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Commission lawsuit: HomeServices files motion for judgment as a matter of law

The plaintiffs rested their case today while the defense ramps up its arguments on Tuesday

KANSAS CITY, Missouri — The second week of the Sitzer/Burnett class-action buyer broker commission antitrust lawsuit kicked off with a bang.

Just prior to the plaintiffs resting their case late Monday afternoon, HomeServices of America, one of the three remaining defendants in the commission lawsuit, filed a motion for judgment as a matter of law.

A judgment as a matter of law is permissible if there is no legally sufficient basis for a reasonable jury to find for the nonmoving party (in this instance, the plaintiffs) on the issue.

In the motion, HomeServices claimed that no evidence has been presented to show they conspired with the National Association of Realtors (NAR) and other brokerages on rules for commissions.

The day started with video depositions of four real estate brokerage executives.

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 cooperative compensation.

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.

Warner also testified that HomeServices of America has nothing to do with the commission splits determined by franchisees. During her testimony, Warner stated that Realtors should cooperate and share their commission when it’s in the client’s best interest but there’s not necessarily an obligation to do so.

She also said that HomeService’s guidelines state that listing brokers need to compensate buyer brokers only when the property is in the MLS. In her testimony, she noted that training modules receive very few views. According to Warner, the module that mentions commissions had just 138 views in 2020 and 2021, combined, among HomeServices’ 51,000 agents.

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.

Under questioning, Goffstein said that each agent has a contract that includes NAR rule clauses and that the contract also tells agents that NAR membership dues are needed by January.

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%.

Former association general counsel for NAR Cliff Niersbach was next, with the court viewing his video deposition. During his deposition, Niersbach was questioned about a letter sent in 2012 by Linda O’Connor to NAR’s Professional Standards Committee, which both she and Niersbach were members of, warning the committee that the Participation Rule was “the ultimate form of restraint of trade.” O’Connor told the 112-member committee in her letter that the rule should be eliminated.

Niersbach testified that the Professional Standards Committee only dealt with NAR’s Code of Ethics, so O’Connor’s suggestion was not advanced. He also agreed with the fact that there is no evidence he communicated with her to put the issue in the appropriate committee to look into it.

Ketchmark asked Niersbach why the committee didn’t investigate O’Connor’s complaint if NAR rules were inflating commissions. Niersbach replied that he did not agree with the question that NAR rules have increased commission costs.

The final witness of the morning was Darrell King, a former COO and compliance officer with Keller Williams. In his video deposition, King said that Keller Williams does not have an anti-trust policy. King was then presented with evidence that the firm has a section about it in their guidelines, to which King said, “We don’t violate anti-trust laws,” however he agreed with Ketchmark that the firm has never investigated this.

King also said that Keller Williams does not tell agents what commission to charge. In response to this, Ketchmark brought up slides shown by Gary Keller at a company-wide conference depicting sell-side and buy-side commissions.

King replied that he did not think it was wrong for Keller to talk about national commission levels since “it doesn’t mean anything to local market centers.” King added that Keller’s message was that agents should have the confidence and be open to “having a conversation” with their clients.

King also said that Keller Williams does not tell agents they shouldn’t negotiate except in extreme cases. Again, Ketchmark pulled out Keller Williams guidelines, which state that agents shouldn’t negotiate except in extreme cases but, ultimately, they can make their own decision of whether or not to negotiate.

The defense started its testimony late Monday after the plaintiffs rested their case.

Susan Millett, a past NAR president who was instrumental in changing a key rule that eventually became the Cooperative Compensation Rule, was the first to testify.

According to Millet, before 1996 instead of there being an agent who represented the seller’s interests and an agent who represented the buyer’s interests, it was typical that the seller had an agent who represented their interests and then there would be a so-called “sub-agent” who worked with the buyer but didn’t represent their interests.

Most states began writing laws that called for a change to the practice, and NAR itself began to see more buyer agents coming into the marketplace. In 1992, a committee suggested the rules change from a seller sharing commission with a sub-agent to a seller sharing commission with a participant in the MLS.

Millett said this rule change, which went into effect in 1996, was not about commissions but about providing better representation and creating a better marketplace.

According to Millett’s testimony, NAR heard that sub-agency wasn’t working, so the trade group focused on the rule about seller’s agents sharing commissions with sub-agents.

“We changed the rule to allow — not force — listing agents to make offers of commission sharing to other MLS participants,” Millett said.

During his cross-examination, Ketchmark noted that the rule change Millett helped create became heavily focused on commissions as the years passed.

The defense next called on NAR CEO Bob Goldberg to testify. Goldberg said NAR never conspired with the corporate defendants on commissions. He stated that to be a Realtor you adhere to the group’s Code of Ethics.

He also noted that the is no requirement that a real estate agent has to join the trade organization. Goldberg testified that while there are roughly 2.5 million real estate licensees in the U.S., only 1.58 million of them are NAR members.

When asked why sellers and buyers would choose to use a NAR member versus a non-affiliated agent or doing a for sale by owner, Goldberg said that NAR members have high professional standards, experience and deep knowledge of trends and neighborhoods, which benefit their clients.

Goldberg also noted that homeowners who sold their homes without a professional made 20% less, on average, than those who used a NAR member, according to a study published in Realtor Magazine.

“The beauty of this industry is it’s all about choice,” Goldberg said.

Goldberg also testified that NAR does not track commissions or “touch” what commissions its members charge. However, he did say that NAR members are required to adhere to NAR’s Code of Ethics and that while NAR doesn’t own or operate MLSs, it does have model rules for MLSs. The NAR CEO also said that it was preposterous that anyone would claim NAR is in favor of higher commissions so the trade group could receive $150 per member in dues.

According to Goldberg, NAR takes antitrust law very seriously and it instructs members to not fix or control commissions. He stated that broker compensation is solely a matter of negotiation between the NAR member and their client.

The defense will continue its arguments on Tuesday.

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

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