Mel Foster CEO testifies on commission change
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By Doug Schorpp | Tuesday, June 03, 2008 |
Mel Foster Co. altered its commission split percentage with five Quad-City area RE/MAX offices to slow down or stop its real estate agents from quitting and joining the rival companies, testimony revealed Tuesday in Scott County District Court.
“It was an overwhelming exodus to RE/MAX,” Rob Fick, president and CEO of Mel Foster Co., testified. Since 1996, 81 Mel Foster agents have left the company to work for RE/MAX’s five area offices, he said.
Fick was among three witnesses who took the stand Tuesday in the civil lawsuit filed by RE/MAX River Cities’ Bettendorf office against Mel Foster. The lawsuit seeks damages because of Mel Foster’s decision last year to lessen the amount that RE/MAX agents get when they sell properties listed by Mel Foster.
The plaintiffs rested their case about 3:30 p.m. After a closed-door meeting with both attorneys and Judge J. Hobart Darbyshire, it was announced that the trial will continue at 9 a.m. today with the defense ready to begin its case.
Fick testified that his real estate company changed its commission split percentage from 60/40 to 80/20 with RE/MAX real estate agents at the five area offices because RE/MAX was taking more and more of the market share in the Illinois Quad-City region, and Mel Foster was losing skilled, trained real estate agents.
During questioning by Arthur Buzzell, who represents RE/MAX River Cities, Fick testified that RE/MAX continued to grow in the Quad-City market, especially on the Illinois side, in part because RE/MAX pays its agents more.
“When 2006 numbers came out, we thought we had to do something” about that trend, Fick testified.
Buzzell provided 2006 reports that compared the top three real estate firms in the market. For instance, in 1997 in Rock Island County, Mel Foster had 55.8 percent of the share. Ruhl&Ruhl had 14.23 percent, and RE/MAX had 7.1 percent. In 2006, Mel Foster had dropped to 42.1 percent, Ruhl&Ruhl climbed to 20.23 percent, and RE/MAX jumped to No. 2 with 25.6 percent of the marketshare.
During the same time in Scott County, Mel Foster went from 43 to 43.9 percent of the market share, Ruhl&Ruhl grew from 27.4 to 36.2 percent, and RE/MAX increased from 9 to 13.6 percent. Mel Foster’s primary concern was the shift in Illinois, Fick said.
After studying the situation and conducting meetings with management, Fick testified that Mel Foster sent an April 23, 2007, letter to RE/MAX offices in the Quad-Cities informing them that the 60/40 commission split would change to 80/20 for RE/MAX agents.
The significance of that is when Mel Foster is the listing agent and a RE/MAX customer purchases that property, the RE/MAX commission dropped from 40 percent to 20 percent.
Fick said Mel Foster did that to “level the playing field.” When Buzzell asked Fick whether leveling the playing field was the real reason for instituting the new commission split, Fick said “absolutely.”
Also testifying Tuesday were Tom Swanwick, president of RE/MAX River Cities, and Billie Jo Pence, who is one of the broker/owners of RE/MAX offices in Rock Island and Aledo, Ill.
During cross-examination by Terry Giebelstein, Mel Foster’s attorney, Pence was asked if a real estate agent makes $80,000 a year at Mel Foster or Ruhl&Ruhl, “how much could they make if they moved to RE/MAX.”
“At least $160,000,” she testified, explaining that after agents pay for rent and other office fees, they get up to 95 percent of their share of the commission.
Swanwick testified that many of his RE/MAX agents make 100 percent of the RE/MAX commission share and generally make 10 percent to 15 percent more than real estate agents from other companies.
Also during cross-examination, by Giebelstein, Swanwick said while a large percentage of his agents get the 100 percent of their commission share, they also have to pay rent, ranging from $13,000 to $26,000 a year.
Pence also testified that there always had been great cooperation between all real estate agents. But after she received the Mel Foster letter about the 80/20 split, “I knew cooperation would come to an end,” she testified.
Doug Schorpp can be contacted at (563) 383-2292 or dschorpp@qctimes.com.
Earlier Version
Rob Fick, president and CEO of Mel Foster Co., testified this morning that his real estate company changed its commission split percentage with RE/MAX real estate agents because RE/MAX was taking more and more of the market share in the Illinois Quad-City region.
Fick was among three witnesses who took the stand this morning in Scott County District Court, Davenport. RE/MAX River Cities’ Bettendorf office is suing Mel Foster Co. for damages because of Mel Foster’s decision last year to lessen the amount that RE/MAX agents get when they sell homes listed by Mel Foster.
During questioning by Arthur Buzzell, who represents RE/MAX River Cities, Fick testified that RE/MAX continued to grow in the Quad-City market, especially on the Illinois side, in part because RE/MAX pays its agents more and many Mel Foster agents had left to work at RE/ MAX.
“When 2006 numbers came out, we thought we had to do something” about that trend, Fick testified.
