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Unraveling the Impact of NAR Settlement · Mortgage Marketing Radio

0:00
What's up, listeners? Jeff Zimper host of your marketing radio podcast. Thanks for tuning in.
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I got a special edition coming to you hot off the presses because of what's happened
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in the last several days regarding the NAR settlement. And I'm sure you've seen all
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the noise happening around the NAR settlement. So I've been posting some content on social media
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related to how you should show up on social as a mortgage originator. Some of the activities you can
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do. And if you don't follow me on social, please go do so on Instagram, Facebook, etc. You can
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just look up my name and go follow me there. But today's episode we're going to bring to you a
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special guest conversation. And I'm glad he made time from his busy schedule to unpack what
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actually is going on with this NAR settlement. What are the real changes that are happening? What's
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the origin of this whole thing? And then how should we respond? What do we need to do to prepare
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and how do we show up? So my special guest is James Climent. He is the managing editor for
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Housing Wire. And he's responsible for managing and directing the newsroom of Housing Wire,
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which if you don't know, Housing Wire is the nation's premier source of news and analysis for
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mortgage real estate appraisal and title. If you don't subscribe yet, follow the link at a show
1:30
notes, go and subscribe at Housing Wire. It is some of the best information for you to stay relevant
1:34
current information for you to be informed, but also for you to inform both your clients and
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referral partners. So here's what we do on this podcast episode. We first start with the origins
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of this settlement that has taken place because there's quite a history here and it probably
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would make sense contextually for you to understand the timeline of events that happened related to
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the big news of the settlement coming up. Secondly is we're going to unpack some of the actual
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specific changes that are coming from the lawsuit. And we're going to take it from the approach of
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what's hype, what's emotionally driven versus what's factual and real. And we're going to talk
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about what is factual in real and the potential impacts to real estate compensation to the buyer's
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agent, historically as we've known it. And what some of the impacts of that are. And I think it's
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important to approach this from the context of setting the emotions aside, setting the narratives
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that the media is putting out there and really just look at this from a factual standpoint of like
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what's what's really changed. Hey, hint hint, not a lot. Okay. But you need to be informed. Why?
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So that you can have it informed response for the potential buyers that you're talking to for
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your past client database and conversations there for conversations with your referral partners
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and more because they're in every situation and opportunity. That's all about how you look at it
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and what your approach to that is. So I think you'll find this conversation useful.
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As a matter of fact, we're leveraging this in our community of managing classes where we help
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originators, you know, attract and engage with realtors to have conversations that lead to referrals.
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We're actually now helping some of our members set up panels in their own local market. So we host
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a panel of different local subject banner, you know, experts, couple successful realtors,
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title, escrow, attorneys, whatever makes sense on that. And you, you know, host a conversation,
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a town hall, if you will. So if you want to learn more about what we're doing at my agent classes,
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you can go over and if you want to learn more about our platform, what we do is we teach classes
3:41
to real estate agents and now more than ever, of course, we want to become valuable and we want to
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not be a solicitor inventor, but we want to be a partner and appear more than ever. This is the
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time to be a partner and appear in our industry. So if you want to learn more about what we do there,
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you can go to mortgage marketing.pro. We're going to call with me there. Other than that,
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let's get into this week's show and unpack this whole NAR settlement and how you should be
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responding. Hope you enjoy this conversations with James Climent. Let's get into this week's show.
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James, welcome to the show. Hey, thanks for having me. It's a pleasure to have you. You've been on
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my radar actually for some time. You weren't aware of that. And I've had a few conversations with
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different folks at Housing Wire. But for those who may not be familiar with who you are, tell us
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who you are. What do you do? So I run the newsroom at Housing Wire and so we cover everything from,
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you know, allows and lenders, servicing, origination, you know, the big ugly capital markets,
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all that. We cover title insurance, appraisal, real estate, the brokerages, the life of a real estate
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agent, you know, all the way down to policy. So we cover pretty much everything from Soutanut.
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And yeah, I manage the staff and I do a lot of my own reporting as well. I typically focus a
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little bit more on the mortgage space. But you know, I cover the Sitzer Burnett trial on Kansas City,
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Missouri. And you know, certainly it's all interlinked, right? You can't talk about real estate with
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that mortgage and vice versa. You know, that brings up an interesting entry point for this conversation.
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Is I'm sure like me, there are some people who maybe aren't still connecting the dots on,
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what's the origin of this whole thing? You know, we hear it's some people can simplify and say
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it's just a bunch of hungry lawyers that, you know, saw this opportunity or whatever. But what's
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what's say you to if you could put the pieces into the puzzle of like, what's the origin of this
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whole thing? Yeah, so I think it's important to start by saying that the Department of Justice and
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the U.S. government has been interested in the way real estate agents do business for a very
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long time. The NAR has been established since the 1800s and they have largely set up a system
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that has resulted in what we have previously called cooperative compensation, right? And so essentially,
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I'm the cell site agent and you scratch my back, I scratch yours, right? And so it ensures that both
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parties get paid and it has set up, but I think a fairly efficient market system.
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Now what people should pay as consumers into that market system is obviously a matter of debate
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and it is absolutely true that the U.S. has among the highest commission rates for real estate agents
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in the world anywhere between five and six percent, you know, and rare cases it gets above that
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and some markets a little bit below that, but generally, you know, it's five to six percent.
