The second day of the trial for the Sitzer/Burnett bombshell class action buyer broker commission lawsuit included plenty of insights into how the plaintiffs are approaching what is expected to be a battle royal.
In his opening remarks addressing the jury and member of the public gathered in the Kansas City courtroom belonging to U.S. District Court Judge Stephen Bough, Michael Ketchmark, the lead attorney for the plaintiffs, called the suit a “refund case,” according to reports from Inman News.
Ketchmark said the plaintiffs want the defendants, which include the National Association of Realtors, HomeServices of America and Keller Williams, to “return the money” they believe was unlawfully taken via commissions as a result of an alleged conspiracy between the defendants.
The suit’s class includes 265,297 home sale transactions that occurred during the relevant time period. According to Ketchmark, the home sellers paid an average of $6,700 to the buyer’s agent in the transactions, adding up to $1.78 billion in damages.
In addition to his own remarks, Ketchmark showed video footage of the depositions of Keller Williams CEO Gary Keller, HomeServices of America CEO Gino Blefari and NAR CEO Bob Goldberg.
Gary Keller questioned about commissions
During Keller’s deposition, which had been conducted by Ketchmark, Keller would not say that he had talked about commissions at Keller Williams events. In the video, Ketchmark showed Keller footage from a KW Family Reunion event where Keller showed a slide showing the average commissions KW agents had earned between 2002 and 2019, to which Keller responded: “We didn’t talk about commissions. I reported the numbers and walked off the stage.”
Keller also added that the presentation was about the flow of money and “not a conversation about what you charge.”
Ketchmark also brought up Keller’s book “The Millionaire Real Estate Agent,” which discusses the ‘co-opetition’ model that has evolved among rival brokerages. In the book, Keller also mentions that each side in a real estate transaction gets an average of a 3% commission. To this Keller said: “It’s only an example so I can show how money goes. This is simply a model for the flow of money. Nowhere in that book do I talk about commissions except to explain the flow of money. And I say average.”
In the deposition, Ketchmark also asked Keller if he believed agents were steering buyers away from listings that offer lower commissions, to which Keller responded that he had “never seen evidence of it,” and that doing so would be “wrong.”
Ketchmark also presented Keller (and the jury present in the courtroom) with a script from Keller Williams University that agents can use to explain and negotiate commissions with clients.
In the script the seller asks the agent if he or she can reduce their commission, stating that they would like to save money.
In the script the agent responds: “Let me explain what happens when you reduce a commission. First of all, half of the commission usually goes to a cooperating agent. When you reduce the commission, you reduce the incentive for that agent to bring a buyer to your house. If an agent has 10 different houses, nine of which come with a 3% commission, one of which comes with a 2.5% commission, which houses do you think they are going to show?”
“You are putting yourself at a disadvantage competitively when you reduce your commission, wouldn’t you agree?”
In his deposition, Keller denied having ever seen the document and stated that he didn’t see anything wrong with warning a seller that there may be a “singular agent” who would steer their buyers to a house with a larger commission.
“I’m pretty offended with your characterization that a real estate agent would ever try to scare a seller, so I’m going to object to that,” Keller said.
He also noted that the training scripts were not telling agents what to do, but were serving as examples of what other agents have done to handle similar situations.
Footage from Blefari’s deposition followed
During the deposition, Ketchmark played an agent training video in which Blefari said he pre-writes a 6% commission into all his listing agreements and that he only negotiates commissions if they go up.
“I was showing them [agents] what I did so they can learn from that,” Blefari said in his video deposition. “I certainly don’t believe that fixing commissions is appropriate. I do believe training is essential.”
When asked by Ketchmark in the video deposition if his actions consisted of price-fixing, Blefari replied: “No, it’s just negotiating.”
In another clip from the training video, Blefari tells agents that “the only way you can eliminate competition is to include them,” echoing sentiments from Keller’s book about the co-opetition model.
During the deposition, Ketchmark asked Blefari if he agreed that the unilateral offer of compensation is the chief rationale for the MLS and if he believes that it is appropriate for a HomeServices affiliate to only charge 6% commissions and split them with buyer agents, to both of which he said, “Yes.”
NAR CEO Bob Goldberg was up next
In his deposition, Ketchmark focused on NAR’s Real Estate Services group, which Goldberg claimed was an advisory group, while Ketchmark said it was listed on NAR’s website as a committee.
Members of the group include many brokerage executives. An April 2018 email from Goldberg to Keller asking him to join the group highlights Blefari, Sherry Chris, the since retired president of Anywhere Expansion Brands, Craig Chatham, the CEO of The Realty Alliance, and Mike Ryan of RE/MAX.
Ketchmark highlighted the fact that meeting minutes for the group’s meetings were not kept. Former NAR CEO Dale Stinton had previously claimed that the group should not keep meeting minutes in order to ensure that what happened at the meetings remained confidential, despite a NAR policy stating that all committees are required to keep meeting minutes.
In his deposition, Goldberg said the choice to forgo meeting minutes was “made to foster open conversation” and that “there was no nefarious conversation that happened in this group.”
Although the defendants have not had the chance to defend themselves yet, in his opening remarks Ethan Glass, an attorney for NAR, noted that the trade group’s Participation Rule, which lies at the center of the this and other lawsuits, has been around for 25 years and has been clearly published on NAR’s website. As such, Glade said it is clear that the industry is not engaged in a conspiracy.
“What kind of conspiracy is out in public? There isn’t one,” Glass told the jury.
In his opening statements on behalf of Keller Williams, attorney Timothy Ray stressed that the brokerage did not work with NAR or any of the defendants to enforce NAR’s Participation Rule.
“They claim Gary Keller is telling thousands of agents what they should charge,” Ray said “They’re asking you to believe that agents in Missouri blindly follow what Gary Keller says. Nothing could be further from the truth.”
On Wednesday, Ketchmark is expected to present testimony from real estate broker Linda O’Connor. In 2012, when O’Connor was a member of NAR’s Professional Standards Committee, she told the trade association that its commission rule limiting free trade and should be eliminated.
This suit is truly misguided. Most buyers cannot afford a down payment, so asking them to pay their agent’s commission fee will stop buyers from buying. Nothing really will change in the industry except there will be more transparency about how much the seller is helping the buyers buy.