The sources said negotiations are in the late stages and remaining details are expected to be finalized this month. As part of the deal, NAF would acquire the residential mortgage arm of Draper & Kramer, a property and financial services group established in 1893 by Arthur W. Draper and Adolph F. Kramer.  

The board at DKMC, which has separate businesses in the property management and commercial finance spaces, among others, wants to exit the residential mortgage business, the sources told HousingWire.

A lengthy call between NAF executives and DKMC sales staff took place on Thursday. 

According to one sales professional at DKMC, rumors about the board pushing to sell the mortgage company started to spread earlier this winter. Despite making money in prior years, the company had furloughs and cutbacks in the beginning of 2023, an employee said. 

“Sentiment was that the business model wasn’t working in these times. The board didn’t have an interest in keeping a residential mortgage division,” the employee told HousingWire.

This source said there was no company-wide announcement regarding an M&A deal. Some salespeople, however, had the opportunity to talk to NAF executives, who asked them to decide if they want to transition to the new company and to “clear” their pipelines. They did not provide details on bonuses or other compensation.

Non-sales staff, including processors and underwriters, are expected to be given the opportunity to join NAF, sources said. 

Representatives at Draper and Kramer did not respond to requests for comments. A spokesperson for NAF said the company would not comment at this time. 

If the deal goes through, the companies would have about 2,130 loan officers, which includes 1,884 from NAF and 251 from DKMC, per data collected as of Jan. 22 from the National Multistate Licensing System.

In terms of volumes, California-based NAF, founded in 2003 by Patty and Rick Arvielo, originated $7.4 billion from January 2023 to September 2023, according to Inside Mortgage Finance estimates.

Mortgage tech platform Modex shows $8.2 billion originated in mortgage loans for the whole year of 2023. HousingWire reported that the company was entering the joint ventures arena in April, offering multiple JV models in a margin-compressed and highly regulated industry. 

Meanwhile, DKMC originated about $2 billion in mortgages in 2023, according to the Modex data. The data shows that conventional loans comprised about 67%, and about 84% were purchase loans. The IMF data does not list the company among its top 100 mortgage lenders for the nine months of 2023.

“The real estate finance community mourns the loss today of one of its great leaders and fiercest advocates,” current MBA President Bob Broeksmit said in a statement Wednesday morning. “Dave Stevens grew up in the mortgage business before serving the industry and its customers both as FHA Commissioner during and immediately after the 2008 financial crisis and then as President & CEO of MBA, where he was instrumental in rebuilding our organization and leading the industry out of the Great Recession.”

Broeksmit described Stevens as “great mentor, boss, and friend. He was quick with a joke, sometimes at his own expense, and truly cared about those he worked with and those who worked for him. Dave and his wife Mary were instrumental in the 2011 creation of the MBA Opens Doors Foundation, which has helped more than 16,000 families with crucially ill or injured children stay in their homes while their child is in treatment.”

He added: “MBA and the entire industry will miss Dave’s voice, leadership, and friendship. Our thoughts and prayers are with Mary, his children, and the rest of his family.”  

A fierce advocate for the industry, Stevens became a loan officer in 1983 in Colorado, rising through the ranks of World Savings during a 16-year tenure. He left for Freddie Mac in 1995, where he was senior vice president of single family lending and led product development, credit risk and contract negotiations for all single family businesses.

Following stints at Wells Fargo and Long & Foster Companies, in 2009, President Obama appointed Stevens to serve as Assistant Secretary of Housing and Federal Housing Commissioner for the United States Department of Housing and Urban Development (HUD).

Stevens oversaw FHA programs for single and multifamily housing for two years. He left government service and became president of the Mortgage Bankers Association.

More recently, he was the chief executive officer of Mountain Lake Consulting, Inc., a financial services consulting firm focused on real estate finance.

Rick Roque, vice president of CrossCountry Mortgage and an industry consultant on partnerships and retail acquisitions, said Stevens is “a legend of a figure.” He was a “real leader whose advice was carefully listened to by industry practitioners, policymakers and regulators,” Roque added.

“I’ve never known someone with such a deep knowledge of all channels of the business, who was so like-ably charismatic and helpful to just about anyone. His approachability made his influence so strong and genuine.”

Julia Gordon, the current FHA Commissioner, said she was “deeply saddened” by the untimely loss. “When I was nominated for the FHA Commissioner position, Dave helped me navigate the confirmation process and generously shared advice and reflections from his experience. At FHA, I’ve come to know that not only did Dave’s time at FHA leave a tremendous imprint on the office, but it earned him the lasting admiration and personal affection of so many who worked with him at HUD.”

A prolific writer who frequently advocated for policies that would remove homeownership barriers for low- and moderate income households, Stevens penned dozens of opinion articles for industry publications, including HousingWire.

“His list of accomplishments too long to share,” wrote Greg Sher, managing director at NFM Lending. “His impact on the mortgage industry too large to quantify. I am in tears right now. He was a larger than life figure to me and so many others. Among his proudest moments….being leaned on by the president of the United States to help guide the country through the financial crisis in his role as US Assistant Secretary of Housing.”

Stevens had been battling prostate cancer for the better part of a decade, and he spoke often about treatment and perseverance.

“Despite facing his own health challenges, David’s relentless commitment to improving the U.S. Housing Finance Industry never wavered,” Brian Vieaux, president of FinLocker, wrote in a LinkedIn post. “His leadership and advocacy in roles ranging from Assistant Secretary of Housing to CEO of the Mortgage Bankers Association set a standard of excellence.”

Many on social media reflected on Stevens’ Washingtonian management style and sense of humor.

“Although I admire him for his market knowledge and political instincts, I mostly learned some very important lessons on running a team from him: He didn’t have all of the answers or all of the expertise,” wrote Andrew Szalay, who worked on policy matters at the MBA and is now president and CEO of Lancaster Lebanon Habitat for Humanity. “He trusted his generals and lieutenants to help him make the organization successful. And he had a way that made me want to do whatever I could to answer his question thoroughly, succinctly, and persuasively. He also taught me to not take some things too seriously. (When he started, he wanted his email to be dude@mba.org, but settled on dave@, which was Dave, and better than dstevens@.) And what a smile he had.”

“Kasper informed NAR’s Leadership Team that she recently received a threat to disclose a past personal, non-financial matter unless she compromised her position at NAR,” NAR said in a written statement. “She refused to do so and instead reported the threat to law enforcement. Ms. Kasper felt that, in the circumstances, it was best for the organization that she step down. The Leadership Team is deeply concerned about any attempt to undermine its governance and, as a result, is taking steps to protect the integrity of the organization.”

NAR did not disclose who made the threat or what specifically they intended to disclose in the blackmail attempt.

