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Episode 13: The Sitzer/Burnett decision

Thu 11 January 2024

In the ever-evolving landscape of property technology (proptech), 2024 has already marked itself as a year of significant developments. As we dive into the intricacies of these changes, particularly the Sitzer/Burnett case, it's clear that the traditional real estate industry is on the cusp of transformation. I explored these shifts in our latest episode of "What We Learned This Week in Proptech" with Fernando Pizarro.

This year kicked off with an insightful discussion around a pivotal lawsuit, Sitzer Burnett, that's currently in the appeal process in Missouri. The crux of this case lies in challenging the commission-based system prevalent in real estate transactions. As consumers, we've been bound to this model, particularly in scenarios where sellers are compelled to pay the buyer agent's commission. This system, deeply ingrained in the industry, is facilitated by key players like the National Association of Realtors (NAR) and the multiple listing service (MLS). The NAR's substantial membership and the exclusivity of MLS access to its members create a unique dynamic in the industry, one that's now under legal scrutiny.

Fernando and I discussed the monopolistic and cartel-like nature of this setup, where the NAR and MLS seemingly manipulate prices, inflating home costs and consequently harming consumers. A striking aspect of this lawsuit is the alleged 6% 'non-negotiable and anti-competitive' tax that costs consumers billions annually. This system essentially forces buyer agents into transactions, often inflating costs by significant percentages.

Reflecting on our personal experiences with real estate transactions, the sentiment towards this commission-based structure has long been one of skepticism. The prevalence of startups promoting 'For Sale By Owner' (FSBO) models highlights an ongoing resistance to traditional methods. These startups, along with platforms like Redfin or Zillow, challenge the necessity of buyer agents in an era where much of the preliminary house-hunting and negotiation can be conducted independently by buyers.

However, the implications of the Sitzer Burnett case extend beyond just buyer-seller dynamics. Each MLS could potentially face its own lawsuit, as seen with subsequent cases in California. This legal pushback signifies a monumental shift that could dismantle the long-standing practices of the NAR and MLS. As Fernando noted, "it's going to be a ton of lawsuits that are going to be coming down the pike," driving significant behavioral change in the industry.

The repercussions of this case could remake the industry, opening avenues for proptech companies to innovate and reshape real estate transactions. We see a future where AI could play a transformative role, potentially making traditional broker systems obsolete. AI, with its capability to analyze real estate data, legal requirements, and consumer preferences, could streamline transactions, reducing costs and enhancing efficiency.

But the changes aren't just confined to residential real estate. The commercial sector, including leasing, might also see increased transparency and disclosure of commission arrangements. This could directly impact my field at Shovels.ai, which deals with construction permits. The potential alignment of our services with evolving industry norms offers exciting possibilities for innovation and growth.

As we navigate these changes, we must be nimble, keeping an eye on how our companies can leverage this upheaval. For proptech companies, this period is not just a challenge but an opportunity to redefine the industry, offering more transparent, efficient, and consumer-friendly solutions.

In conclusion, the legal developments in the real estate industry signal a turning point for proptech. The dismantling of long-standing practices presents a unique opportunity for innovation and growth in the sector. As we at Shovels and other proptech companies observe these changes, we are looking to capitalize on an environment that promotes transparency, data access, and empowerment.