Real Estate

“Irrebuttable” Sales Claims Trap Brokerages In Settlement Limbo

At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.

Several real estate brokerages remain in limbo a month after a June 18 deadline for firms seeking to opt into the National Association of Realtors’ $418 million commission settlement agreement, Inman has learned.

JohnHart Real Estate in California, ARC Realty in Alabama and Nebraska Realty all confirmed with Inman that they had been included in a court-approved list of brokerages with $2 billion or more in residential sales transaction volume in 2022 following their inclusion in the 2023 Real Estate Almanac, an annual report compiled by the firm T3 Sixty that tracks various real estate metrics. 

In conversation with Inman, brokerage leaders described being trapped in a legal maze after it was ruled this year that sales figures published in the Almanac would be considered an “irrebuttable presumption” of the brokerages’ total transaction volume for 2022. The legal term describes a set of facts deemed in the eyes of the court to be true, even if contradictory evidence emerges later on.

“We weren’t even at the $2 billion” threshold, JohnHart Real Estate General Counsel Brittany Porter told Inman. Porter couldn’t explain the discrepancy with the data but said T3 Sixty told her Wednesday it would issue a correction.

The fallout stems from a decision in March made shortly after NAR came to a settlement agreement with homesellers in which all parties agreed to the $2 billion threshold in an effort to determine which brokerages would be covered by the settlement and which would have to mediate on their own.

According to the agreement, brokerages that transacted less than $2 billion in residential sales volume in 2022 would be covered legally. The more than 90 firms that closed in excess of $2 billion would need to opt into the settlement, opening themselves up to millions of dollars in additional legal costs.

Now, the phrase “irrebuttable presumption” has become a curse for brokerages that may have self-reported sales figures to T3 Sixty in 2022 claiming in excess of $2 billion in transactions, only to reverse course in some cases, disputing data they now believe to be flawed. Attorneys, for their part, don’t know how to proceed, and it may be left to a judge to determine what happens next.

Michael Ketchmark, a lead plaintiff attorney, told Inman he hadn’t closely tracked how many brokerages were disputing the Real Estate Almanac, but that he could “only remember a few.”

“We have not made a decision yet on how to proceed with this group of cases,” he said. “It is clear, however, that these brokers are not covered by the release.”

The issue will likely be settled in the coming weeks, given that the deadline to mediate is Aug. 10, and the deadline to agree on terms is Aug. 30. It isn’t yet clear if Judge Stephen R. Bough, who presided over the landmark Sitzer | Burnett class action lawsuit, would ultimately rule on how best to resolve the dispute.

Michael Ketchmark | Lead plaintiffs’ attorney

In the days leading up to the June 18 deadline for brokerages to indicate their opt-in plans, Inman reached out to each of the brokerages that were on the list of firms with a sales transaction volume in excess of $2 billion. Plaintiffs’ attorneys have said they plan to file amended complaints naming brokerages who aren’t covered by the NAR settlement if they don’t opt into mediation, according to a letter the attorneys sent to brokerages on May 21.

Disputing the Almanac

Brittany Porter | JohnHart Real Estate

According to Jack Miller, CEO of T3 Sixty, “the vast majority” of numbers in the Almanac are self-reported.

“In the survey question regarding sales, we ask: What was your brokerage’s 2023 U.S. residential sales volume? Do not include sales of undeveloped land or building lots, leases, timeshares, apartment buildings or commercial properties,” Miller told Inman. “We also ask for them to affirm the submission number as accurate and not including anything other than residential sales.”

Jack Miller | T3 Sixty CEO

T3 Sixty made three corrections to its 2023 report. In two cases, the brokerages indicated they provided incorrect information. In another case, a company neglected to provide its information, and T3 Sixty made its own estimate.

“We have published the Real Estate Almanac since 2018, and this is the first year we were asked to change a sales volume number,” Miller said.