The scandal-plagued trade group appointed President-elect Kevin Sears to step into Kasper’s role effective immediately.

“As president and a long-time member of NAR, I always have put the interests of NAR first. As a result of the recent threat and given the significance of this moment for myself, my family and the organization, it is again time for me to put the interests of NAR first,” Kasper said in a statement. “So, it is with a mix of gratitude and a heavy heart that I submit my resignation as your president effective immediately. In doing so, it gives our Leadership Team the ability to take the reins and forge forward in effecting the change that we all have worked so hard over the past few months to begin. I know I leave our members, our staff and our association in good hands.”

Kasper, a Realtor from Idaho, stepped into the spotlight following the resignation of former NAR President Kenny Parcell, who quit amid a sexual harassment scandal at the 1.5 million-member trade group. Other departures include Bob Goldberg, the CEO, who left following the $5.3 billion verdict in the Sitzer-Burnett commission trial; and Donna Gland, who led human resources.

“While the NAR Accountability Project strongly believed it was time for a change in leadership at NAR, the circumstances surrounding Ms. Kasper’s resignation are of great concern,” said Jason Haber, an NAR critic who leads the activist group. “No one should be the victim of threats, intimidation or harassment.  If that happened to Ms. Kasper, that person should be prosecuted to the fullest extent under the law. ” 

It was late 2022 and Mike was feeling the pressure. Mortgage rates had climbed close to the 7% range and he was determined to remain competitive on pricing with rival loan officers in North Carolina. 

But there was a problem: pricing exceptions, in which the lender takes the hit, were becoming scarce at his company. So he did what a lot of retail loan officers in the industry were doing — Mike would reclassify a self-generated lead as a corporate-generated lead, thus slashing his compensation from 125 basis points down to as low as 50 bps, giving him a low enough rate to win the client and eventually close the deal. His manager and company bosses knew that he and other LOs were lying about where the lead source came from, he said.

The lower comp rate stung. After Mike paid his loan officer assistant, he was clearing just 40 bps. Still, it was better than nothing. After all, tens of thousands of loan officers had already exited the industry because they couldn’t generate enough business.

“At this time, I didn’t really think of it as an ethical issue,” Mike, whose last name is being withheld for fear of retaliation, told HousingWire in an interview in late November. “But it started to wear on me to where it was like, okay, I’m getting price-shopped left and right, I’m feeling the pressure to cut my pay. Because when I do it and my agent partners see that I do that, they’ll tell people they refer to me, ‘Hey, he can dig deeper if he really has to.’”

Mike continued: “Well, doesn’t that smack of bad faith if I’m not offering them my best price from jump? I would get people saying to me, ‘I’m not going to go in with you. I don’t feel comfortable with you, because you tried to get me to go for a higher pricing first, and then only offered a better deal once I told you I had another offer.”

Mike said he left that lender in early 2023 as a result of the ‘bucket game’ and refuses to manipulate where lead sources are coming from at his current shop.

“It’s a race to the bottom,” he said of the practice. 

Over the past two months, HousingWire has interviewed more than a dozen loan officers, mortgage executives, attorneys and also reviewed several companies’ loan officer contracts and text messages between recruiters and prospects to shed light on the growing issue of pricing bucket manipulation, which critics say distorts market pricing and could represent a violation of fair lending laws.

It’s unknown how many retail lenders are engaged in the practice of falsifying lead sources to lower loan officer pay, but industry practitioners say it’s widespread, and in most cases, reclassifying leads into different pricing buckets before they lock is not permitted by the Consumer Financial Protection Bureau’s rules under Regulation Z.  

It’s also unclear whether the CFPB is policing the practice; HousingWire could find no record of enforcement actions taken, and the agency’s audits are not public record. 

Evolution of the LO Comp rule

In the wake of the housing crash in 2008, the CFPB created new rules that reshaped how loan officers were compensated. The architects of the new rules wanted to prevent loan officers from taking advantage of borrowers, which was a common occurrence in the days leading up to the Great Recession. 

Under an updated Regulation Z, lenders could no longer pay loan officers differently based on terms of loans other than the amount of credit extended. In theory, this means loan officers provide the same service and pricing on loans, reducing the risk of steering. 

“LOs also can’t get paid on proxies, and they define proxies to be pretty straightforward: some factor that correlates to terms over a significant number of transactions, and the LOs have the ability to change that factor,” said Troy Garris, co-managing partner at Garris Horn LLP.

But the CFPB did allow loan officers to be compensated differently based on lead sources, which do not fall under the category of terms or proxies and are neither a right or an obligation.

For example, when an existing customer calls the lender’s call center for a new mortgage or refinance, and the lender redirects the loan to the LO, “the LO gets paid less because it was sourced from the company, and it is less work for the LO,” said Colgate Selden, a founding member of the CFPB and an attorney at SeldenLindeke LLP. When it’s an outside lead, “the LOs generated the lead themselves; they are spending time marketing to new borrowers, so they get paid more.”

Attorneys told HousingWire that in the current marketplace, violations of LO Comp rules can arise when lenders and LOs alter compensation by changing the lead source after the initial contact with the borrower to lower their rate and secure the deals. Regulation Z generally does not allow LOs to change which lead source was used.

But, in today’s competitive market, “I do think there’s an incentive, especially on the LO side, to find ways to do something different – and probably also for companies to decide to take more risk,” said Garris. “We believe this is happening because people are frequently asking if there’s a rule change.” 

How the ‘bucket game’ works

LOs who spoke to HousingWire said managers often told them they wouldn’t get pricing exceptions on deals, so if they wanted to gain an edge it would have to come out of their pay. Three loan officers at three different retail lenders described it as a feature of their lender’s business model.

“You feel out a prospective client during the initial conversation, get a sense of whether they know how everything works, if they’ve spoken to another lender, if they’re going to shop you, right? And you quote them the best possible rate you could give them that day, knowing that you’ll put them in a bucket just before lock,” said one Wisconsin-based LO. “It doesn’t really matter what you quote them in the initial conversation as long as you can get it below competitors around lock time…either through a pricing exception or the bucket [manipulation].”

One top-producing California-based loan officer said she was excited when a top 35 mortgage lender tried to recruit her with the promise of multiple pricing buckets. Having the buckets would provide her flexibility that her current lender didn’t offer, she thought at the time. 

“What the [recruiting] company told me explicitly was the loan originator, when they go to lock the loan, they check a box – is it self, branch or corp gen? And you only get to check one box, but it’s the loan officer’s choosing, not the branch,” she said. “So the loan originator is choosing, not the branch that says I’m going to give you a lead and this is the comp for it. Not the corporate advertisement or online group that says you’re getting this lead from us and here’s documentation that it occurred and now you’re going to get less comp. It’s the ultimate in legalized fraud. Because it’s not true.” 