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And so it's back in about 2019, 2020, 2020, you know, around this period that some of these big
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lawsuits start popping up and what you said earlier is absolutely right. There's no doubt these are
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class action attorneys. They're mostly personal injury attorneys who have never dealt with real estate
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cases in their lives, right? And it's a totally different business to chasing down pharmaceutical
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companies or hospitals or, you know, people working under very different conditions in different
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industries, but essentially the case, the big case that we'll refer to as Citzer Burnett
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out of Missouri boils down to about five fairly blue collar workers in Missouri home sellers
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felt like they paid too much in commission in real estate commission and that they also paid
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to the buy side. So the adversarial nature of it didn't sit well with them and they didn't know
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they say that commissions were negotiable. And that kicks off a big class action lawsuit
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and there are a bunch of others. So it's not only home sellers, but they're home buyers
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in other jurisdictions and all these copycat lawsuits across the country that have really started
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to percolate in the market and it also coincides with the DOJ getting back and saying
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we're really going to be scrutinizing NAR and its practices, its rules, because we feel that the
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consumer might be up against some some pretty difficult antitrust conditions and it's not a good
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deal for the consumer. And so the case ends in I want to say it was the last day of October,
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maybe Halloween or just around there and the plaintiffs in Missouri, they won. And so the NAR
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loses a $1.8 billion judgment that could be traveled to $5.36 billion. The NAR is big and powerful
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as they are and they are the biggest most powerful trade organization in the country, the biggest
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lobbying group in the country. They do not have that much money straight up. They do not have
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that much money. And the brokerage is that we're sued alongside the NAR for effectively allegedly
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conspiring to inflate commissions or stabilize them over decades. They lost and they don't have
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that kind of money either. These are low margin businesses. None of these companies have hundreds
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of millions or billions of dollars in cash just lying around. They do straight up zone. And so
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at that point the NAR was really in a pretty bad spot and they don't have a lot of bargaining
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leverage really. They ultimately decided to settle even though they said up and down anybody
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who would listen, we're going to fight this to the death. We are not going to settle. We believe
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that the law is on our side and that this will be reversed when it hits the appeals court.
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They ended up settling for a $418 million settlement. They admit no guilt, which is typically
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what you see in these settlements. Big tobacco kills. X amount of people and they say,
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oh, we didn't do anything. We're not saying we screwed up here. We're paying money to make it
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go away because it's everybody's best interest. Very interesting, very interesting. Of course,
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it may not go away because I'm trying to digest and read some of the other aspects of this settlement
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and you may know better than I or be able to speak to some of the legal leads or other courses
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of action that can be taken against NAR. There are additional follow-up pursuits or legal pursuits
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or fines that can be pursued against NAR and other brokerages still, isn't that correct?
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Yes. I should clarify the case that was settled against the NAR, this $418 million settlement
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that we just spoke to. That is to settle all claims from home sellers nationally. There are other
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cases, a couple in Illinois in which home buyers are basically arguing the same thing on the other
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side of it saying. It's certainly an interesting tactic. Those cases are not settled yet.
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I don't know what might come of them in the future. We also have the potential
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specter of the Department of Justice coming in and saying, we don't like the terms of this settlement.
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We don't feel that this is a fair deal. If you're a home seller, so I bought a home in 2021,
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sold it a little over a year later. I would probably be eligible for some of money as a home
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seller. It will probably end up being like $10, $15. That will hold out of money. The Department
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of Justice might look at this and say, that's just not fair. Given that, James paid 6% in commissions
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for the sale of that home and maybe it had no as negotiable, whatever. There is that element of it.
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I do think that this judgment will probably stand. I do think the judge in Missouri is going to
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sign off on it. I don't think that the DOJ is going to intercede and say, we don't like this
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arrangement because it really does satisfy a lot of what the DOJ has been saying about
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the commission structure, which is really just fundamentally at the most core basic level,
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they do not want the sell side agent dictating any kind of compensation terms to the buy side agent.
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And that has been fully dislocated with this settlement.
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Right. Because as most of us listening to this know, traditionally, that's been
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set at the terms of the listing agreement, where whatever that percentage of commission is,
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that's usually some sort of a split between the listing agent and the buy side agent.
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And that's kind of how it's always operated for many minutes.
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This might get a little personal. You've obviously transacted real estate. I'm curious if you think
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that is a good thing from a let's set aside who one who loses in this whole thing. We'll cover
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that in the second perhaps, but like from a just a transparency standpoint, do you think that's a
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good thing to separate those out? I think transparency in any context is always a good thing,
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people should know about my biases when I write stories. People should know about what
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realtors are charging. People should have a little bit more of a conversation about what they're
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comfortable paying the sell side, the buy side, and we'll see how that works going forward.
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But there should be conversations. And I do definitely believe even though commissions
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have been negotiable for a very long time, and they have been either a penny or a dollar,
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or some insanely low number that isn't relevant for the purposes of paying out agents a
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level of wage, they have to have these conversations. Consumers should know what they're paying for
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and the way in which they're paying for it. Is it at closing? Is it upfront? Is it
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some sort of a commitment before you've even gone through the sales process? You're saying,
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I'm going to give my agent 6%, and she's going to give 3% of that to the buy side agent,
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even if they're incompetent, even if they screw up the deal. I think that there's a lot of
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pluses in having an arrangement whereby both sides of the deal are very clear about what the costs
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are and who is responsible for bearing them. Maybe that changes during the course of the negotiation,
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but at least know what you're getting into ahead of time. Because I think often what you see
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is the buy side is just like, oh, the sell side is responsible for all this. I don't have to worry
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about it. They are paying for my cost, my representation. It's just like it doesn't matter. And so
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that's where you, I think, run into a lot of problems where one side just doesn't know or doesn't
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care. It's not stressed. That's the interesting question. Is that makes me wonder how many people
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actually knew the division of funds from that real estate commission that three or five percent,
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whatever it is six percent? How many people on either side, like the seller or the buyer? How
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many actually knew what was happening to you? I took a little poll of my friends and family.