The Real Estate Almanac showed that JohnHart Real Estate, a brokerage based in California, transacted $2.68 billion in 2022. The firm now says it transacted far less.

The leaders from two other brokerages, Nebraska Realty and ARC Realty, also told Inman they shouldn’t be included and should instead already be covered by the NAR settlement.

Beau Bevis, CEO of ARC Realty, said his firm acquired another brokerage in the middle of 2022. Not including that firm’s volume would keep ARC Realty below the $2 billion threshold.

He said Wednesday he didn’t have an update on where things stood in his attempt to show plaintiffs’ attorneys his brokerage transacted less than $2 billion in 2022.

Edward Zorn, vice president and general counsel of the California Regional MLS, told Inman he expected the issue to arise.

“As a mediator myself, everybody knew when [the $2 billion threshold] was picked that the people on the edge would complain and that that would have to be separately discussed,” Zorn said. “I don’t think there are very many brokers that are going to pay the base fee that’s identified in the settlement agreement. So either they’re going to mediate and attempt to cut a deal, or they’re going to tell the plaintiffs, ‘Screw you. Bring your action.’”

Ed Zorn | CRMLS

That’s, in effect, what JohnHart Real Estate’s Porter said in an email to plaintiffs’ attorneys.

“Please take notice that we would only be interested in participating in the proposed mediation if it serves as an authentic opportunity to present proof of documentation regarding our erroneous inclusion in the pertinent T360 Real Estate Almanac, subject to reasonable consideration and review,” Porter wrote in an email last week to plaintiffs’ attorneys. “To the extent the mediation is to further monetary settlement negotiations, we are not interested and shall await service of any related civil filings.”

Put another way: “Sue us, and we’ll do it there,” Porter told Inman.

Inclusion in the NAR settlement could potentially equate to millions of dollars for brokerages. Under the settlement’s “Appendix C — Brokerage ‘Opt In’ Agreement,” brokerages not automatically covered by the deal have two options:

  • Option 1: Within 120 days after the NAR settlement is preliminarily approved by the court, deposit into an escrow account an amount equal to 0.0025 multiplied by the brokerage’s average annual total transaction volume over the most recent four calendar years. For instance, a brokerage with $2 billion average annual total transaction volume would be required to pay $5 million.
  • Option 2: If a brokerage has a “good faith belief” that it does not have the ability to pay the amount required under Option 1, the brokerage agrees to participate in a non-binding mediation with the plaintiffs’ attorneys within 110 days after preliminary approval of the settlement — at the brokerage’s cost.

For JohnHart Real Estate, that means under Option 1 if the brokerage’s average annual total transaction volume over the most recent four calendar years stood at $2.13 billion, which is the volume the Almanac states for the brokerage in 2022, then JohnHart would be required to fork over $6.7 million.

For ARC Realty, which the Almanac states did $2.11 billion in residential sales volume in 2022, that figure would be $5.275 million. For Nebraska Realty, which the Almanac says did $2.13 billion in volume in 2022, the figure would be $5.325 million.

“We simply do not have the money to pay a settlement,” Andy Alloway, CEO of Nebraska Realty, told Inman last month.

Alloway said that Nebraska Realty showed over $2 billion in transaction volume, but only because it included for-sale-by-owner transactions that the firm helped to facilitate.

“These were not MLS transactions, and thus we are asking to be included under the terms of the settlement for brokers under $2 billion in sales volume,” Alloway said.

He has been in recent contact with plaintiffs’ attorneys.

Andy Alloway | CEO of Nebraska Realty

“We are providing some additional information for them, and that will help determine how things proceed going forward,” Alloway said.

With attorneys for both sides unsure how to proceed, it’s not yet clear how the matter will be resolved.

There’s a mediation session planned on July 31 for the brokerages looking to opt into the settlement, according to emails from plaintiffs’ attorneys.

Email Taylor Anderson

Source link

Related Articles

Back to top button