Gary Keller testifies to close out week two of commission lawsuit trial

By Real Estate News

KANSAS CITY, Missouri — The final day of the second week of the Sitzer/Burnett commission lawsuit trial began with some procedural news.

After filing a motion for a judgment as a matter of law late Thursday, the National Association of Realtors’ request was denied by Judge Stephen Bough. The other defendants in the suit, HomeServices of America and Keller Williams, had previously filed motions for judgment as a matter of law, but both were denied.

Gary Keller takes the stand

Friday morning’s testimony marked the start of Keller Williams’ defense. The firm called its co-founder and CEO Gary Keller to the witness stand first. Like the other defendants before him, Keller noted that Keller Williams as a corporation has nothing to do with setting commission rates. He told the jury that Clear Cooperation policies are made locally and that commission rates are set on a case-by-case basis.

Keller also noted that he does not like people in the industry telling agents what they should and should not do in their business.

During his testimony, Keller also discussed his books and the models he uses during conferences, which had been previously discussed during the plaintiffs’ testimony.

Keller reiterated what he had said in his deposition that the items are templated and serve as examples of how an agent might practice real estate. He also noted that when his book first came out in 1996, there was no data on commissions. When examples in the book assume a 6% commission rate, it’s just an educated guess, rounding up from the 5.6% to 5.7% range he saw in the industry at the time.

Keller then discussed the presentations he gives at Keller Williams Family Reunion events, which usually have up to 15,000 attendees. In the presentations, Keller said he discusses a variety of economic statistics, including commissions.

Two of the slides he uses show average commissions on the sell side and the buy side for KW agents between 2002 and 2019. The slide shows that on the sell side, commissions have fluctuated from roughly 2% in 2002 to around 2.5% in 2010, before gradually climbing to 2.67% in 2019. The buy side, however, has much less fluctuation. After reaching 3% in 2008 and 2009, it fell to 2.72% in 2019.

Keller testified that he uses these slides to dispel the notion that there is a standard commission rate.

“We started producing this to point out there isn’t a standard commission,” Keller said. “They vary year by year. They’re reflective of market conditions.”

Keller said the main message to agents is that they should be aware that local markets change, and they have to be flexible. He also argued that the national average commission slide has no relevance to an agent in any particular market because the markets are all different.

“The 6% commission is a mythical animal,” Keller said. “As a national average, it does not exist.”

He also noted that showing the commissions slides does not violate Keller Williams’ antitrust policy, which is designed to prevent agents from discussing commission rates with competitors. He added that the firm’s “co-opetition” model is merely an acknowledgement that although agents compete fiercely for business and negotiate, later in the transaction they have to cooperate to get the deal done.

Keller also addressed the plaintiffs’ claim that he has conspired to keep commissions at their current rate is “ludicrous” and lacks any proof.

According to his testimony, he has no involvement in NAR or local association boards, but he does encourage agents to get involved and be members of their local association to have access to their local MLS, which he called “the single-best marketplace created.” However, Keller notes that if an agent does not have to be a member of NAR if their do not want and their team leader agrees.

During his cross-examination, Michael Ketchmark, lead attorney for the plaintiffs, homed in on commissions and on emails Keller sent regarding the threat of the internet on the real estate industry.

As he began his time on the floor, Ketchmark disputed Keller’s claim that he has no idea what commission rates are going to be next year, because they change year to year based on market conditions.

He told the jury that he was “100% certain” that commissions would be 3% next year in Kansas City, citing a Keller Williams slide showing their agents’ average commission in the city. He also did this for other cities in Missouri, nearly all of which had a roughly 3% average commission, except for St. Louis, which reported a 2.7% average commission.

Ketchmark then moved on to the threat of the internet. He showed Keller and the jury an email Keller sent stating that “commissions are under siege because of the battle on the Internet for data.”

Keller replied that the statement was taken out of context. He said he was talking about Zillow and other internet companies that are taking what he felt was his company’s data and selling it back to agents through lead generation for up to 45% of their commission.

He also testified that it is not about the commission rate, but about the net commission; Zillow takes money from agents, something Keller would like them to stop. He referred to this as a “relentless battle” that won’t stop until every piece of data is collected and “every commission dollar is rung from the agent’s pocket.”

Keller told the jury he plans to combat this but control everything in-house, which means that he would have to set up his own mortgage, title and real estate services companies.

Ketchmark concluded his questioning by asking Keller if he agreed with the statement that if technology companies control listings data, Keller Williams would lose control and its market centers would make less money. Keller did not dispute the statement.

The defense is expected to wrap up their case Friday evening. Closing arguments in the commission lawsuit trial are expected on Monday.

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