Compass retools brokerage exclusives

"Key-person clause" would let agents take listings if they leave

New York /
Jun.June 18, 2015 09:30 AM

When Brooklyn sales agent Debra Bondy hopped to Compass from the Corcoran Group in March, she – and her listings – got caught in the crosshairs of the battle that’s been raging between rival residential real estate firms.

Upon her resignation (and others), Corcoran sued Compass, alleging the startup “brazenly” raided its talent pool. In the lawsuit, Corcoran accused Bondy of taking listings to Compass when she had no business doing so, since the client signed an exclusive contract with Corcoran. Compass immediately fired back, alleging that Corcoran was “using the legal system to inhibit the freedom of independent contractors who are the chief executives of their own businesses.”

Now, Compass is looking to upend the industry’s standard structure for exclusive listing contracts. The startup is introducing a “key-person clause” in its contracts, CEO Robert Reffkin told The Real Deal. What that means, effectively, is that if an agent leaves, their clients and listings can go with them.

“The thought of forcing sellers to work with us against their will, in a client services business, is something that we had to rectify boldly,” Reffkin said. “We hope that the industry joins us in further empowering the agent-client relationship.”

Compass informed agents of the change Wednesday. The current industry standard, Reffkin said, “almost treats agents like door openers that are replaceable and interchangeable as opposed to like the advisors and real estate experts they are.”

It’s loaded language, but in fact the industry norm is a contract between a buyer or seller and the brokerage – not the agent.

“Sometimes a power broker will be able to negotiate something [so that if they leave] the listing automatically terminates and can be portable,” said Terrence Oved, a founding partner at law firm Oved & Oved.

But that’s not the norm. Usually, if an agent leaves a firm before a particular deal closes, they are paid a piece of the commission, but at a vastly lower split.

Reffkin argued that brokerages have a fiduciary responsibility to clients. “The consequences of replacing an agent are impractical – if not impossible – and have dire economic consequences,” such as lower prices, he said.

The introduction of Compass’ key-person clause punctuates a tumultuous few months’ worth of broker moves, as several top-producing agents ditched one firm for another.

Compass has been an active poacher, hiring President Leonard Steinberg from Douglas Elliman, Kyle Blackmon from Brown Harris Stevens and dozens of others from Corcoran.

 

In Corcoran’s suit, it alleges Bondy and Brennan “conspired to withhold at least one exclusive listing opportunity from Corcoran.” The firm said Bondy had a closing the day after she moved to Compass, and claimed “Bondy attempted to divert the payment to Compass because if the payments went to Corcoran after her resignation her ‘incentive level’ would drop by 30% per her agreement and she would receive a significantly reduced commission.”

 
 

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