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This is not a scientific poll by any stretch of the imagination. Just a bunch of group chats
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with family and friends and I asked, hey, did you guys know the commissions were negotiable?
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And if you did, how did that manifest? In practical terms, did that mean that you started at two
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and a half and they pushed back and you said, okay, sure, that's fine. That sounds reasonable.
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Did you start low? What did that look like? Half of them said they had no idea that commissions
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were even negotiable. They got a form, right? They get a piece of paper. It's buried in their 27
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page agreement as the seller that commissions can be seven percent, six percent, five percent.
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And so, you know, in some cases, they'll just select the lowest number. They'll select the five
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percent if that's on the paperwork. And that's it. There's no other conversation. It's just,
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okay, like that's what I signed that I moved on because that's how it's always worked, right?
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There's sort of this institutionalized memory of how this deal was supposed to go.
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And people just tend to comply. And like on the sell side, I would think if you're not educated
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or you don't understand the industry and how it works and you're having that meeting with the
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agent, they're like, you know, my commissions, even if I negotiated with my, when I sold and,
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you know, and I know how the whole thing works, but I moved it down from maybe six to four or whatever
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it was. But again, I, and this is just a complete guess, but I think your kind of informal survey
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back to the up is, I don't think most sellers were aware that of their five or six percent
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half was going to a buyer's age. I don't think so either. I mean, again, this is not
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scientific by any stretch. And then I'm sure the NAR would argue that that's not the case that,
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you know, these conversations take place every day and, and brokers are very aware of,
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of, you know, setting the expectation, but I don't think that that has been the case. And,
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and yeah, and so many of them think that they just get it rolled up in the financing anyway, right?
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And so it's sort of like a, why would I care? This doesn't really affect me. So that's,
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that's one of the problems here. And so that's why I'm really in favor of a lot more transparency,
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but I think it also should be acknowledged that this is going to cause some disruptions. This is,
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this is, we're taking what was a fairly efficient marketplace and model for better and worse,
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right? Like all the words associated with it. And now we're saying, well, hold on,
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we're going to totally rip up the scripts. And now we're going to have each side do their own
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negotiations. And we're going to make sure that the buy side representative gets a signature to
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rip every single client on every single, you know, home that they look at and all that. And so,
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you know, there are a lot of potential implications that could come. It's too soon to know exactly how
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it will work out, but it will not be as frictionless as it was before. And in some cases,
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right. Sure. We've got to learn and adapt. And one of the things that comes out of this is that
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now the buyer's agents are required to use a buyer broker agreement,
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which I know I've been in this real estate game since 2003. And any real estate agent,
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trainer, coach, whoever I've ever been around worth their salt is always advised buyers,
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brokers, agreements. But I don't think that that's been the norm. I think there's been a fair
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amount of word of mouth stuff or verbal agreements. Yeah, it hasn't been the standard. I would say that,
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you know, more professional agents who work with legit solid brokers, they know if you're on the
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buy side, like, you got to get that side, right? And we've certainly seen a lot more of that over
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the last year since a little bit more of the case has gotten out. And people on the public start
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asking questions and saying, Hey, you know, what does this mean? Why are we doing this? But I mean,
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generally, the conversations are pretty straightforward. It's, I'm representing you as your agent. And
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you need to ensure that I get paid. I don't work for free. And people understand the concept of
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nobody wants to work for free, right? Like, it's not, it's not exactly the most difficult
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conversation to have. But it wasn't adopted at like a 90 something percent rate, you know,
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is probably considerably less than that. But again, like we're talking about a lot of
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agents who are not full-time professionals that were more likely to not, you know,
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ensure that they side a buyer side agreement. Well, I know on our side of the mortgage side,
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and you're well-steeps in the mortgage side is that a lot of LOs are talking about the comparison
19:47
of Frank Dodd-Frank and Tread and all that stuff. That obviously impacted the industry in a big
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way. But of course, also pulled up the licensing requirements, uh, leveled up the professionalism
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as well. And I think that's what we're going to, that's why I think there's this narrative of
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there's a lot of fear. There's a lot of pushback. There's a lot of negativity.
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Because A, people don't like change. And now that's creating some uncertainty. But it's also
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probably forcing some people to re-evaluate, you know, are they really a professional
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air quotes, realtor? So if you look at the numbers, there are roughly 1.5 million members
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of, of NAR. Um, and let's just ballpark it here. So let's say it's the 90-10 rule, right? So 90
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percent of the business is done by about 10 percent of the agents. That's also true in loan
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origination, you know, so we're talking about a pretty similar, um, sales fields. And there are so
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many part-timers, well, I don't think are providing the best professional representation or advice
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to people. In a lot of cases, just like, you know, I was a state-owned mom, PTA mom,
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I mean, 15 grand, 20 grand a year, you know, selling a couple houses to friends or friends of
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friends or neighbors or, you know, a kid's friend or whatever. And, and that's perfectly fine. But
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they're not, you know, the, the tips top agent who is thinking about it from, I think, a more
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strategic perspective, and able to offer a little bit better representation, probably a better
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negotiator, because they seem more of the market changing, you know, for a minute to minute. And so
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if we lose a couple hundred thousand of them, is it such a great loss? I think there should be more
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professionalism in real estate. It's so easy. It's, it's more difficult to get a cosmetology license
21:31
in New York than it is to get a real estate license. And that's, I mean, no offense to the cosmet
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colleges out there. You know, I'm sure that the beauticians are, you know, trained professionals
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and take their jobs seriously. But that shouldn't be the case. That's, that's crazy.