These days, many lenders have pricing buckets for corporate-generated leads, branch leads, builder leads, marketing service agreement (MSAs) leads, internet leads from aggregators and more. In and of itself, it’s legal, provided the lead really did come from the source and it’s diligently tracked by the lender.

Loan officers and mortgage executives interviewed by HousingWire said some lenders justify the practice of manipulating the buckets by telling LOs it’s legal and they’ve been audited by the CFPB, which has not found any wrongdoing. Several executives accused of the practice declined to comment on the record about pricing bucket manipulation, though they all said they track leads as required and are in full compliance with the law.

Selden, the former CFPB attorney, said that LOs are telling borrowers who complain about high mortgage rates that companies are “running a special offer.” Borrowers are directed to the company’s website, where, by indicating the LO name, they supposedly qualify for a special deal with a lower rate. In reality, at lenders without adequate controls to prevent lead source manipulation, this shifts the source from self-generated to an in-house lead.

LOs interviewed by HousingWire said that in some cases they would be able to change the lead referral source themselves, and in other cases they’d need a manager to alter the lead source in the loan origination system. 

While many instances of price bucket manipulation were directed by managers, LOs would also self-select, said Mike. 

“Most of the time you don’t have a loan estimate from a competitor, you’re just afraid that you’re going to lose it because you’re so embarrassed about the rate. And that’s why a lot of my comrades… were going to the corporate-generated lead bucket before they even confirmed that they had to. Partly because you wanted to lead with your best price.”

Steve vonBerg, an attorney at law firm Orrick in Washington, D.C., worked as a loan officer and underwriter for seven years. He emphasized the potential trouble for lenders and LOs inaccurately classifying the lead source.

“Often, a [CFPB] examiner would see if the lead channel changed later in the process. That could be legitimate: the borrower starts working with an LO, and it’s a self-sourced lead for that LO, but then decides to buy a home in a different state in the middle of the process; the second LO that it has to be transferred to has now an internal-company referral, and so the lead source would legitimately change,” vonBerg said. “But, if there isn’t a legitimate reason for the lead source changing midstream, that would be fairly easy for an examiner to identify.” 

“It’s wrong”

Victor Ciardelli is frustrated by the bucket game. Deeply frustrated. The Guaranteed Rate founder and CEO says he is losing money and loan officers to rivals because of a business practice that he says is flagrantly illegal, pervasive, and does not appear to be slowing down anytime soon. 

Some rival retail lenders, he says, are creating up to a dozen pricing buckets for their loan officers. The tiered nature of the bucket comp structure in many cases — self generated being the highest at up to 150 bps, 100 bps for another ‘bucket,’ 80 bps for another, down to 60 bps, 40 bps and sometimes all the way to zero — proves that it is a deliberate business strategy, he said. 

“It wasn’t intended that the loan officer at the time that they’re talking to the consumer and quoting them a rate, that the loan officer can put the consumer in any bucket they want,” he said in an interview with HousingWire. “But that is exactly what’s happening. What’s exactly happening is the fact that there’s all these different pricing buckets for a lot of these different companies out there. And that the loan officer is allowed to go in and offer the consumer whatever rate based on what the loan officer wants.”

He argued that LOs are maximizing their personal income per borrower.

“It’s no different than what happened prior to Dodd-Frank, where it was the wild, wild West and people were playing games with customers on rates and fees,” said Ciardelli. “It’s the same thing today. There’s no difference except the fact that there’s a law in place that tells the mortgage company and the individual loan officer. And the loan officers know that they’re violating the law. It’s greed.”

Ciardelli says the rival CEOs — he declined to name individuals and said it’s an industry-wide problem — are establishing these buckets and know “full well that the bucket is put in place in order to lie about where the lead source is coming from.” 

They have an obligation to know where the leads are coming from, that the loan officers are putting them in the appropriate bucket and that they are being tracked, he said.

“The loan officer may take a hit on that loan, and may make less on that loan, but the company themselves doesn’t take the hit, their margin stays the same. So the company CEO is happy, because they’re like, ‘I’m giving my loan officers all this flexibility to go out and be competitive and win deals. And they’re going to win more deals than anybody else out there, because they’re going to be able to slot the individual borrower into these different lead channels. So the individual CEO is making all the money. They’re the ones killing it.”

Ciardelli says he asked about the bucket pricing game and attorneys all told him no, it’s not legal, he said.

“I’ll play by whatever the law is…But when the rules are set up to be a certain way and people are not following the rules, then that’s a problem.”

Two other executives at large retail lenders also said they’ve lost loan officers to competitors who are sanctioning, if not directing, the manipulation of pricing buckets.

“The LOs get told this is legal, it’s just pricing flexibility so they can compete, and they have a compliance team that monitors it,” said one executive at a regional lender in the South. “Obviously that’s not true… What’s happening is they [the lenders] are pricing high and basically forcing the LOs to cut from say 150 [basis points down to 50 [basis points] on some loans because otherwise they just won’t do enough business. It’s a feature, not a bug, as they say. We asked our attorneys if we could do this and they told us absolutely not.”

The Mortgage Bankers Association (MBA) is aware of the issue. The organization asked an outside attorney from Orrick Herrington & Sutcliffe LLP to study the permissibility of the practice. In a letter sent to members in February 2023, Orrick advised MBA members that changing the lead source of a loan after beginning work on the application in order to make a competitive pricing concession “is not permissible.”

The letter has had little meaningful impact, sources told HousingWire. If anything, the practice has increased over the last year. 

Fair lending concerns

Another repercussion in the market is that savvy borrowers gain access to lower rates when lead sources are manipulated. Less educated applicants could be quoted higher rates for the same loan, raising concerns about fair lending practices.

But this argument prompts a broader discussion on the efficacy of the LO comp rule, with divergent opinions on the matter.

“I used to be an MLO for seven years. I was in the industry in the 2000s until it melted down, and then I ended up going to law school because I had lost my job. I originated hundreds of loans myself, and personally, I think overall the rule is a good rule,” vonBerg said.

vonBerg elaborated: “Under the old regime, LOs were not incentivized to offer their consumers the best loan and best pricing for them. They were incentivized to give them the loans and pricing where they would make more money. Although it has some issues that should be corrected, I think the LO comp rule makes a lot of sense, in that it removes a gigantic conflict of interest.”

Not everyone shares this viewpoint. 

“The LO comp rule was designed to prevent steering to high-cost loans. And really, those things don’t exist anymore. We can’t put borrowers in homes that they can’t afford,” said Brian Levy, Of Counsel at Katten and Temple, LLP.

