Commission Class Action Lawsuits Part 6

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The long-anticipated Sitzer/Burnett class action commission lawsuit entered its first day in court last Monday, leaving real estate professionals to ponder the fate of today’s cooperation and commission practices.

Here are some of the highlights of the first week of the court case:

At the crux of the case is the allegation that commission rates are too high, it’s unfair that the seller pays the buyer’s agent’s commission, and that the National Association of Realtors’ (NAR) Code of Conduct and MLS Handbook lead to set pricing. Named in the class action are NAR, RE/MAX, Anywhere, Keller Williams and Berkshire Hathaway HomeServices.

Rosalie Warner, a corporate representative for HomeServices of America and its affiliates, was the first to appear. During her deposition, Warner agreed that HomeServices’ franchise agreements stipulate that the independent contractors need to abide by the NAR Code of Ethics, but that agents don’t necessarily have to belong to NAR. She also agreed that every HomeServices agent in Missouri is a member of the MLS and that the firm advocates for clear cooperation.

In the deposition, Michael Ketchmark, the lead attorney for the plaintiffs, asked Warner to comment on a training script from HomeServices CEO Gino Blefari in which he said that when he was an agent, he was supremely confident and would tell prospective clients that while commissions are negotiable “they only go up from 6%.” Warner claimed that Blefari’s statements were not a rule for agents to follow, but an example of what Blefari would do.

The next video deposition presented was that of Kevin Goffstein, the president of Berkshire Hathaway HomeServices Alliance and a board member of MARIS, the local MLS. According to Goffstein, MARIS has between 350 and 450 members most years. In addition, the contract stipulated that agents must join their local Realtor association. Also featured in agent contracts is a commission guidelines section that calls for a minimum of 2.7% for buyer brokers and that overall broker commissions were to be between 6% to 10%.

Your Training materials are important!

The third day of the highly consequential Sitzer/Burnett class action buyer broker commission lawsuit included a deep dive into the training materials used by various brokerages and the testimony of three of the named plaintiffs.

Before Bailey, Ketchmark called recorded testimony from Meredith Maples, senior director of Keller William University.

Ketchmark asked her about KW’s antitrust policy, which prohibits commission discussions, and then showed various slides prepared for KW Family Reunion events that show 3 percent commissions for each side of a deal and refer to a “standard 6% commission.”

This included slides showing how many more homes an agent would have to sell to earn a million dollars if they charged a 2.5 percent commission versus a 3 percent commission.

NAR opening remarks: Attorney Ethan Glass, speaking for NAR, used his opening remarks to push back against the idea that the real estate industry is engaged in a conspiracy.

Glass said the purpose of what the court is calling the “Cooperative Compensation Rule” is to remind people “of the unremarkable proposition that no one wants to work for free.” He also said, “What NAR is doing is trying to help people and trying to promote home ownership.”

His point was that the system benefits home sellers because it incentivizes buyer agents to close deals.

(A critical element we need to reinforce is that the Buyer Broker is not paid by the seller but by the listing company.)

Our buyer broker agreement:

  1. Makes the buyer responsible for the fee.
  2. Sets the compensation between the buyer and the Buyer Representative.
  3. Offsets any agreed compensation between the buyer Rep and the Buyer by any money paid by the listing company or the for sale by owner.

This way we avoid one of the arguments in this case; that the seller doesn't negotiate the buyer broker fee.

2.) Sellers are forced to pay buyer broker fees without the ability to negotiate. Aren't the buyer brokers adversaries?

One attorney analogized the seller paying the buyer agent to when a dog is lost, and the owner wants to summon a bunch of strangers to help find the dog. That owner puts out fliers offering a reward — but only if the dog is found and only to the person who brings back the dog.

It is going to get worse!

Live CE classes are better than Correspondence, particularly for this issue, although we have added discussion and suggested strategies to reduce your risk to our DCE courses. It was exciting to see the networking, partnerships and strategic partnerships, team building recruiting and resource sharing that happened at our last live classes. You can't get those benefits sitting at home taking a correspondence class in isolation but we will be providing additional information on these issues in all of our relevant courses and Maui.

You should seriously consider signing up for our next live classes, Nov 11-12 or Nov 13-14, where we will give you tools to reduce your risk for the class action lawsuits that are likely heading our way. We will have workshops and role plays to refine your commission discussion to reduce your risk. You can't get that same level of protection and training in a correspondence class. But hurry to register, these classes have limited slots available and will sell out.

Best regards,

Jerry Royse, ITI

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