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Well, what's the, I forget the figure exactly, but of the 1.5 million, like, 50% of them only sold
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a home in the last one home in the last 12 months. Yeah. And I remember, yeah. And most of them
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haven't sold anything in the last three to six months because, you know, it's a pretty tough
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market. And it's very, you know, very specific subsets of buyers out there, right? So you don't
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have to move up buyers. You don't have a lot of the traditional kind of work that that was out there.
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You have some tough first time home buyer business. You have maybe a couple investors who are never
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going to use a part-time agent anyway, right? And then you have kind of the life event situations.
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And again, less likely to get that kind of business. So it's, you're going to see a lot of these
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people wash out over the next year anyway, just because it's a bad market. And then you add
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the difficulties of having to get, you know, a buyer to sign every agreement with you the whole
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way through. Yeah. Or you're going to spend the money you need to to maintain your licensing. And
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then what are you going to pay for Zillow or Redfin Leeds or whatever? It's just the costs won't
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make sense if you're a part-timer. Yeah. Anything is just a market efficiencies, you know,
22:56
that has forced this change to happen. And again, nobody really likes to be forced to change,
23:00
which leads me to the next segment for us to talk about, which is all the uproar going on
23:05
across the various media. And of course, once again, mainstream media, fueling this misinformation
23:12
fire, which I know you've probably seen some of the headlines about, you know, prices are going
23:18
to go down, you know, commissions are going to be reduced. And you know, all these different things,
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which I haven't seen a close enough factual statement from mainstream media yet,
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it's just a lot of this clickbait stuff, which is really sucks for us in the industry too,
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because now we got to work that much harder at setting the narrative correctly. So,
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do you want to talk about like what's what let's talk about what really changes versus the hype
23:46
and the emotion? So maybe we get specific from it for anybody who isn't familiar with what the
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actual specifics of the requirements are in this settlement. Let's take the obvious one first,
23:55
which is the MLS, right, which previously, I think you alluded to this earlier. I'm kind of looking
24:01
at some notes over here, but previously they put the for operating commission, is that the correct
24:08
term? Yep. They put whatever the cooperating commission was to the buyer's agent in the MLS.
24:13
Corporate compensation has been set up. So from the get go right, like let's say you're a
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buyside agent and you're thinking about taking your client to 10 different properties, right?
24:25
If you're through the MLS and you basically have to be on your local MLS to be able to access
24:29
deals, to be a professional in this industry again because of narrows. So let's we're going to pack
24:35
that in a second, but basically what it meant is you knew upfront what that deal would pay you
24:40
because the seller and their client had already agreed, we're going to pay 5.5% in commissions,
24:46
which means it's going to be 2.75 on each side or whatever that is, but like you know already
24:53
going into it. And so a lot of the concern has been, and I think justifiably, when there are
24:58
situations in which the seller has not provided significant or what is considered average compensation
25:06
to the buyside, then you have steering issues, right? So that's definitely, so that goes away.
25:13
There is no field in the MLS to say, Jeff, the sell side agent is going to get his 3%,
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and they're going to be offering 3% to James on the buyside. And so James is going to be incentivized,
25:26
right, financially, to bring his clients to check out that home and then Jeff's going to be happy
25:31
because he sold the home. He got his 3%, right? James got his 3%, and the questions should the
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seller have been paying that, right? I mean, that's another, another, I think, dromity that we're
25:42
still going to have to reckon with, but now that we don't have it in the field of the MLS,
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I as the buyside agent will have to, I guess, you know, you Jeff, or maybe Jeff, like you have a
25:54
listing somewhere beyond the MLS, right? Maybe you have your own website for all your properties,
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and you'll say like, hey, you know, James, as the buyside agent, you can get his 2.75% on this one.
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But so there's going to be a lot more logistical, I think, challenges going into it because you
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don't know already what that'll pay. And the other wrinkle, of course, here is we can still get paid
26:18
as agents. So Jeff, the agent on the sell side can still absolutely get his 2.75 or 3%,
26:24
I on the buyside could get my 3 or 2.75. It just, it'll probably be written in a different form. So
26:30
it'll be thrown into the closing costs of seller concessions. So the seller will write out a
26:37
piece of paper. It's not that complicated. And it'll say, Jeff will get his and James will get his.
26:41
And then, you know, and that'll be that, right? And that'll dictate kind of what the price will be,
26:46
the sale price to my buyer. And I think that will still be the arrangement in the vast majority
26:54
of deals. Because like I said earlier, Jeff, it is a pretty efficient marketplace. Not always
27:00
fair to everybody, right? Questions about how much it should cost in commissions. But it is a
27:07
pretty efficient process. It's so much more efficient than when you look at how they transact
27:12
real estate in other countries. Like the MLS is a really smart tool. It's a great marketing tool.
27:19
And so you want to maintain, you know, the vestiges of that in this new form. Yeah.