According to Levy, the rule creates “a tremendous amount of anxiety for the mortgage lending industry that doesn’t benefit consumers in any meaningful way.” 

“The industry is frustrated. They’re unable to easily reduce prices. For example, in the past, before the rule was around, LOs were able to take less as a commission, just like any other salesperson – a car salesperson – to make the deal work. That’s illegal now for loan officers. The mortgage company can make that decision [of lowering their margins and reducing rate], but the loan officer cannot.”

Levy noted that some consider the LO comp rule to be a de facto fair lending rule.

“But we already have fair lending rules. The idea that if the loan officer is discounting their fees, they would end up discounting on a discriminatory basis would already be problematic under existing law, so you don’t need the LO comp rule to make that illegal. It’s already illegal to discriminate in pricing. That said, it’s not illegal for people to negotiate just like you can negotiate a car price.”

The CFPB has also taken issue with other forms of pricing concessions over the last year. In the summer of 2022, the agency reported that pricing exceptions, in which the lender offers a discount, had harmed protected classes, who were less likely to be offered discounts. 

Where’s the CFPB?

Multiple sources said the CFPB audits about 20% of mortgage lenders per year, and because of the prevalence of this practice, would undoubtedly have come across lead bucket pricing manipulation by now. 

Why there hasn’t been any enforcement to date or whether there’s a future enforcement action is just on the horizon is hard to know.

The CFPB, which is undertaking a broad review of the LO Comp rule, declined to make anyone available to speak on the issue. 

“We cannot comment on any ongoing enforcement or supervision matters,” said Raul Cisneros, a Bureau spokesperson. “Those who witness potential industry misconduct should consider reporting it by going here. Additionally, we always welcome stakeholder feedback on any of our rules, including the loan officer compensation rules.”

In early 2023, the CFPB initiated a review of Regulation Z‘s mortgage loan originator rules, which include certain provisions regarding compensation. However, industry experts do not foresee substantial changes or anticipate the CFPB addressing the issue of lead source manipulation. 

“In fact, there haven’t been a lot of public enforcement actions by the CFPB in several years [on the LO comp rule]. But having said that, we used to complain that the CFPB was participating in regulation by enforcement, and now they seem to be regulating by supervisory highlights,” Kris Kully, a law firm Mayer Brown partner, said. 

The CFPB’s latest move regarding the LO Comp Rule was to issue a supervisory highlight in the summer stating that compensating an LO differently based on whether a loan product was originated in-house or brokered to an outside lender is prohibited. 

Industry practitioners said the lack of enforcement from regulators has allowed the pricing bucket manipulation practice to flourish, creating an uneven playing field. 

“You have all these companies that all of a sudden are starting to get a free pass,” Ciardelli said. “They’re like, ‘I’m not having any audits. I’m not having anybody come and say anything to me. I mean, nothing’s really happening. I’m pretty much unscathed here.’ And year after year goes by, there’s no auditors, there’s no issues. And then they start to move the needle on how they’re running their business and decisions they’re making. And they have less fear of the government, less fear of the existing rules that are in place, because the rules that were set up are not being enforced.” 

Another mortgage executive speculated that the pricing bucket games will come to an end not because of CFPB enforcement, but because loan officers and executives will battle it out in court.

“I’ve got calls from loan officers who feel like they’ve been pushed into a lower commission scale than they thought they were going to get to start with,” he said. “I hired somebody from a well-known lender. When they hired her, they told her, ‘Hey, these are what the rates are and this is what the commission is.’ When she got over there, the rates they were quoting were the lead-based rates, not the hundred-based points they were promising her… I don’t think the enforcement will come from the CFPB. I think it’ll come from some type of lawsuit like that.”

The lasting impact of LOs cutting their comp to win clients and close deals won’t be clear until mortgage rates meaningfully fall for a sustained period. 

But many fear that the genie can’t be put back in the bottle.

“We’ve done this so much that they’ve built it into their pricing,” said Mike, the loan officer in North Carolina. “They are pricing things higher, assuming that we’re going to cut our pay, and protect their margins. So to me that’s the bigger issue for us selfishly, is we start doing that, and it’s going to become the norm. The pricing system and everything is going to assume that we’ll do that.”

He mused that RESPA guidelines prohibit an LO from buying a Realtor partner a Big Mac after a closing but lying about a lead source is not policed. 

“Personally being an LO, the biggest issue to me is, they’re screwing with us and just… That’s how all these shops are finding a lifeline to keep their doors open. ‘We don’t have to pay them 100 bps, we can just pay them 50, and they’ll take it on the chin.’ And it’s like, yeah, we’ll take it on the chin. Many of us are using the heck out of our credit cards right now to survive. It’s not cool.”

Federal Reserve Chairman Jerome Powell said that while inflation remains ‘elevated,’ the Fed anticipates making three 25 basis point rate cuts in 2024, a signal to Investors that hikes are over and a new phase in monetary policy is approaching.

In other words, hurrah!

The bond market responded in kind, with the 10-year Treasury yield falling to 4.0% late afternoon on Wednesday, its lowest level since late July.

“Additional rate hikes no longer appear to be part of the conversation. It is all about the pace of cuts from here,” said Mike Fratantoni, the chief economist of the Mortgage Bankers Association. “This is good news for the housing and mortgage markets. We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market. We are forecasting modest growth in new and existing home sales in 2024, supporting growth in purchase originations, following an extraordinarily slow 2023.”

In 2023, the Fed hiked the benchmark federal funds rate by a quarter-point at four meetings, most recently in July.

Financial conditions have eased since the last FOMC meeting on Nov. 1. The benchmark 10-year Treasury yield fell to 4.2% during the inter-meeting period from 4.8%. Simultaneously, futures markets priced in a higher chance of more rate hikes by the end of 2024. 

Despite a stronger-than-expected November jobs report, the slowing growth pace of new jobs, the slowing of wage growth and the modest rise in the unemployment rate suggest a cooling of the economy in the coming year, Selma Hepp, chief economist at CoreLogic, said in a statement last week. Meanwhile, overall inflation slowed in November but core inflation remained stubbornly high. Many economists say the current Fed policy is restrictive enough, if not too restrictive.

Rate relief in 2024

At the beginning of November, Freddie Mac’s Primary Mortgage Market Survey index hovered just below 8%. It now sits just above 7%, bringing some relief to rate-sensitive homebuyers. 

While conditions have improved, mortgage rates remain high. Prospective homebuyers bear the brunt of the lack of affordability while home sellers continue to cling to their historically low rate, pandemic-era mortgages.

No industry has been harder hit by the Fed’s monetary policy in 2023 than mortgage.

