Wednesday’s most consequential courtroom moments during the ongoing commissions trial took place without the jury present when Judge Stephen R. Bough ruled against a petition for a mistrial—requested by the defense after the plaintiff’s played a surprise inflammatory video of a Berkshire Hathaway HomeServices executive sharing an unsavory tactic for handling commission objections—and dismissed a request for summary judgment from HomeServices of America attorneys earlier in the week.
Meanwhile, Michael Ketchmark, lead attorney for the plaintiffs, grilled HomeServices of America President and CEO Gino Blefari, who appeared live in court following his pre-recorded deposition that was played for jurors last week. The defense continued to build its case disproving allegations of conspiracy and price-fixing by calling Rosalie Warner, SVP of Network Services for HSF Affiliates, and local HomeServices of America operators from ReeceNichols to the stand. The plaintiffs’ case hinges on convincing a jury that the major corporate brokerages conspired with NAR on rules that limited competition and harmed consumers, focused specifically on buyer agent compensation.
Here are the trial highlights from Wednesday, October 25, which marked the eighth day of courtroom drama.
Gino Blefari denies collusion, defends commissions
– Before the jury arrived, lawyers for both sides sparred over the aforementioned video, as well as Ketchmark’s use of references to ongoing media coverage of the trial. Bough eventually struck all references to a news article Ketchmark had touted as evidence, along with all references to the salaries of NAR executives. He also instructed Ketchmark not to mention the video going forward.
– Shortly after taking the stand, Blefari told Ketchmark, “We did things right, ” and when a sneeze came from someone in the courtroom, he quipped, “This is nothing to sneeze at.”
– A theme throughout the questioning was whether or not HomeServices of America as a corporate entity was involved in the individual training, decisions and actions of its local affiliates in Missouri. Blefari consistently emphasized that affiliates operate independently.
– Ketchmark walked Blefari through various training manuals used by HomeServices of America affiliates. A consistent reference to 2.7% commission for buyer agents (and an additional $295 fee on top) was the focus. Blefari emphasized that commissions are negotiable, and that the only expectation of HomeServices’ affiliates is that they adhere to the NAR Code of Ethics. “My expectation would be that they don’t breach the fiduciary duty to the buyers or sellers.”
– Ketchmark again raised Blefari’s past references to his earlier years as a top-producing agent where he emphasized that his commissions were negotiable, but that he “can only go up from 6%.” He responded that this statement was “…a way to teach (agents) to be confident what they feel their worth is,” because they are only paid on the value they bring to the marketplace.
– While Blefari confirmed that the buck stops with him at HomeServices of America, he told Ketchmark that every brokerage within the network has its own training. “I’m not dictating at any company,” he said. “Every company has its own modules…(it’s) all done independently.”
– Ketchmark asked Blefari if he understood the allegations of a conspiracy that resulted in homeowners paying more in commissions than they should have. “I understand that,” said Blefari. “I don’t agree with it one bit.” Later he added, “I’m here to say we didn’t conspire to keep prices high.”
– The MLS unilateral offer of compensation rule was raised by Ketchmark as “the heart of the matter.” Blefari responded: “It’s to get them to cooperate, to do the best job they possibly can for the seller, and the best job they possibly can for the buyer; it’s not a conspiracy.”
– Blefari did agree that the unilateral compensation offer is a core component of the MLS. Ketchmark asked if there is “any other reason for it to exist beyond splitting fees?” Blefari responded, “It’s in the best interest of the seller to have as many possible buyers look at their house, (rather) than to limit those buyers,” later adding that if agents aren’t doing that, then they’re breaching their fiduciary duty.
Rosalie Warner emphasizes independent authority of member firms
– Warner, SVP of Network Services for HSF Affiliates, was brought to the stand by defense attorneys for HomeServices of America. She explained that her role is to work with companies that want to become BHH affiliates. When asked, “What do HSF and BHH have to do with these proceedings?” she replied, “Nothing at all.”
– When shown the BHH operations manual, which was entered as an exhibit, Warner explained that it expands on the details of the franchise agreement and that it does not deal with commissions nor reference a 2.7% commission target in any way. She also confirmed that BHH has nothing to do with the policies and procedures instituted by its franchisees, such as the Berkshire Hathaway HomeServices Alliance manual entered as an exhibit. Franchisees are “independently owned and operated real estate companies wanting to do business under the BHH brand,” she said.
