it’s a, it’s a topic that’s very intricate. It has depth in all different directions. So being up-to-date, umm, taking to broker, having your broker talk to Legal Kokua Line—it’s, uh, a big difference. And we will continue to keep you up-to-date as we protect our industry, private property rights, and our membership.
KALAMA KIM: Aloha. Thank you, Jason.
JASON KORTA: Aloha. Thank you, Kalama.
Disclaimer [35:37]
Nothing in this podcast creates or confirms an attorney-client relationship, nor does any information contained in this podcast constitute legal advice. You are urged to seek qualified legal counsel of competent jurisdiction for answers to all your legal questions.
Conclusion [35:51]
And that’s our episode. Remember: we release new episodes on the first Wednesday of every month. Please join us next month for our next focus piece and for the latest Hawaiʻi Real Property Data.
Mahalo. A hui ho.