According to TransUnion, mortgage originations are down nearly 37% year-over-year, from 1.9 million in Q2 2022 to 1.2 million in Q2 2023. Dozens of lenders have gone out of business or been forced to merge in 2023.

Economists in the housing space see better days ahead.

“The Fed’s projections for 2024 will continue to anticipate a normalization in monetary policy in the year ahead,” said Realtor.com Chief Economist Danielle Hale.

Hale has forecast mortgage rates to ease further in 2024 as inflation improves and Fed rate cuts draw closer.

“Mortgage rates could near 6.5% by the end of the year, a key factor in starting to provide affordability relief to homebuyers,” Hale said. 

Among the first customers to benefit from reduced interest rates would be those who are currently making payments on mortgages with high rates. 

According to TransUnion data, since January 2021, there have been 3 million new mortgages originated with interest rates of 6% of higher, the total balance of which being over $1 Trillion. The monthly payments of each of these high interest mortgages averages $2,201.

If interest rates dropped to even 5.5%, it could result in significant savings for homeowners, as refinancing at that rate could result in an average monthly payment of $1,917 for them, a reduction of $284 every month, said Michele Raneri, VP of U.S. research and consulting at TransUnion. “This would represent nearly $300 a month that these homeowners would be able to use elsewhere in this continued high cost-of-living environment in which every dollar counts.”

Perhaps if the real estate pro is more optimistic, they might reply, “I think the Appellate Court will [find] this does not violate the Sherman Antitrust Act and is in fact detrimental to the process of home ownership.”

Most agents and brokers anonymously told HousingWire in a recent 17-question survey that they don’t expect the verdict to be overturned. Such an outcome, many predict, could eventually force a disassociation between the Realtor-owned MLSs and the NAR mothership.

“NAR is a scam,” one agent wrote. “Would love for our MLS to not be a part of the organization. Code of Ethics was the only good thing to come out of NAR, yet they violated that entirely themselves.”

“This is only phase one,” concluded another industry veteran. “When the DOJ’s input gets added in and Clear Cooperation is identified as an even more flagrant violation of antitrust laws, NAR will dissolve and maybe rise from the ashes as merely a lobbying group.”

The point being, there’s no consensus among real estate agents and brokers regarding what happens next, how the industry should respond or even how agents should talk to clients. An injunction by the judge on the Sitzer/Burnett case won’t come until spring at the earliest.

In the meantime, there’s anger, dismay and confusion. And there’s a lot on the line — billions in commissions over the next decade.

Brooklee Han, Tracey Velt and I have been reporting on the various commission lawsuits for years now. We’ve explored how mortgage LOs might be affected, how MLSs might evolve in a world without cooperative compensation and assessed NAR’s ability to fight the verdict.

But in the end, the people most affected by this legal limbo are the millions of agents and brokers themselves. We wanted to hear from them.

We recently surveyed the RealTrends audience of real estate agents, brokers and franchise leaders to share insights into how they’re communicating with clients, what their expectations are for a successful appeal, how they view the NAR in the wake of the bombshell verdict and, ultimately, what impact the case will have on the industry. 

Nearly 300 responded. Let’s look at some of the results.

Even though most respondents (60.1%) thought NAR, HomeServices and Keller Williams were going to prevail, just 36% of respondents are confident they’ll win their appeal. 

“Appeals are hard. The jury was given bad information, made a bad decision, but appeals are hard,” one respondent concluded. 

“Juries are made up by consumers who buy houses. I doubt they will side with the agents,” said another. 

We asked respondents to also share what they believe is the biggest benefit they get from NAR membership. The most popular responses were lobbying and MLS access, which many respondents described as critical.

But plenty of respondents also took shots at the beleaguered trade group. 

“Other than embarrassment, I cannot name one tangible benefit I receive from NAR,” said one agent.

“I don’t feel I have benefited directly from NAR, and I’m very disappointed in the quality of the defense/response NAR has made in reaction to the lawsuits,” wrote another. “What we think we get is a perception that we are held to a higher ethical standard, and that gives us a good image. Recent events have tarnished that image badly,” said a third Realtor.

Local associations were better viewed by the 249 question respondents. Quite a few were complimentary of the lobbying work done, classes, training and, yes, MLS access. 

Even so, many respondents  — more than 75% —  said if given the choice to subscribe only to the MLS as opposed to joining their local state and national associations, they would do it.

A central premise of the commission lawsuits is that, in practice, agents don’t negotiate their commissions often. The survey results suggest that isn’t true. Of the 281 respondents to this question, 89% said they sometimes or always negotiate commissions. 

Asked if they felt their compensation should change depending on the market and economy, 61.5% of respondents said no. A majority (60%) were also in favor of retaining current compensation practices.

Here’s a sample of some responses: 

“What’s being proposed will eliminate upside in good years and devastate in tough years in the market,” one respondent said. “And you eliminate the current buyer agent comp system (sellers pay) and the consumer will really suffer.”

“We need to do business differently,” another respondent said. “There are some agents that only focus on commission. Not the consumer.” 

“The consumer has spoken,” one agent said. “It won’t help my brand if I hold the line. I have always put my customers first. If they want things to change, I must adapt to maintain my relationships and keep my business moving forward.”

Several respondents said they supported a full overhaul of real estate commissions.

“It’s a wasteful absurdity that today in 2023, agents and brokers get compensated by the contingent commission. Real estate professionals should be paid the same way accountants, lawyers and other professionals do…by the hour…and contract,” one agent said.

“The Realtor organization should have been trying to get the public to understand they could save a LOT of money by taking the market ‘risk factor’ out of the equation by paying an hourly rate for services, but instead they have been satisfied with the status quo, which has often been a big failing of the Realtor organization over the years. They are NOT innovators and creators.”

Said another: “Buyers agents should earn additional commission for a lower purchase price. If a Realtor represents a customer, they should not be incentivized to get the buyer a worse deal.”

Several commenters considered the idea of hourly pay, but dismissed it.

“For 100+ years, consumers have desired that payment for real estate brokerage services be contingent upon the closing of a transaction,” one respondent said. “It’s only a small percentage of consumers willing to pay on an hourly basis or on a schedule of services rendered. There’s no question that the contingent fee model results in higher fees, but that’s the model preferred by consumers.”

Others didn’t specify what change should occur, but said the status quo shouldn’t remain.

“The current system invites more litigation, which will not go away if there is no change. NAR is a bloated monster that needs to be dismantled,” one said.

“I think brokers need to be realistic,” replied an agent. “For a basic run-of-the-mill deal in my market, brokers on both sides, regardless of their caliber, are getting commissions over $18K for what really accumulates to less than 40 hours of total work; that’s $450 an hour!”