27:26
Right. And so you referenced, there's other documents that they can put the composition
27:32
to the buyer's agent, the BAC buyer's agent commission that just has to not be in the MLS period.
27:40
And they can advertise that as you referenced on their own brokerage website that has their own
27:44
listings. They can, the whole thing is they can do it anywhere outside of the MLS period.
27:49
Yeah. Which makes yeah, well, I don't want to go down the rabbit hole of Zillow and all that
27:54
quite yet. But all right. So that's a fun one. Yeah.
27:59
Compens, are there any other key changes or requirements that you would like to highlight
28:04
relevant to the settlement? Yeah. So we cover the buyer, you know, needing to sign on
28:10
representation with the buyer broker. We've covered I think the main form. But the biggest takeaway
28:15
here is that the DOJ and in the terms of the settlement and this is a civil case, they do not
28:22
want the sell side being able to dictate the terms of compensation to the buy side. They have left
28:28
what I think you could probably characterize as workarounds. And so the first workaround is
28:34
it's through concession, right? So you as the the sell the sell side, you know, you've convinced
28:39
your client that this is the best way to do it. And they're going to pay me by two and a half or
28:44
whatever. And they're just going to negotiate the price up or down. And then if let's say we're
28:49
in a situation where maybe your seller has three or four offers, right? And she has to choose
28:58
which offer she might go with the one that says, you know what? You don't need to pay for my
29:03
representation. I'll pay for my own or I'll even go maybe unrepresented, right? So that that will
29:10
probably be the biggest wrinkle aside from just some of the major changes for buyers that are
29:18
already feeling the affordability pinch, you know, and just don't have, you know, money out of
29:22
pocket. I think they're definitely big losers in this for sure. But in terms of rules, I mean,
29:27
for the most part, it's it's pretty straightforward. Not only on the last buyer broker agreement,
29:31
NAIR doesn't set any rules. They have killed what is called the participation role. That was the
29:36
one that everyone was suing over. And and now the question is also what is the future of the NAR?
29:42
If they don't really have, you know, we're going to see if it really is an efficient marketplace
29:47
where if it has been, you know, self policing that has kept this practice, you know, as profitable
29:53
for agents as it has been. That's one of the questions I was going to ask you is does this spell
29:59
the end or unwinding of the NAR? It depends on you ask. It's too soon to say, but certainly the way
30:06
that this agreement was structured now, I do want to mention that, you know, it's litigation.
30:11
And so the NAR can't call all of its individual members and say, hey guys, like just so you know,
30:16
we're thinking about signing this and you know, we're thinking about 418 million. We're going to
30:20
pay it over four years and and oh, we got a car about four years. So if you're at two billion in
30:26
revenue and below, like you're cool, you're fine. This doesn't affect you. You're part of our 418
30:32
million and do's aren't going to be raised this year. But maybe next year, you know, but if you're
30:37
above 2 billion, well, you're kind of so well, like you got to fight your own battles, they kind
30:45
of hung their big brokerage, you know, constituents out to dry here. So if you haven't already settled
30:54
with Michael Catchmark, the plaintiff's attorney and the others, you're going to be on the hook
30:59
for a lot of money and the NAR is not going to help. And so they have upset a lot of members. There
31:07
a lot of members who already thought the NAR was not a very useful organization. They had more,
31:15
we're doing more bad than good. And certainly, if you have 500,000 agents as some suspect,
31:22
wash out, that's a lot of dues, right? And so an air is political capital, then starts to
31:29
whither. And they just, they're just, they're already arguably a shell of what they were.
31:35
What does it look like in a couple years when the membership really declines? And half of your
31:40
members despise you. So that's, it's going to be hard to figure. And I think a lot of people do
31:47
acknowledge that NAR does some good. You know, they have a lot of advocacy work. They have lobby,
31:52
they fought really hard for some really important bills and housing. They have also done a lot of
31:58
training. They've pushed a lot of education. For example, they had a big campaign to understand
32:04
the pronunciation of the word realtor. It is not realtor. It is. What's that? You being humorous
32:12
now. Sorry, a little cheeky. But yeah, I mean, look, it's, it's, it's, it's a really, really bad
32:17
blow. And I think it's probably the best NAR could have done. And they hung out half their
32:21
members to dry. And we'll see what, what happens. I was watching a video from somebody the other day,
32:27
a prominent agent in the country who said that NAR had a chance to fix this a while back.
32:32
Yes. And they chose, because they could have changed what they, the, the options for adding
32:38
in the MLS. They could have put like zero or whatever they needed something in there. And they
32:42
refused to do that. And so they had a chance. It sounds like you know what I'm talking about.
32:46
They've had many chances. The DOJ has been going after them for more than 20 years. Since,
32:52
almost 20 years, it was 2004, 2005 that they started, you know, and we're having a lot of
32:57
the same arguments. We're having a lot of the same debates now that the NAR was having 20 years
33:02
ago. A lot of these practices could have been changed, you know, when, when people started making
33:08
noise. A lot of the brokerages themselves have not been comfortable with cooperative compensation
33:15
for years now. So it's, it's not that there were no opportunities. It's that, look, this is a system
33:19
that has benefited, you know, a lot of the, a lot of the top folk at NAR. It has benefited
33:27
a lot of brokerages. But, but certainly there were warning signs and there were opportunities
33:33
to change this. And the NAR has been very successful fighting on, on many fronts for many years.
