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Real EstateBrokerage

Lawsuit claims Compass defrauds agents

Two real estate agents in California say the firm bilked them out of commission pay and stock shares

Compass defrauded its real estate agents out of millions of dollars in sales commissions and broke pledges to give agents shares of stock, according to a new lawsuit that seeks class-action status.

Filed last week in California state courts, the lawsuit is the latest legal drama involving Compass, the New York City-headquartered residential brokerage. The litigation arrives one month after Compass became a publicly traded company, putting it in the position to make good on agent’s stock programs.

“Employers like Compass violate California employment and labor law every day to make it appear to investors and the general public alike that the company is doing well financially and increasing market share,” reads the complaint.

Messages left with Compass were not returned.

The complaint – which proposes a class of every single real estate agent who signed a contract with Compass in the last four years – is brought by Lisa Sheppard and Todd Sheppard, a sales team that operated a boutique brokerage in Sonoma County and has since moved on to Sotheby’s International Realty.

The couple allege that the brokerage lured them in 2018 with the promise of a signing bonus, marketing budget, and office space. Additionally, the sales team would keep 90% of each sales commission, with 10% routed to Compass.

However, once they arrived at Compass, the brokerage allegedly deducted expenses, including marketing, from the Sheppards’ 90% commission on each sale.

When the Sheppards complained about these deductions, Compass responded it has discretion to deduct expenses under its “term of engagement” with agents. The couple contend that they never saw these terms of engagement upon joining Compass, and instead were presented with a 1 ½ page contract that they electronically signed.

Also, the lawsuit claims, the brokerage deducted from the Sheppards’ commission if the sales team got less than the standard 5% commission rate of each home sale, a rate usually divided 50/50 by buyer and sales-side agent.

“Compass’s refusal to shoulder the cost of the discounted commission is unique and unprecedented in the real estate profession,” the lawsuit reads.

The Sheppards additionally contend that Compass deceived them in terms of stock shares once the company became public.

“Compass failed to disclose to plaintiffs and class members that they would receive an inferior level of stock, not the company’s shares of common stock,” the lawsuit reads.

A lawsuit filed in January by Greg Maffei, a former Los Angeles-area Compass agent, makes a similar claim about agent’s shares of stock.

Compass has a few agent-equity plans, which are premised around agents snaring shares now in exchange for past commission income deferral. One program has agents buying stock at the “preferred” price of $154 a share. The firm’s stock as of Monday was trading at $18 a share.

Compass has faced multiple lawsuits in its eight-year-old history. Besides the Maffei litigation – also in California court – other pending litigation includes brokerages Realogy and Howard Hanna suing over unfair business practices, and theft of trade secrets.

The second-largest brokerage in the U.S. by sales volume after Realogy, per RealTrends, Compass is particularly prolific in California, following the 2019 acquisition of Pacific Union.

Comments

  1. “Compass’s refusal to shoulder the cost of the discounted commission is unique and unprecedented in the real estate profession,” the lawsuit reads.

    False

    My Brokerage (and many others of which I have knowledge) enforces a policy that commisisons discounted below 2.5% are paid to agents on a 50/50 split instead of the Agent Level Earnings.

    1. Thanks much for the insight. Was it made clear to you beforehand by your brokerage that you would be paid on a 50/50 split on commissions discounted below 2.5 %?

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