Hard talks with clients

How are agents communicating with clients in light of the verdict?

“Letting them know about the lawsuit and explaining how that will affect their home search and selection, especially if there is no buyer agent commission and the client is a VA or FHA loan,” one agent said. 

Many respondents said they are using buyer-broker agreements. Quite a few brokers said they’ve been training agents on how to have conversations face-to-face with clients and to always be transparent about how agents get paid. 

For many, very little has changed since the eight Missouri jurors found in favor of the plaintiffs. 

“I’m changing nothing, for now,” said one agent. “I’ve always disclosed how the commission splits work. Who doesn’t disclose that? It’s in our rules and in our contracts, and I talk to clients about what it means.”

“No change for me except being careful of putting a number/percentage in writing on any marketing for fear of being accused of collusion,” another wrote.

Several respondents said they were preparing for significant market changes. 

“We are seriously discussing limiting the amount we pay buyers agents. Most don’t know what they are doing and, frankly, aren’t worth half of the commission,” one said. 

One broker told HousingWire, “We are telling our agents to do full disclosures on the buyer’s agency agreement and what it means to the buyer. The agents will certainly have to show the ability to earn their commissions.”

Industry impact

In our final survey question, we asked how respondents believe the Sitzer/Burnett case would impact the industry.

The range of responses to this question was fascinating. 

“Already has changed it,” said one real estate pro. “Things aren’t clear. I feel it has shaken the confidence of all involved.”

“I think total commissions will go down, and part-time and/or unskilled agents will be forced out,” another responded. 

“I believe this will democratize buyers agents’ commission. Listing agents won’t see much of a difference. Buyers agents will be highly impacted.”

“Compensation practices will change. NAR will be crippled by this and mandatory membership will become optional.”

“Listing commissions should come down, new business models will develop and, hopefully, unprofessional and unproductive agents leave the market. Buyers will need to pay a fee or allow their agent to negotiate a fee with the seller, or pay it themselves.”

“I think some sellers will decide that they do not want to offer compensation to a buyers agent initially, but over time I think it will revert back to the way it has been done. Explaining exactly what someone is signing, and what it means is the key. It may potentially harm buyers if they cannot afford representation for themselves after making deposits and closing costs. I have buyers who I know would not be able to compensate a buyer’s agent out of pocket.”

“It will just add another disclosure, and change some verbiage. Once the dust settles, it’ll be back to what [sic] was.”

“I don’t think it will have a huge immediate effect. In the long run, some online company or companies will try to capitalize on it.”

“A little chaotic at first as we figure out how to compensate buyer agents, whether it’s offered on the front end or negotiated at the time an offer is presented. I truly think the structure will look similar minus NAR/Realtor owned MLSs.”

“It’ll create a pyramid pay structure. Top agents will benefit [and] charge more. They will charge both buyers [and] sellers commissions. Bottom feeders will compete for scraps [and] dissipate. NAR will negotiate [and] settle.”

“Every transaction will be different, and compensation for buyers agents will be negotiated with every transaction. Over time, the market will even out. Home values/appreciation will settle down and in the end, sellers will net the same amount on the sale of their home, with or without paying compensation for a buyers agent. This will also reduce the number of agents by 500,000 or more.”

Concluded one salty real estate pro, “Goodbye, Zillow.”

Cook retired as CEO of Finance of America in June 2022 to focus on her health. She is survived by her three daughters, Kathleen Cook Suozzi, Colleen Cook Flannery, Annie Cook Carroll and her six grandchildren, as well as her sisters Laurie Bonello and Marybeth Solazzo.

“Patti was not only a remarkable leader but also a cherished friend and mentor,” Finance of America said in a statement following her death. “She demonstrated how to put family first, sharing stories of time with her children and grandchildren and supporting others to do the same.”

The statement continued: “Her loss is deeply felt, particularly by many here who worked with her closely for years, and we will miss her. Let us remember Patti for her professional achievements but most importantly for the incredible person she was. Her impact on Finance of America and all of us will never be forgotten.”

A native of Long Island, Cook earned an MBA from New York University and began her career at financial firm Arthur Young. She became the head of fixed income at Solomon Brothers in 1979. It was unusual for a woman to hold such a position on Wall Street at the time.

“For me, I wasn’t focused on women being unique in the workplace or having a bigger mountain to climb or anything like that,” she told HousingWire’s Sarah Wheeler in early 2022. “I genuinely feel I was lucky to have that job and I demonstrated that in my approach to work.”

She added: “I put my head down, worked hard every day, and I was rewarded for it. That commitment to excellence and working hard — even on the days when you might not feel up to it — really shaped my outlook and has been a key driver in my success.”

Cook became a managing director at Fisher Francis Trees & Watts before rising to become Chief Investment Officer of JPMorgan and then Chief Investment Officer for Prudential.

Between 2004 and 2008, during the height of the financial crisis, she served as executive vice president and chief business officer at Freddie Mac. In 2016, Cook joined Finance of America and took the company public. It was a top 15 lender in 2021 and she was named a HousingWire Woman of Influence.

After retiring from FoA in 2022, Cook spent her last months traveling and with family. She crossed the Drake Passage to Antarctica, biked in Vietnam, went whale watching in Canada, ranched in Montana and went skiing in Utah, according to her obituary.

“While known for her financial acumen, her real legacy is the humility and humanity which characterized her life’s pursuits,” her obituary read. “The eternal optimist to her last breath, she saw potential and goodness in all she touched, and had an unmatched dedication to helping others see it too.”

The defendants have been ordered to pay damages of $1.78 billion. Treble damages could result in the NAR and brokerages paying roughly $5.36 billion. It also opens the door to additional potential copycat lawsuits being filed in other states.

The jury reached its verdict after a little over two weeks of testimony from the plaintiffs and defendants. During their testimony, the home seller plaintiffs and their lead attorney Michael Ketchmark argued that despite the defendants having antitrust rules and regulations in place, the trade group and corporate brokerages knowingly violated their own rules in order to maintain high commission rates.

Judge Stephen Bough, who is overseeing the suit, still needs to issue his final judgement on the case, before the verdict is final. He has wide latitude in issuing injunctive relief.

In the worst case scenario for the defendants, Bough could ban the cooperative compensation rule nationally on the multiple listing services, which would prevent listing agents and home sellers from predetermining buyer agent commission rates. Listing agents would also be prohibited from sharing commissions with buyer agents, and buyer agent commission rates would not be published in the MLS.

Alternatively, Bough could also keep elements of the rule in place and require an offer of at least one cent in “cooperative compensation” MLS field.