33:40
And they bury, they bury people on legal fees, right? And they're, they're a very powerful
33:46
organization. So I think there was a little bit more hubris than probably was warranted, you know,
33:51
and we say that with the benefit of hindsight. And NAR did pretty well for, you know, almost 20
33:57
years with, with a lot of these practices, policies and procedures. The DOJ and other folks finally
34:02
had enough and decided to all come together, you know, I mean, how can you continue to go up
34:08
against the DOJ and win continually? No. Yeah, no. I can't think of a single, a single person who
34:15
was, you know, indefinitely fought the DOJ and walked away and scathed. Wow. All right. So this
34:21
is not a win, obviously, for NAR, even though I saw a couple of people posting that it was.
34:26
I think it is a win in some respect. So if you think about it from the worst case scenario,
34:32
they lost a case. They lost a very, very, very significant case. I don't think they would have
34:36
won on appeal. I'm not a lawyer, obviously, I'm not a constitutional law scholar. I'm just a dude
34:42
living in Brooklyn. And so that the worst case scenario for NAR is they're done. They're dead.
34:50
It is finito because they would never be able to pay the bond. They would lose the case.
34:55
And they just, they don't have the money to compensate the so-called victims. So
35:02
from that respect, also, the NAR only paid $418 million. They just lost a $1.8 billion
35:09
judgment that would have been trebled to $5.36 billion. That's only one case. There are other cases
35:15
that were even 10 times the size of this argued on the same grounds. And so, yeah, I mean, the
35:24
for them because they covered their ass. Yeah. I mean, they walk away and they still have
35:31
the potential to fight another day. But they're definitely wounded, no doubt. They've been pretty
35:36
bloodied here. Yeah, in a variety of different ways. Now, I also heard it said that the buyers lose
35:43
in this settlement as well. I think it depends the way you see it. Certainly, buyers that have already
35:49
had a difficult time that don't have a lot of money for when you're working with Guideschev,
35:56
you know, the people who can't pay the appraisal gap, right? You know, they're already just barely
36:02
struggling to get to whatever the number is that their DTI is under. They don't have the funds
36:09
on hand. So, they'll need the sell side to compensate the, you know, that they're representation.
36:17
Or they'll have to look into alternative forms of representation, right? So, maybe there's a flat
36:23
fee model. Maybe they go unrepresented. Maybe they call the listing broker themselves.
36:29
Letter. Letter? Yeah, yeah. But certainly, when you, when you practically speaking,
36:38
change the dynamic from it being an expectation in the market that the seller pay these costs,
36:42
and now that's very much an open question, and you don't know, you know, deal the deal if that's
36:48
going to happen, and they lose purchasing power, right? They're losing some leverage. And it could
36:54
be a lot of money, you know, a $400,000 house is probably going to be what, $13,000 or so in
37:00
commission costs potentially. So. But let's look at it from this side as well. Like you talked about
37:04
steering earlier, like as an agent, I look at MLS commission and it's like, oh, this is only paying,
37:09
you know, and that was, you know, assuming to potentially drive some behavior, whether it was
37:14
or not, I don't know. But the point being is that's still going to go on in a different way,
37:18
which is if I'm a seller and I don't have BAC, like I'm not willing to offer compensation to a
37:23
buyer's agent, what I'm already knowing and hearing is that much like, you know, it's the whole
37:31
thing you want to get your property, you want to be your property to be as attractive as possible.
37:34
And if you don't have a buyer's agent commission, right, available, then the argument from the other
37:40
side is, well, you're probably not going to get your house in front of it. Is that many people? And
37:45
we got a lot of first-time home buyers who need help and all that kind of stuff. What would you say to
37:50
that? It depends on sort of the kind of the where you are in the market, right? So like, let's
37:53
let's take an example of my hometown in Wyckoff, New Jersey. So nice kind of like bedroom
37:59
community of New York City, there are now something like the last time I checked, there were eight
38:03
homes on the market, single family homes on the market, and every single one of them had a bidding
38:10
more. In most cases, those buyers are, you know, they're in a tough spot. There's so much demand,
38:21
supply and demand is going to have a much bigger impact on, you know, these are second order
38:26
effects from that, you know, like it's not the primary driver. I do think it's going to change
38:31
the equation certainly for VA buyers because you can't roll that into the mortgage, you know,
38:35
we can talk more about that if you like, you know, that there's a certain threshold for
38:39
closing costs for guppy buyers for, you know, VA and FHA, and if you're already at a tipping point,
38:47
yeah, I mean, you're not going to benefit from a rule that now mandates that you, you know,
38:53
at least on paper say that you're responsible for this. So yeah, there, it's going to be a
38:59
totally different game for buyers in, you know, lower to middle markets, but it's going to be like
39:09
real estate always is it's going to be a local, you know, game. It's going to be different from MSA
39:16
to MSA, and you know, we don't fully know how it's going to work out, but I think if the seller
39:21
has more leverage, certainly they're going to, they're not going to lower the price of the home,
39:27
like, you know, all these, these fictitious ideas that you alluded to earlier with, you know,
39:32
the mainstream media saying that's going to lower the cost of the home. No, it's not. This is just
39:36
going to, to, you know, put a little bit more juice in the, the sell sides leverage and they're
39:42
not going to leave money on the table. I think one of the headlines I looked at before this, this
39:46
conversation between you and I, which was, you know, 6% real estate commission slashed, you know,
39:52
it's so daft. Yeah, it's insane. I'm, I wish there were more real estate reporters at these
40:00
big national publications because they, they should know that that's not, that's not the reality.
