KANSAS CITY, Missouri — National Association of Realtors CEO Bob Goldberg was back on the stand Tuesday morning at the start of the seventh day of the Sitzer/Burnett class-action buyer broker commission antitrust lawsuit.
After undergoing questioning from Ethan Glass, NAR’s lead attorney on Monday, Goldberg faced Michael Ketchmark, the lead attorney for the plaintiffs, at the start of Tuesday’s proceedings.
Initially, Ketchmark tried to establish that NAR’s Participation Rule, which lies at the crux of the lawsuit, is in itself a conspiracy. His rationale is that the corporate defendants, which now include Keller Williams and HomeServices of America, follow and enforce the NAR rule. This means sellers wind up paying inflated commissions at closing.
He then tried to compare chicken producers inflating prices to what the plaintiffs are claiming NAR does with commissions, constituting an antitrust violation.
Goldberg responded that the analogy does not fit because agents are selling services and not a product.
NAR’s Participation Rule a focal point of testimony
Ketchmark then delved into the purpose of NAR’s Participation Rule. Goldberg said the rule needs to be mandatory, because cooperating participants have a right to know how they will be compensated prior to working with clients.
In his testimony, Goldberg maintained that the current system promotes an efficient marketplace. He noted that picking up the phone each time and negotiating with every buy-side agent, as Ketchmark suggested, would be highly inefficient.
Goldberg also told Ketchmark and the jury that the Participation Rule gives the seller a larger homebuyer pool, however, he denied that Realtors steer clients to properties where sellers offer buyer’s agent compensation.
Next, Ketchmark turned to a comment Goldberg had made on Monday, where he claimed that NAR does not discuss commissions. Ketchmark said this was false, pointing out that the trade group hired a company to conduct research on commissions globally.
The research, known as the “D.A.N.G.E.R. Report” and distributed to all NAR members, found that real estate commissions were down globally. Goldberg clarified that in his previous comments, he meant that NAR does not weigh in on what members should charge for commissions and that it’s not involved in how agents determine their own commission rates.
Ketchmark concluded his questioning by asking Goldberg if he would end the Participation Rule if the jury found in favor of the plaintiffs. Goldberg said he wasn’t sure, deferring the decision to the trade group’s legal team.
Glass returned to the floor after Ketchmark to ask Goldberg to clarify a few points.
During the redirect, Goldberg said that commissions are negotiable and that when the trade group talks about commissions, it encourages members to be transparent and remind them that they can negotiate commission rates with clients.
He also stated that there is no conspiracy and money is not taken out of the seller’s pocket, because it’s a great deal for them. Goldberg concluded by saying that corporations do not follow or enforce the rule.
Rodney Gansho, NAR’s head of engagement, took the stand after Goldberg. In his testimony, Gansho stated that NAR does not conspire with brokerages on commissions, and he echoed Goldberg’s sentiment that brokerages do not follow and enforce the rule in question.
Gansho discussed NAR’s policy-making procedures, noting that there are 800 members on NAR’s board of directors, making up 70 committees. According to Gansho, proposals for new rules are created in the committees. Gansho noted that NAR’s cooperative compensation rule passed with 92% of the board approving it.
Cross-examination zeroes in on MLS, association compliance with NAR rule
Like others who have testified, Gansho noted that NAR does not own or operate Multiple Listing Services, or MLSs.
Nationwide, there are roughly 1,100 state and local Realtor associations and about 500 MLSs, some of which are owned by the local MLSs while others are independent.
Gansho said that local MLSs adopt their own rules and they “don’t have to adopt our model rules.” However, if an MLS didn’t want to adopt a mandatory NAR rule, the MLS would lose its NAR-provided errors and omissions insurance, Gansho said.
During cross-examination, however, attorneys for the plaintiffs pointed out documents that state that associations could have their charters revoked and officers removed if they didn’t comply with NAR’s rules, which is why associations and MLSs choose to comply.
Gansho responded to this point by saying that NAR had never revoked a local MLS or association’s charter and that it has never gone beyond taking away errors and omissions insurance.
Ketchmark claimed that this was proof of NAR enforcing its rules, something Gansho had claimed previously only local MLSs did. As expected, Gansho disagreed with Ketchmark stating that the local associations determine the rules they follow.
In his testimony, Gansho also stated that NAR does not focus its work on commissions and has no involvement in listing agreements. He noted that the arrangement under NAR policies is that a principal broker transacts with another principal broker and they handle the money and pay the respective agents.
According to Gansho, the cooperative compensation offer is not to compensate the buyer’s agent for the work, but for bringing the buyer. Gansho also highlighted that NAR is now allowing brokers to put $0 as the commission offer in the MLS.
When asked if a $0 commission offer would cause some agents to not show a property, Gansho replied that NAR’s Code of Ethics means a buyer’s agent has a duty to show their client a house even if it doesn’t cover their costs. He then reiterated that cooperative compensation is not a provision about commissions.
In addition to the testimony of Goldberg and Gansho, Judge Stephen Bough denied HomeServices of America’s motion for judgment as a matter of law, which was filed on Monday.
The defense is expected to continue its arguments in the commission lawsuit trial on Wednesday.
Editor’s note: Keep checking HousingWire.com for ongoing, live coverage from Kansas City from our editorial team on the commission lawsuit trial.
