Rich Rector, president of Realty Executives International, reveals that the RE/MAX legal team involved in the adverse commissions suit against Smythe Cramer and Realty One real estate companies has approached his company's legal team for information. Rector believes that the evidence his company has to give will strongly support the plaintiffs in the case, RE/MAX, in proving that Smythe Cramer and Realty One did engage in practices designed to eliminate competition in the marketplace.

"I have some facts and some circumstantial evidence that I feel point to a wider anti-trust issue. As an industry, we need to look at this," says Rector.

Citing discriminatory practices that date back as far as 1984, Rector claims that companies such as Vaughn Realty in Albuquerque, West Shell in Cincinatti, and Smythe Cramer and Realty One in Cleveland have made it difficult to attract recruits and have driven a few of his franchises out of business, one as recently as two years ago. The practices include such actions as offering lower coop fees to 100% brokers than other brokers in the marketplace, or refusing to allow them to show the listings at all. Although the lower fees were never stated in the MLS books, the companies would send letters outlining the reduced coop fees to the 100% brokers. The two Cleveland defendants hold about a 60% combined market share, making reduced co-op commissions a formidable consideration for agents.

Realtor Colleen Puciutto a former associate of one of the Cleveland defendants, joined Realty Executives, built a new office building, and attempted to recruit agents. When her recruits learned that she had received letters from the defendants in the case that they intended to cut coop fees with her company, they either refused to join or left the company. Without associates, Puciutto found it impossible to get good agents. Closing her doors within months of opening, she moved away from Cleveland and started over in another city.

"These were competent people who didn't deserve to go out of business," says Rector. "No one wanted to buy a franchise in Cleveland because of the adverse commission situation."

According to the court documents, companies such as Smythe Cramer and Realty One feel justified in such actions because of their top agents are often "recruited" by the 100% companies, actions which can also be construed as "eliminating or unfair competition."

Despite repeated complaints to the National Association of REALTORS® the situation continues. Not only did the NAR do nothing, charges Rector, it condoned adverse commissions under the "selective sub-agent" statute which enables brokers to select which agents and brokers they will allow to show their listings.

"I basically threw up my hands at the bureaucracy of the NAR," recalls Rector. "If you look back several years, they weren't a proponent of the 100% concept. We had a lot of trouble getting the NAR to publish articles and to get them to acknowledge the 100% concept as a viable system. That may have changed over the years."

"It's been an interesting saga," says Rector, whose company is now the sixth largest real estate organization in the nation. "My father, Dale Rector, was the first to implement the 100% commission concept, and he was the first to encounter resistance from companies who were afraid of losing their top producers."

So what do the other companies have against the 100% concept? "The founders of those companies were very upset with Re/MAX and Realty Executives because they were going to lose their top producers, their bread and butter and the reason is the split commission concept never rewarded the top producer enough. Our philosophy is that you are to lose them whether the 100% plans exist or not. These people are the self-starters; they will one day leave and start their own companies anyway."

Realty Executives and RE/MAX both give agents a reason to leave by promoting the 100% commission philosophy, and they back up the enticement with high agent earnings. Both companies report associate earnings triple those of the average NAR agent. Instead of accepting a commission from the broker who pays for administrative assistance and office space, the 100% agent keeps the entire commission and pays the franchise office a set monthly fee sharing the office and administrative costs.

Rector admits that in some cases, the franchises that went under could have failed for other reasons. "In Cincinatti in 1984, we were just getting started, so our failure may have been due to our lack of critical mass. We had much difficulty recruiting to our company. The agents would say, "If I come to your company, West Shell will only play my half the commission other people are making to sell the same listing."

"This was at a time when buyer agency was rare. What you could do then as a broker is write a letter to other brokers and tell them, 'I don't want you to be a sub-agent on my listings' or 'I don't want you to sell any of my listings.' Then it evolved to 'I will only pay you so much to sell my listing,'" explains Rector.

"When this popped up in Cleveland, we said, 'We are a buyer's agent and we are going to write a contract. We are going to write it into the contract saying that the seller's agent will pay the commission.' That got bumped out because the code of ethics precludes disputing commissions in front of the buyer/seller. However, the listing agent's commission is clearly spelled out in the contract. The other technique open to us was to approach the seller directly."

"What we did instead is very interesting. Two years ago, we did a survey in Cleveland of sellers whose listings had expired with Smythe Cramer and Realty One. We asked them if they had been told that RE/MAX and Realty Executives agents would be making less money if they sold your house than another company's listings. Over 86% replied that they weren't told that at all."

"The sellers believed that they were getting the full benefit of the marketplace. They had no idea that there was a limit on the number of other agents who were excited to sell their homes," points out Rector. "That means that there was not full disclosure made to the sellers. The houses didn't sell and the sellers are wondering why."

Has Realty Executives ever retaliated? "There has not been a retaliatory boycott at all. If we have a buyer for a home, regardless of who the listing agent is, and that house fills the buyers' needs, then that is the house we are going to sell," replies Rector. "But if two homes are identical and one is being marketed by Smythe Cramer or Realty One, and the other home is offered by Century 21, it is human nature that a Realty Executives agent would probably show the Century 21 home first."

"My purpose is to make sellers aware that some companies are limiting exposure to their homes and that just isn't right. It is so obvious that it isn't the right thing to do," says Rector. "This is a cooperative business. We need to play fair. Why try to impose something other than a level playing field?"

Published: June 7, 1999

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.