Iowa's largest brokerage sued over commission splits

Keller Williams franchisee also files ethics complaints against Iowa Realty

A Clive, Iowa-based Keller Williams franchise has filed suit against the largest brokerage in Iowa over the latter’s refusal to split commissions with Keller Williams’ buyer’s agents. The suit alleges unfair competition, breach of contract, and libel among other charges.

The Keller Williams franchise has also filed ethics complaints with the Iowa Real Estate Commission and the Des Moines Area Association of Realtors for alleged "false statements" concerning both itself and the Keller Williams franchise.

Golden Circle Real Estate Group LLC, which does business as Keller Williams Realty Greater Des Moines filed a seven-count complaint against Des Moines-based Iowa Realty, a subsidiary of Berkshire Hathaway affiliate HomeServices of America Inc., Wednesday in Polk County District Court.

Before affiliating with Keller Williams in March, Keller Williams Greater Des Moines was Burnett Realty, an independent, 37-agent firm founded in 2000.

According to a letter included in the complaint, Iowa Realty, which has more than 65 offices and 1,000 agents, informed Keller Williams Realty in 2006 that it would not share commissions with Keller Williams agents should the franchisor open an office in the Des Moines market.

In the letter, Iowa Realty accused Keller Williams of "damaging" and "unwanted" recruiting efforts, including "attempted clandestine efforts of Keller Williams to recruit an Iowa Realty agent to act as a ‘mole’ who in turn is to recruit other Iowa Realty agents to sign non-disclosure agreements to hear the pitch why they should leave Iowa Realty and become Keller Williams agents."

In January 2012, Iowa Realty warned Burnett Realty, which was in the process of becoming a Keller Williams franchise, that their position had not changed. On March 23, Iowa Realty informed the newly converted franchise that, as of March 24, "Iowa Realty will pay Golden Circle Real Estate Group LLC … agents upon the sale of an Iowa Realty, resale property listing, 0 percent of the commission posted on the multiple listing service."

The policy does not apply to new construction or certain real estate-owned (REO) properties whose sellers or servicers require commission sharing.

"Iowa Realty has created a situation that does not represent the best interests of the Des Moines consumers, and we want to resolve this matter," said Brian Wentz, team leader of the Keller Williams Des Moines office, in a press release announcing the lawsuit.

"The reasons for the zero split are rooted in the arrival of new competition in the market, and the impact an inter-dependent model will have on on a traditional broker. It is not the result of any actions on our part," Wentz said in commenting on an Inman News story about the dispute. "We intend to continue to do the right thing for our consumers, and represent their interest on any home purchase that fulfills their needs. This is a non-negotiable in our culture, and in the end will prevail over scare tactics."

"We want to be great competitors in the marketplace, but want to do so in a cooperative, consumer friendly environment," Wentz said in an interview. "We are paying their associates, when they sell one of our properties, and we feel it would be win-win for them to do the same."

In a written statement, Kim Walker, a partner with Faegre Baker Daniels, LLP and outside counsel to Iowa Realty said the brokerage "intends to vigorously contest the claims … in its formal legal response."

Mike Knapp, president and CEO of Iowa Realty, also provided a written statement, saying Iowa Realty "has been the leader in Iowa’s real estate industry for more than 60 years. Our success is the result of working diligently in tandem with our agents to deliver the best possible real estate and marketing services to our customers. This is our mission and our focus."

Iowa Realty closed 7,488 transaction sides worth $1.3 billion in sales volume last year, according to figures compiled by Real Trends. Its parent company, HomeServices of America, was the second largest brokerage in the country in 2011 by both transaction sides and sales volume.

Keller Williams Realty is the second-largest real estate franchisor in the U.S. with 700 offices and nearly 75,000 associates in the U.S. and Canada.

The complaint filed by Keller Williams Greater Des Moines against Iowa Realty charges the brokerage with unfair competition, interference with a contractual relationship, and interference with prospective business by "refusing to pay the commission listed on the MLS to Keller Williams Realty’s agents, making disparaging comments about Keller Williams Realty’s business, and omitting properties listed by Keller Williams Realty’s agents from the MLS listings on Iowa Realty’s website."

"Iowa Realty’s actions have caused Keller Williams Realty’s performance of its contractual duties to be more expensive and burdensome," the complaint said, adding "Keller Williams Realty has suffered damages including unpaid commissions and revenues."

The complaint also alleges Iowa Realty committed injurious falsehood, libel and slander by making "false statements about and affecting Keller Williams Realty, including falsely stating that Iowa Realty cooperates with other brokers and splits commissions" in its seller’s agency disclosure form, "falsely characterizing Keller Williams Realty as ‘a pyramid scheme’ " in its newsletter, and "falsely stating that Keller Williams Realty employs ‘subversive and distracting tactics’ to ‘disrupt’ the market" to the media.

Those statements are the subject of ethics complaints, also filed Wednesday, by Keller Williams Realty, Greater Des Moines against Iowa Realty. In its complaint to the Iowa Real Estate Commission, the franchise’s attorney Matthew Whitaker of Whitaker Hagenow & Gustoff LLP, accused Iowa Realty of "making misrepresentations to its clients about its current policy regarding the splitting of real estate commissions and KWR-GDM’s business."

In its complaint to the Des Moines Area Association of Realtors, of which both brokerages are a part, the franchise alleges Iowa Realty violated Articles, 1, 3 and 15 of the National Association of Realtors Code of Ethics.

  • Article 1 states, in part, "When entering into listing contracts, Realtors must advise sellers/landlords of the Realtor’s company policies regarding cooperation and the amount(s) of any compensation that will be offered to subagents, buyer/tenant agents, and/or brokers acting in legally recognized non-agency capacities."
  • Article 3 states, in part, "to be effective, any change in compensation offered for cooperative services must be communicated to the other Realtor prior to the time that Realtor submits an offer to purchase/lease the property."
  • Article 15 states "Realtors shall not knowingly or recklessly make false or misleading statements about competitors, their businesses, or their business practices."

Keller Williams’ complaint also charges Iowa Realty with breach of contract. In 2002, Iowa Realty allegedly informed Burnett Realty that Iowa Realty would only pay Burnett Realty’s agents 80 percent of the buyer’s agent commission listed in the MLS.

Burnett Realty subsequently filed a lawsuit against Iowa Realty. The parties later settled the case through a "tolling agreement" in which Iowa Realty agreed to pay Burnett Realty’s agents the full buyer’s agent commission posted in the MLS and Burnett Realty agreed to dismiss the suit. According to the complaint, Burnett Realty "contributed" that agreement to Keller Williams Realty and therefore Iowa Realty had violated the agreement.

In December, Iowa Realty informed Norwalk-based Exit Realty North Star that it would pay its agents only 80 percent of the commission it pays to agents with other brokerages, according to Exit Realty North Star broker-owner Jon Niemeyer. The brokerage affiliated with Ontario, Canada-based franchisor Exit Realty in October.

"We’re one of the oldest companies in the Des Moines market. We purchased the Exit Realty franchise last October, and changed our name," Niemeyer told Inman News earlier this month. "I believe that’s what prompted Iowa Realty to change our commission structure."

Niemeyer did not respond to requests for comment for this story.

According to Keller Williams, Iowa Realty "has, in the past, withheld commissions from agents associated with other real estate firms, including Re/Max, Coldwell Banker and Exit Realty."

The Des Moines Register reported this week that "Iowa Realty has successfully defended itself against similar lawsuits in the past, including from Next Generation Realty, a flat-fee company that alleged antitrust violations in 1999."

Iowa Realty did not respond to a request for comment on past lawsuits.

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