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“Collusion,” agent training are the focus on day three of the Sitzer/Burnett trial

Three of the named plaintiffs, including Rhonda Burnett, Hollee Ellis and Jeremy Keel, took the stand on Wednesday

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.

Several industry executives, including Rene Galicia, the former director of MLS engagement at the National Association of Realtors, and Rodney Gansho, the head of engagement at NAR, again appeared via video deposition, according to reports from Inman News.

Gansho is responsible for helping NAR establish its Clear Cooperation policy, which went into effect in 2019 and is at the crux of this lawsuit. In his testimony, Gansho confirmed that NAR’s “Antitrust Compliance Guide” states that members should not discuss fees with competitors and that agents should never use statements such as, “I’d like to lower the commission, but no one will show your house.”

Michelle Figgs, the former senior industry analyst at Keller Williams, appeared next. In Figgs’ video deposition, Michael Ketchmark, the lead attorney for the plaintiffs, asked her about a 2003 study titled, “Can Free Entry Be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry,” which she had sent to Ruben Gonzalez, Keller Williams’s chief economist, roughly six years ago.

The study attributes the “apparent uniformity of commission rates” to collusion.

“Why do commission rates appear to be so insensitive to economic forces? We do not have an answer to this puzzle. One possibility is that it reflects collusion by real estate brokers, perhaps enforced by the fact that every Realtor has to work through the local MLS, which makes price cutting easily detected,” the study states.

In her deposition, Figgs said that since sending the email to Gonzalez, she had “largely dismissed” the study.

Ketchmark also highlighted Figgs’ notes from a May 2015 Keller Williams meeting, in which she wrote that “Gary [Keller] believes strongly in collusion theory for why commissions are stable. ‘Co-opetition.’”

Figgs told Ketchmark that she was unsure if Keller himself or someone else in the meeting had made the statement.

Meredith Maples, the senior director of KW University, also appeared before the jury via pre-recorded video deposition footage. In her deposition, Ketchmark asked Maples about KW’s antitrust policy, which prohibits commission discussions, and how she reconciled that with slides from KW events that show information about 3% commissions for each side of the real estate transaction.

Maples told Ketchmark that the slides and scripts were models that agents could use as guides in their own business.

“Anything we include from a script perspective is a hypothetical situation,” Maples said. “We don’t tell people what to charge.”

Ketchmark countered this with the fact that nothing on the slides designated things as a model. He then quoted Keller Williams’ definition of a model: “A pattern of something to be made; an example for imitation; serving as or capable of serving as a pattern to be imitated.” From this, Ketchmark said Keller Williams teaches its agents that a “model will work for you if you follow it.”

Ketchmark also showed footage of RE/MAX CEO Nick Bailey’s deposition, which was recorded prior to RE/MAX filing its settlement agreement. Despite Bailey’s appearance via the pre-recorded footage, RE/MAX is no longer a defendant in the lawsuit.

In the video, Bailey confirms that RE/MAX requires its franchisees to belong to NAR and therefore follow its MLS policies and code of ethics. 

“I do believe that the MLS is derived from the concept of cooperation and compensation,” Bailey said. However, he added that if the cooperative compensation rule was not mandatory, RE/MAX does not believe it would change the behavior of selling agents.

Bailey also stressed that the rule is a NAR policy and not a RE/MAX policy. In RE/MAX’s settlement agreement, the firm noted that it was no longer requiring its franchisees and their agents to belong to NAR, among other things.

Like the executives from other brokerages, Ketchmark question Bailey on RE/MAX’s agent training materials, which also use the example of a 6% commission.

“It is for example purposes only,” Bailey said. “We are very clear that commissions are negotiable.”

However, after further questioning, Bailey said statements in training materials about not cutting commissions appear in training materials to serve as an example of how to handle objections.

Ryan Gorman, the former president of Coldwell Banker, also appeared via video deposition. Anywhere Real Estate, the parent company of Coldwell Banker, has also filed a settlement agreement and is no longer a defendant in the suit.

In his deposition, Gorman noted that Anywhere had submitted a proposal to NAR in the spring of 2022 stating that “the mandatory nature of [NAR’s cooperative compensation] rule is unnecessary and should be rescinded.” Gorman said that his understanding was that the proposal did not make it out of committee.

Gorman was also questioned about the training materials used at Anywhere Brands. In response to a seller asking if an agent would cut their commission, the training material suggest agents say: “I cannot cut my commission because I would never offer you less than my best.”

In his testimony, Gorman told Ketchmark that Anywhere does not train its agents to set commissions at a certain level. Gorman also noted that he believed he’d seen documents with examples of 5 percent and 7 percent “as well as the vast majority being blank.”

Wednesday’s proceedings also included the testimony of Hollee Ellis, the first plaintiff to take the stand. Ellis is a Missouri homeowner and the daughter of a 30-year real estate industry veteran. During her life, Ellis has sold four homes and bought five, one of which was sold during the time period applicable to the suit. On the home sale at issue, Ellis said she paid 6% commission on the home sale.

According to Ketchmark, the buyer’s agent portion of the commission on Ellis home sale accounted for 20.55% of her net equity, meaning the commissions for both agents ate up roughly 40% of the equity she had accumulated on the property.

“It was a hard pill to swallow that we would walk away with so little,” Ellis said.

Ellis told the jury she wanted to join the suit in hopes of ending this “unfair practice.”

Ellis was cross-examined by Barack Echols for Keller Williams and Robert MacGill for HomeServices of America. NAR declined the opportunity to cross-examine Ellis.

Plaintiffs Rhonda Burnett and Jeremy Keel also testified in person on Wednesday.

Comments

  1. The value of real estate brokerage services has been out of synch with the provided services for years. While most agents work on a fully commissioned basis so that they realize no income until a sale is completed, the market price of the property really has no relationship to value of the provided service. What’s more, many agents are participating in ancillary revenue streams such as insurance, title, and closing services.

    There is certainly a value to ensure only qualified buyers inspect the property and the buyer or seller is appropriately guided through sales process which includes proper disclosures of property history and conditions. However, the material differences in sale priced compensation plus typical transaction costs of transfer taxes and closing costs can chew up a substantial portion of home equity. For example, a typical 6% commission would create a $ $500,000 property and $1,000,000 property for the same service makes no sense at the typical 6% commission. To put that difference in perspective, percentage-based fees in this example would generate a $15,000 difference for basically the same service.

    Technology has changed many industries with the consumer significantly benefiting from more efficient and lower cost processes. It’s about time the real estate brokerage industry is compelled to embrace change and price fixing.

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