The class action antitrust lawsuit, which was originally filed in 2019, also included RE/MAX and Anywhere as defendants, however the two reached settlements in this suit as well as the two other commission lawsuits, Moehrl and Nosalek, in September.

In response to the verdict, Mantill Williams, a spokesperson for the NAR, said the trade group will be appealing the jury’s verdict and will also ask the court to reduce damages.

“We stand by the fact that NAR’s guidance for local MLS broker marketplaces ensures consumers get comprehensive, equitable, transparent and reliable home information and that brokerages of any size, service or pricing model get a fair shot at competing,” Williams said. “We will continue to focus on our mission to advocate for homeownership and always put consumer interests first. It will likely be several years before this case is finally resolved.”

Darryl Frost, a spokesperson for Keller Williams, said that crucial evidence was not allowed to be entered and alluded to an appeal being filed.

“We are disappointed that before the jury decided this case, the court did not allow them to hear crucial evidence that cooperative compensation is permitted under Missouri law,” he said in a statement following the verdict. “This is not the end. Keller Williams followed the law regarding cooperative compensation and stands by the evidence presented on the 100-year-old practice of sellers’ agents offering commissions to other agents who help market and sell homes. Looking forward, we will consider all options as we assess the verdict and trial record, including avenues of appeal.”

A spokesperson from HomeServices similarly vowed to appeal the ruling in Missouri.

“Today’s decision means that buyers will face even more obstacles in an already challenging real estate market and sellers will have a harder time realizing the value of their homes,” the spokesperson said. “It could also force homebuyers to forgo professional help during what is likely the most complex and consequential financial transaction they’ll make in their lifetime.”

In a statement, HomeServices said the cooperative compensation rule “helps ensure millions of people realize the American dream of homeownership with the help of real estate professionals.”

A spokesperson for Anywhere Real Estate also provided a statement noting that the company chose to settle in the case in early October without admitting to wrongdoing.

“The jury verdict, while disappointing, does not alter our settlement, and we look forward to obtaining court approval and implementing our settlement agreement,” Anywhere’s spokesperson said. “Anywhere strongly believes in the value of both buyer and seller agents to help consumers successfully navigate one of life’s most expensive and impactful transactions. We remain fully committed to supporting all agents as they expertly serve their clients.”

This is a breaking news story and will be updated throughout the day.

After filing a motion for a judgment as a matter of law late Thursday, the National Association of Realtors’ request was denied by Judge Stephen Bough. The other defendants in the suit, HomeServices of America and Keller Williams, had previously filed motions for judgment as a matter of law, but both were denied.

Gary Keller takes the stand

Friday morning’s testimony marked the start of Keller Williams’ defense. The firm called its co-founder and CEO Gary Keller to the witness stand first. Like the other defendants before him, Keller noted that Keller Williams as a corporation has nothing to do with setting commission rates. He told the jury that cooperative compensation policies are made locally and that commission rates are set on a case-by-case basis.

Keller also noted that he does not like people in the industry telling agents what they should and should not do in their business.

During his testimony, Keller also discussed his books and the models he uses during conferences, which had been previously discussed during the plaintiffs’ testimony.

Keller reiterated what he had said in his deposition that the items are templated and serve as examples of how an agent might practice real estate. He also noted that when his book first came out in 1996, there was no data on commissions. When examples in the book assume a 6% commission rate, it’s just an educated guess, rounding up from the 5.6% to 5.7% range he saw in the industry at the time.

Keller then discussed the presentations he gives at Keller Williams Family Reunion events, which usually have up to 15,000 attendees. In the presentations, Keller said he discusses a variety of economic statistics, including commissions.

Two of the slides he uses show average commissions on the sell side and the buy side for KW agents between 2002 and 2019. The slide shows that on the sell side, commissions have fluctuated from roughly 2% in 2002 to around 2.5% in 2010, before gradually climbing to 2.67% in 2019. The buy side, however, has much less fluctuation. After reaching 3% in 2008 and 2009, it fell to 2.72% in 2019.

Keller testified that he uses these slides to dispel the notion that there is a standard commission rate.

“We started producing this to point out there isn’t a standard commission,” Keller said. “They vary year by year. They’re reflective of market conditions.”

Keller said the main message to agents is that they should be aware that local markets change, and they have to be flexible. He also argued that the national average commission slide has no relevance to an agent in any particular market because the markets are all different.

“The 6% commission is a mythical animal,” Keller said. “As a national average, it does not exist.”

He also noted that showing the commissions slides does not violate Keller Williams’ antitrust policy, which is designed to prevent agents from discussing commission rates with competitors. He added that the firm’s “co-opetition” model is merely an acknowledgement that although agents compete fiercely for business and negotiate, later in the transaction they have to cooperate to get the deal done.

Keller also addressed the plaintiffs’ claim that he has conspired to keep commissions at their current rate is “ludicrous” and lacks any proof.

According to his testimony, he has no involvement in NAR or local association boards, but he does encourage agents to get involved and be members of their local association to have access to their local MLS, which he called “the single-best marketplace created.” However, Keller notes that if an agent does not have to be a member of NAR if their do not want and their team leader agrees.

During his cross-examination, Michael Ketchmark, lead attorney for the plaintiffs, homed in on commissions and on emails Keller sent regarding the threat of the internet on the real estate industry.

As he began his time on the floor, Ketchmark disputed Keller’s claim that he has no idea what commission rates are going to be next year, because they change year to year based on market conditions.

He told the jury that he was “100% certain” that commissions would be 3% next year in Kansas City, citing a Keller Williams slide showing their agents’ average offered commission in the city. He also did this for other cities in Missouri, nearly all of which had a roughly 3% average commission, except for St. Louis, which reported a 2.7% average offered commission.

Ketchmark then moved on to the threat of the internet. He showed Keller and the jury an email Keller sent stating that “commissions are under siege because of the battle on the Internet for data.”

Keller replied that the statement was taken out of context. He said he was talking about Zillow and other internet companies that are taking what he felt was his company’s data and selling it back to agents through lead generation for up to 45% of the net on their commission.

He also testified that it is not about the commission rate, but about the net commission; Zillow takes money from agents, something Keller would like them to stop. He referred to this as a “relentless battle” that won’t stop until every piece of data is collected and “every commission dollar is rung from the agent’s pocket.”

Keller told the jury he plans to combat this but control everything in-house, which means that he would have to set up his own mortgage, title and real estate services companies.

Ketchmark concluded his questioning by asking Keller if he agreed with the statement that if technology companies control listings data, Keller Williams would lose control and its market centers would make less money. Keller did not dispute the statement.

The defense is expected to wrap up their case Friday evening. Closing arguments in the commission lawsuit trial are expected on Monday.