– Warner detailed that HSF and BHH are not members of NAR, have no mechanism to enforce compensation, and that franchisees that join the firm make their own decisions about whether to join NAR and an MLS. “They pretty much operate how they did before they join us,” she said, emphasizing that the franchisor is not involved in setting commision or independent contractor guidelines, or any sort of mandatory training. All of this is spelled out in the franchise agreement.
– Responding to an exhibit showing training on negotiating commissions, Warner explained that this is available to new agents who may not have been in sales before and need help defining their value and negotiating with clients. The training, she said, does not include specific rates to be charged although it might include examples of rates for explanatory purposes.
– During cross examination, Ketchmark referenced an exhibit that showed the flow of companies at BHH, pointing out that some are not franchises but subsidiaries, which are owned by HomeServices of America. Warner concurred. Both ReeceNichols and Berkshire Hathaway HomeServices Alliance (two firms that conducted transactions for members of the class action) are owned by HomeServices of America.
– Ketchmark showed an exhibit that requires BHHS Alliance Real Estate salespeople to join NAR and pay dues. “I really can’t speak to this document,” said Warner. “It’s not ours and I haven’t seen it before.” Ketchmark made the same insinuation regarding becoming part of the MLS.
– Ketchmark questioned Warner on the consistency of buyer commissions (between 2.7% – 3%, 77% – 99% of the time) during the designated timeframe of the class action suit, April 2015 – June 2022, for the Missouri regions covered by HomeServices of America affiliated firms. He asked Warner if she could explain why such stability exists. “Each of these companies are independently owned and operated,” she replied. “Every market drives its own numbers.”
Mike Frazier underscores freedom of choice
– The defense then brought ReeceNichols President & CEO Mike Frazier to the stand. According to Frazier, the company has 60 offices in Kansas City and 60 in Southern Missouri. He explained that the negotiation of commissions is 100% at the discretion of the more than 2,500 real estate agents that comprise his firm.
– Frazier confirmed that ReeceNichols does not direct agents to become part of NAR nor the local MLS. He also said that he does not direct any of his agents to comply with the mandatory offer of compensation rule, nor does HomeServices of America enforce the rule.
– While HomeServices of America provides affiliated business services such as mortgage and title, Frazier confirmed that affiliates are not required to use those services—that they are “free to shop around.” This is included in an affiliated business disclosure statement.
– When asked if he understood that the plaintiffs contend that if the mandatory offer of compensation rule didn’t exist, that no one would use buyer’s agents, he replied that it would hurt buyers who would have to then come up with a down payment, closing costs and commissions. Under the rule, he said, “the client is protected. If unrepresented, how are you going to get that protection?” Later, during redirect, Frazier added that in the “but for” world without the rule, “Someone in the low end (of the market) would not be able to afford representation.”
Krista Wilson defends value of agents on both sides
– Wilson, SVP of Brokerage for ReeceNichols, testified that as a full-service brokerage, ReeceNichols provides services that are necessary to a real estate transaction, such as mortgage, title and insurance. She explained that there are a variety of options for home sellers other than full service, such as flat-fee brokerages, not using a buyer’s agent, and for sale by owner (FSBO).
– When asked whether ReeceNichols competes more on price or service, she responded, “Services definitely. We do more to expose the property to as many buyers as possible.”
– The defense continued to drive home the fact that there is choice at every stage of the process for home sellers, and emphasized the extent of work that is done by a real estate agent for a client, before they are ever paid. “I do a lot of extra research for the right price for the seller,” said Wilson, including photography and staging.
– The defense also sought to debunk the plaintiff’s contention that technological advancements have made the role of the buyer’s agent unnecessary. Wilson testified that technology has made things more difficult for buyers. “Since technology progressed, they can pull up all of the information,” she said. “A lot of times, that information is inaccurate.”
– The defense referred to the exhibit of class-action members Rhonda and Scott Burnett’s listing agreement with ReeceNichols, which showed a 6% commission, which the Burnetts agreed to. Wilson explained that the commission would be split evenly between the seller’s and buyer’s agents, which is ultimately good for the sellers. “There is that incentive for the buyer’s agent to bring a buyer your way, and essentially get a higher price for your home,” she said.
– On redirect, Ketchmark contended that entities that attempted to discount the 3% commission on the buy side are historically unsuccessful, such as the now bankrupt REX real estate.
– Wilson told Ketchmark she has seen no evidence of steering, and that ReeceNichols is not paying 3% to buyer’s agents “every time.” She also responded that she didn’t believe home prices would go down if the system of buyer agency was done away with.
Stay tuned for ongoing updates from the courtroom.
William Schmidt contributed to this reporting.