That is why his company sent an April 23, 2007, letter to RE/MAX offices in the Quad-Cities informing them that the 60/40 commission split would change to 80/20 for RE/MAX agents.
The significance of that is when Mel Foster is the listing agent and a RE/MAX customer purchases that property, the RE/MAX commission dropped from 40 to 20 percent.
Fick said Mel Foster did that to “level the playing field.” When Buzzell asked Fick whether leveling the playing field was the real reason for instituting the new commission split, Fick said “absolutely.”
Also testifying were Tom Swanwick, president of RE/MAX River Cities, and Billie Jo Pence, who is one of the broker/owners of RE/MAX offices in Rock Island and Aledo, Ill.
During cross-examination by Terry Giebelstein, Mel Foster’s attorney, Pence was asked if a real estate agent makes $80,000 a year at Mel Foster or Ruhl&Ruhl, “how much could they make if they moved to RE/MAX.”
“At least $160,000,” she testified, explaining that after agents pay for rent and other office fees, they get up to 95 percent of their share of the commission.
Swanwick testified that many of his RE/MAX agents make 100 percent of the RE/MAX commission share and generally make 10 to 15 percent more than real estate agents from other companies.
Testimony will continue this afternoon.
Doug Schorpp can be contacted at (563) 383-2292 or dschorpp@qctimes.com.
Testimony starts in suit against Mel Foster
EARLIER STORY: If RE/MAX River Cities loses its civil lawsuit against Mel Foster Co., the Bettendorf-based office will not be able to survive long, according to testimony Monday in Scott County District Court.
“There’s no question, if we lose this case, we will be out of business,” Tom Swanwick, president of RE/MAX River Cities, testified Monday during the trial in Davenport. Testimony is scheduled to resume this morning.
After an eight-person jury was selected, opening arguments centered on why the lawsuit was filed and how it has affected the real estate market in the Quad-Cities.
RE/MAX attorney Arthur Buzzell of Davenport said his clients filed the lawsuit after Mel Foster President Bonnie Sparks-Gray sent a letter to RE/MAX in April 2007, saying it would reduce the commission split only with RE/MAX real estate agents.
“In order to best satisfy both our buyer and our seller needs, we at Mel Foster Co. Inc. are certain that our companies will continue our cooperative split,” the 2007 letter stated.
Buzzell told the jury that Mel Foster reduced the commission split for RE/MAX agents to “control the real estate market. ...The history has been almost forever that real estate brokers cooperate with each other.”
But he called the new 80/20 arrangement an “adverse punitive commission split.” As a result, the past year, RE/MAX agents have lost about $60,000 in commission, and several agents also have left the company.
Buzzell said evidence presented during the trial will show that an unspecified number of Mel Foster agents have gone to work for RE/MAX because they pay better. Because of that, he said Mel Foster wants to put RE/MAX out of business so it can maintain the current pay scale for its agents.
Attorney Terry Giebelstein, who represents Mel Foster, told the jury that the Quad-Cities is a very competitive real estate market. He said Mel Foster used to have about 50 percent of the real estate market, but its share now is closer to 40 to 41 percent.
He said RE/MAX today has 20 percent of the Quad-City market, and dozens of Mel Foster agents have left over the years to work for RE/MAX. He said if RE/MAX “had its own way, it will be the dominant player in the Quad-Cities.”
And, Giebelstein added, even though it is third in this market, RE/MAX is No. 1 in the world, and “RE/ MAX grows the company by taking other agents” from competitors.
He said the decision to change the commission split from 60/40 to 80/20 for RE/MAX agents only, occurred after Mel Foster management decided it had to do something. “It was looking out for its own business interest and not out to destroy one of its competitors,” Giebelstein said in opening arguments.
The only witness to testify Monday afternoon was Swanwick. He countered Giebelstein’s assertion that RE/MAX actively recruits Mel Foster agents. “We get agents because they are unhappy with where they are at,” he testified.
At issue
The civil lawsuit filed by RE/MAX River Cities against Mel Foster Co. was in response to a sudden notice of intent that Mel Foster planned to take a bigger commission split when a RE/MAX agent sold one of Foster’s property listings.
An April 23, 2007, letter by Mel Foster President Bonnie Sparks-Gray gave RE/MAX River Cities two days notice that Mel Foster was excluding RE/MAX from a 60/40 cooperative commission split offered by Mel Foster. Instead, the split offered was changed to 80/20, meaning that Mel Foster would get 80 percent of the commission and RE/MAX would get 20 percent when it sells a Mel Foster listing.
There are five RE/MAX offices in the Quad-City area. The lawsuit was brought by only RE/MAX River Cities.
In April of this year, Sparks-Gray filed a libel lawsuit against RE/MAX and three of its owners — Tom Swanwick, Susan Banks and Daniel Jeffries — accusing them of libeling her with a letter sent to the Council of Real Estate Brokerage Managers, of which she was president.
The libel suit has yet to go to trial.
Doug Schorpp can be contacted at (563) 383-2292 or dschorpp@qctimes.com. Comment on this story at qctimes.com.
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