Editor’s note: Keep checking HousingWire.com for ongoing, live coverage from Kansas City from our editorial team on the commission lawsuit trial.

In his denial of the motion, Judge Stephen Bough said he found a mistrial “too drastic a remedy under the current circumstances.”

“By instructing the jurors to disregard all references to the Inman article, instructing the jurors to disregard any references to the salary of any NAR executive or anyone else, and polling the jury to confirm that no juror has read or seen any recent media coverage, the Court sufficiently removed the prejudice, if any, incurred,” Bough wrote in his ruling. “Further, the Court finds that Defendants failed to timely object to the video exhibit properly used for impeachment purposes.”

HomeServices wasn’t the only defendant to receive bad news in the commission lawsuit trial. Keller Williams was denied its motion for judgment as a matter of law, which it had filed earlier Wednesday. HomeServices’ motion for judgment as a matter of law was also denied.

HomeServices continues defense testimony

Once proceedings began on Thursday, Dave Stevens, the former head of the Federal Housing Administration (FHA), was the first to take the witness stand, called by HomeServices.

Stevens’ testimony focused on how changing the current commission structure would impact homebuyers. He testified that, in most cases, homebuyers would be unable to include buyer agent commission costs into their financing.

“My concern is buyers who are cash-constrained,” Stevens said.

According to Stevens, the homebuyer process is “challenging” and “intimidating,” and “not having representation puts all the advantage on the other side of the transaction.”

But buyers are not the only ones who benefit from the current system, according to Stevens.

He told the jury that sellers also benefit because it brings more foot traffic and attention to their listings.

During his cross-examination, Michael Ketchmark, lead attorney for the plaintiffs, claimed that the internet has made home-buying easier than ever. Stevens disagreed, saying that in some markets it is now harder than ever to buy a home.

Ketchmark then asked if it is six times harder than it was in 1992 when he bought his first house, referencing the six-fold increase in commission dollar amounts over the past three decades.

Stevens said it was harder in some markets, in part, because there is currently very little housing inventory.

Next, Ketchmark asked Stevens about housing affordability issues, attributing the rising cost of commissions as the reason for affordability challenges.

Stevens contradicted this by saying that home costs are driven not by commissions but by other factors, including buyer demand and a lack of inventory. He also noted that home-price appreciation is a huge wealth driver for homeowners.

The D.A.N.G.E.R. Report examined

Stefan Swanepoel, the author of the infamous NAR D.A.N.G.E.R. Report, was next to take the stand.

During his testimony, Swanepoel discussed how the report was created with 72 industry voices. The report, he said, is neutral and does not reflect his personal opinions. Despite the wide variety of voices within the report, he does not feel that it is extremely thorough.

In compiling the report, Swanepoel said he worked with a team of researchers to look at commissions internationally. He noted that some of the 72 people he spoke with were concerned about commissions declining in other countries.

Swanepoel also testified that some of the analysis done by Craig Schulman, an associate professor of economics at Texas A&M University, was incorrect.

Schulman testified last Friday after being called as a witness by the plaintiffs. During his testimony, Schulman compared the U.S. to countries like Australia and the United Kingdom, which have very different real estate systems, Swanepoel said.

No evidence of a conspiracy

Like Swanepoel, Lawrence Wu, president of the National Economic Research Associates, also took issue with Schulman’s testimony.

On Friday, Schulman stated that home sellers have no reason to pay buyers’ agents, whom he claimed do not provide much value. He also stated that there would be fewer buyer brokers if the Participation Rule were not in place.

“My conclusion is completely different,” Wu said, claiming that Schulman misses the practice and function of the rule in his analysis.

According to Wu, if home sellers want to sell their home quickly at the highest price, they do that by having listing brokers compensate buyer brokers, who are motivated to help their clients navigate the homebuying process.

Wu said the Participation Rule “facilitates the process” by bringing listings more exposure, more bids and more money for home sellers.

Wu then moved on to Schulman’s conclusion that since buyer broker commissions are roughly the same nationwide, there must be a conspiracy. Just because there is a cluster does not mean there is a conspiracy, and there is no evidence that companies have coordinated to decrease competition, Wu pointed out.

Businesses make independent decisions on commissions to be competitive, and sometimes they make the decision to do the same thing, Wu said. He cited an example of a restaurant deciding to copy a popular dish off the menu at a nearby restaurant and fast food prices, which are similarly priced regardless of the chain. He also noted that there’s no evidence of individual agents conspiring.

Wu also addressed Schulman’s comparison of the U.S. commission structure to Australia, reaching similar conclusions to Swanepoel. Australia, which does not have a policy like the Partipciation Rule, buyers typically do not use buyer brokers; if they do, buyers pay for the service out of pocket.

Schulman was using the comparison to illustrate what he believed the U.S. system would look like without the rule. Again, Wu said he reached a very different conclusion.

In U.S. markets with no Participation rule, such as NorthwestMLS and the Real Estate Board of New York, Wu said listing agents still make offers of compensation roughly 99% of the time. He also noted that buyer brokers are still strong in number, and homebuyers don’t pay for their services.

“If we eliminated the rule, we would still have the practice of cooperative compensation,” Wu said. “The practice would still continue.”

Wu echoed Stevens’ testimony from earlier in the day, stating the cooperative compensation increases demand for sellers’ homes and helps buyers who are low on cash. He also noted that buyers’ agents provide valuable services for sellers and buyers.

“We have the practice because it benefits sellers and buyers,” he said.

He concluded that the rule is about transparency and clarity, and it’s important because buyer brokers know they will be compensated if they’re successful without a lot of phone calls.

On the other hand, Schulman believes that posting the offer of compensation with the listing allows buyers’ agents to steer their clients. Wu argues that there is no evidence of steering.

In an analysis he performed looking at all compensation offers made on the Missouri MLS between April 2014 and December 2020, Wu found that commission offers were negotiated between 22% to 33% of the time, and that 46% of commission offers were below 3% of the home sales price.

He also looked at eight cities in Missouri and found that the average compensation offer ranges from 2.68% in St. Louis to 3.01% in West Plains.

During his cross-examination time, Ketchmark claimed that Wu’s testimony was paid for by the defendants and that he worked with the defendants’ lawyers on his PowerPoint and used a bad batch of data the defendants provided to him. Wu admitted that he had been paid by the defendants and that he had met with the attorneys for the defendants about his testimony, but that the evidence he presented was his “honest and independent opinion.”

Although Keller Williams still needs to present its defense, closing arguments in the commission lawsuit trial are expected as early as Monday.

Editor’s note: Keep checking HousingWire.com for ongoing, live coverage from Kansas City from our editorial team on the commission lawsuit trial.