40:05
And then getting back to, you know, the sufficient ecosystem that we've kind of had already in
40:09
place for so long, and it's just a matter of moving this item of brokerage and compensation
40:14
outside of the MLS to some other means of communication. It is going to be a little bit, I think,
40:19
harder perhaps because I mean, let's just face it. A lot of times agents, listing agents
40:25
aren't the easiest to reach. Maybe they don't return the calls. And now instead of looking in the MLS
40:30
to get the comp, you're like, I got a call, I got an email, I got to go through and then that's
40:33
going to create some probably inefficiencies in the whole process. But I've already seen, and maybe
40:38
you have as well, like I know of agent up in California. And then I saw on this same social media thread.
40:44
And of course, you had mentioned earlier, other states got ahead of this that this is already
40:50
happening. Like one broker that I know of said he took an offer and already had the conversation
40:56
with the seller about the BAC, and there was no problem. Like whether that was 6% or not, I don't
41:01
know, but the point is, as they disclosed it all, they presented it up front, the seller knew of
41:05
the news and all that. Of course, and they talked about it with their client and they said, oh,
41:09
yeah, well, that's normal to me. You got to pay the agent something, you know?
41:13
Right. Exactly. So that that's why, you know, I do think that they're going to be changed is
41:17
for the deals in which the buyer just doesn't have much maneuverability, you know,
41:22
it was already hampered by affordability issues. And a seller that has, you know, a lot of options,
41:27
you know, I think we're going to run into situations where that's where you see some of the
41:32
the effects of this potential settlement agreement really take place. I think for the vast majority
41:38
of deals, we'll still see what you just described, Jeff. We're going to see, you know, oh, okay,
41:43
yeah, they signed that. Okay. Well, you know, I'm still, I still think this is the best way to
41:48
transact. And, and you know, real estate agents are pretty influential. This, they've been able to
41:54
put in sellers have been able to put in a penny or a dollar or some nominal figure for many years.
42:00
In a lot of cases, a lot of analysis. And what they do is what they've always done, they pay the
42:05
buyer agent two and a half to three percent or, you know, whatever it is in most cases, pretty
42:11
consistently, where we're going to probably see the, you know, the, the examples of that not taking
42:17
place is where you have totally disjointed positions of leverage where a seller says, I'm not going
42:25
to pay anything because I know that I have 10, 20, 30 offers that are coming, going to end and
42:33
come in. And previously, what I would have done is just picked the one that had them go to 50,000
42:38
over budget, right? Or, over list. And now they're going to go 40, but they're going to pay for
42:42
their own compensation. And like, it's just the easier way to do it. Or you're going to see dual
42:46
agency, depending on state that you're in. So, yeah, or maybe there are going to be flat fee
42:52
models that emerge on the buy side. I talked to a guy, he runs a small brokerage in Iowa,
42:58
in Davenport, Iowa, his name is Pete Voss. And he, he has this company called 3% listing company.
43:05
And what they do is that they're all sell side at full service brokerage. And he signs on clients
43:10
and he tells them from the get go, your only commitment is to pay us, you know, it is negotiable,
43:16
but it's 3% right? Is the name would, would suggest. And you don't have to pay the buyer agent,
43:22
you know, that's not your responsibility. And if you choose to, like, cool, that's fine.
43:28
Like, that's totally up to you. And that's a business decision. That's a strategy you can employ.
43:32
And, you know, what typically happens, the vast majority, the vast majority of his deals,
43:39
the, the buy side is being compensated by Peter's clients, you know, because it's still the most
43:45
efficient way to make that deal work to incentivize all parties. And then, you know, you just kind of
43:50
play with the listing price up and down, you make sure that the pencils out for the mortgage
43:55
and the appraisal comes back. Okay, like, there are some complicating factors, but it's, it's those
44:01
rare deals, maybe not rare, but less frequent deal situations where that's where you're going to see
44:10
the real effect of this ruling in my opinion. Yeah. We'll obviously reach a new norm at some point,
44:17
right, where everything settles in after an adjustment period. Yep. But that's normal. Hey,
44:22
I wanted to ask you a question about New York. I heard this the other day seeing as you said,
44:25
you're from New York, agents in New York City are not members of the NAR.
44:30
That's correct. So they're, their members of an organization, another shady, powerful organization
44:35
called Rebney. It's the real estate board of New York. They've been historically a little
44:40
bit more commercial real estate focused, but they obviously do have a residential arm. And,
44:45
you know, they have a lot of similar rules as, as NAR and, you know, stay in local associations.
44:51
They're all very similar in how they do it. But yeah, New York is among the few major markets,
44:57
which does not have, you know, the NAR's presence. Another is in Washington state, where there's
45:04
another big MLS that, you know, they don't have the network. They do that. Do you know? Sorry.
45:11
Why did they do that? You know, I don't know the origins in either situation, but at least in
45:18
Rebney's case, it's been like that for decades. And it partly in New York, the big real estate brokerage
45:26
is in New York City have always hated one another and gone to extreme lengths to hurt the other,
45:34
and so they could never agree on forming an MLS. I don't think it's, you know, that difficult
45:43
in Washington. I don't think there's that much acrimony in Washington, but I'm not from there.
45:48
I can't speak for any experience. So my guess is that's probably why, you know, Rebney
45:54
has been sort of the de facto rulemaker in that jurisdiction.
45:59
Do you see local MLSs at risk of survival? Do you think there's a movement in the future towards
46:06
a national MLS? Any thoughts there? That would be really interesting, right? If you had one
46:11
national MLS, I mean, certainly co-starred with love to get in there and Zillow would love to get
46:16
in there. And I imagine there are a lot of different players out there who would be salivating
46:20
of the opportunity to have all that data and, you know, I've ever consolidated in one. I don't see
46:26
it. You know, residential real estate is still one of the most fractured industries in the world.
46:31
And that's the reason why you see so many like, they're going to be a million startups that
46:35
actually come take place because of all these disruptions. And, you know, everyone's sort of like,
46:40
you know, in the middle of it and trying to take a little bit of a bite. So I don't see a national
46:45
MLS coming any time soon. I don't see that even in the, you know, distant, distant future.
46:51
I do think that we're going to continue to see a lot more consolidation among the MLSs.
46:55
We already have. We, we see a lot more of them joining forces and getting bigger. And you
47:01
already have a couple really big ones, you know, like bright MLS. And California obviously has
47:06
a couple of them that are, that are pretty huge. And down south, there, there was a big consolidation
47:11
recently among three of the biggest ones. And like Georgia, Tennessee, and South Carolina maybe,
47:16
I'm not entirely sure at the moment. But that's going to continue. We're going to see larger,
47:24
you know, MLSs. It's going to go down from 400 something, you know, it's probably going to be cut
47:28
in half in the next 10 years. Well, so you've got mortgage originators listening to this mostly.
47:35
That's where you spend a lot of your time doing your writing and all that stuff. Do you have any
47:39
parting words for them of advice of how they should show up or, you know, what they should,
47:44
how they should respond to this situation? Yeah, if your business is entirely about
47:49
courting by-site agents, you're at a really big disadvantage. And you should yesterday have been
47:56
reaching out to people on the listing side. You should be really diversifying your list of
48:00
referral sources because I think it's going to get pretty choppy. And I think it's also an
48:06
opportunity potentially in the future where, look, you have clients that have already got their
48:11
pre-approval information. You've already got all the finances. You know what they'll be able to
48:15
afford in terms of paying a buyer agent. Maybe you're the one who can recommend, you know,
48:20
the referral for the real estate agent to a buyer, right? So I think this is also a really good
48:27
opportunity for you to get clients directly. So leveraging social media, right? Putting out smart,
48:33
informative takes on what's happening in your local housing market, getting smarter with your
48:38
SEO strategies. I think there's a lot of ways to capitalize on whenever there's a big disruption.
48:45
It's the creative people who provide value and take a little bit of a risk. And they typically
48:51
are the ones that end up reaping their rewards. And so for originators, I think there could be a
48:56
big opportunity. I'm personally very leery of tool agency and, you know, L.O.'s being licensed
49:02
as real estate agents as well. And, you know, we've seen on the flip side, you know, cases in which
49:08
agents have been originators. And that hasn't been, I don't think that's been a success.
49:16
You know, it's, we're going to see a lot of new, I think, models and forms. And I think it's going
49:21
to be a pre-interrupting exciting couple of years. So I would say don't be scared to try something
49:26
different. And at the end of the day, if you're providing your client value and you can show
49:32
everyone in that deal, whether it's someone on the title side, whether it's the listing agent,
49:36
whether it's, you know, someone else involved in that, that you're smart, you show up, you know,
49:42
you're shit, and you get results and you work hard. You're going to be fine. The vast, vast, vast
49:49
majority of business done by L.O.'s is like 10 to 15% of the L.O.'s. And they're already doing three
49:56
to five, you know, loans a month in most cases, right? Same deal with the real estate agents.
50:01
If you're trying to get, if you're cold calling, you know, buyer agents that haven't done a deal
50:06
in six months, like what are you doing? Like why on earth would you think that this is going to be
50:12
a fruitful source of lead referrals going forward? Like call the people doing the business,
50:17
you know, it's like provide them value, like give them something to chew on.
50:21
Yeah, I've said that for years. A lot of people focus on the buy side and oh, eight sides a year
50:25
and all that kind of stuff. And I'm like, the listing agent, man, I mean, those are the ones that
50:28
survive and thrive. They have the buyer leads anyways. So, you know, and they're the ones that
50:32
have the buyers agents on their teams. And that's probably what's going to happen even more so now
50:36
is if you're a listing agent and you've got this buyer situation now, you know, like you said,
50:40
all these new models. So I'm still, you know, bullish on agents as a source of business,
50:46
not the only one. But you've got to be smart, like with where you invest your time and energy
50:50
on agents, for sure. Absolutely. Yep. And diversify, like go beyond the agent. There are a lot of other,
50:56
yeah, I mean, I know it's, it's a little people don't want to discuss it, but probate, right?
51:01
That's a great source of potential business. You know, call up the funeral home director or call
51:05
up the divorce attorneys in your area. Call up the electricians. You don't think the age back guy
51:10
knows what's going on. Like he does, right? I just thought of the funeral. I'm like, nobody's
51:14
called calling the funeral director. Yeah, but they should. They should. They absolutely should.
51:20
The good one. All right, man, listen, this has been a great conversation. All right. Well, thanks for
51:24
tuning into today's episode. Hey, you got a question for you. Are you struggling to get
51:28
engagement and referrals from real estate agents and feeling like you're constantly fighting for
51:32
business and a crowded market? What if I told you there's a way to attract agents to a
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51:56
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53:49
original succeed and becoming the go-to lender in your local market.
53:53
Book a call with me now, mortgage marketing doff, bro. We'll see you on the other side.