Latest / The Connect Practice Track & Grow Podcast / Ep016: Understanding The Recent Civil Decision In Missouri Against NAR

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Ep016: Understanding The Recent Civil Decision In Missouri Against NAR · The Connect Practice Track & Grow Podcast

0:00
SPEAKER_00: Welcome to the Connect Practice Track and Grow Podcast.
0:04
SPEAKER_00: Habits, routines, motivations, and mindsets from some of the most successful real estate professionals among us.
0:10
SPEAKER_00: Check out the show notes at Connect Practice Track Grow.com.
0:15
SPEAKER_00: This show is brought to you by the Strategic Resource for Real Estate Professionals, creating and coaching business opportunities and strategies that support and add value to the lives of real estate professionals at thestrategicresource.com.
0:29
SPEAKER_00: And by Roost Real Estate Company.
0:32
SPEAKER_00: Today's real estate agent doesn't follow old rules.
0:35
SPEAKER_00: She makes new ones.
0:36
SPEAKER_00: Learn more at careerwithroost.com.
0:41
SPEAKER_02: Hi everybody, Chris McAllister here with the Connect Practice Track and Grow Podcast, where it's my job to make your business better and your life easier.
0:49
SPEAKER_02: I'm back today with my podcast collaborator and digital marketing director, Lacey LeBlanc.
0:56
SPEAKER_02: And today we're going to talk about something that's got many of many of us Realtors up in arms.
1:03
SPEAKER_02: And that's the recent uh decision in the NAR lawsuit, where uh the lawsuit is actually called Sitzer Burnett et al.
1:13
SPEAKER_02: versus the National Association of Realtors.
1:17
SPEAKER_02: And that's the subject of our uh conversation today.
1:20
SPEAKER_02: Hi, Lacy.
1:22
SPEAKER_01: Hey Chris, how are you?
1:24
SPEAKER_02: I'm doing okay.
1:25
SPEAKER_01: That's good.
1:26
SPEAKER_01: I'm not gonna lie, I'm a little behind on this.
1:28
SPEAKER_01: So I'm really looking forward to hearing uh the real story and not just what's on the news about this one, especially from your perspective with your experience and obviously your care and concern for not only yourself and your business, but for the folks you work with.
1:44
SPEAKER_02: Well, I tell you, I you know, I heard about it and it's one of those things that I've never really paid attention to for right or wrong.
1:51
SPEAKER_02: I guess, you know, I've you know have my license for 22 years coming up.
1:56
SPEAKER_02: I've been a realtor for 22 years, and you know, I always just thought the NAR saved us from ourselves, so to speak, and never had to worry about it.
2:05
SPEAKER_02: But the the reason I really started to dig into this the last few days is I had several realtors ask me about it and were panicked.
2:14
SPEAKER_02: So I wanted to dig into it and try to understand what happened.
2:19
SPEAKER_02: So I want to kind of talk through this with you.
2:21
SPEAKER_02: And again, this is all fresh in my mind.
2:22
SPEAKER_02: So I hope it doesn't sound like I'm all over the place, but this has caused so much hand-wringing, you know, and and consternation amongst us that I thought it was worth talking about.
2:32
SPEAKER_02: So it was a jury in Missouri, and they found that the National Association of Realtors and their co-defendants, two of which are Home Services of America, which is Worksar Hathaway brand, and Keller Williams, they were found liable and uh lost a judgment in court.
2:56
SPEAKER_02: And the plaintiffs, the people suing Sitzer Burnett et al.
3:01
SPEAKER_02: You know, the their claim essentially is that real estate rates, commission rates are too high.
3:08
SPEAKER_02: They also claim that buyer brokers are being paid too much, and that National Association of Realtors rules and the defendants' pack practices, and it's in this case, Home Services of America and Keller Williams, lead to set pricing.
3:24
SPEAKER_02: So in essence, it it's almost a populist uprising, right?
3:29
SPEAKER_02: Against, you know, realtors quote who are making too much much money, but the core of it is also an antitrust concern.
3:39
SPEAKER_02: So what's happened is aside from the fact that we're all up in arms and we don't know what's going to happen, this uncertainty is making us crazy.
3:47
SPEAKER_02: And there's a lot of bad information out there.
3:50
SPEAKER_02: So my goal is to try to clear that up as best I can for myself and anybody else who's listening, if that makes sense.
3:56
SPEAKER_01: Yeah, when you start throwing around anti-violating antitrust laws and those types of words, it gets really scary, I think, is what happens.
4:05
SPEAKER_01: Because then the next, what's the next step?
4:07
SPEAKER_01: You break the like to me, it's like, oh, you break things apart.
4:10
SPEAKER_01: Well, what does that look like?
4:11
SPEAKER_01: You change rules.
4:12
SPEAKER_01: Well, what does that look like?
4:14
SPEAKER_01: You and when the claim is that real estate agents and brokers are making too much money, you know, that obviously it feels like it's immediately gonna impact your bottom line in your chosen profession.
4:27
SPEAKER_01: So it I can see why people are wringing their hands and potentially panicky.
4:32
SPEAKER_02: Well, and the other thing that's really strange about this is the media has kind of defined this as an attack on buyer agents.
4:40
SPEAKER_02: And we're gonna talk more about that in the days and weeks to come.
4:44
SPEAKER_02: But just to foreshadow, you know, to me, the buyer agents they are the glue that holds the real estate business together, right?
4:51
SPEAKER_02: They the their function, you know, can't be digitized, you know, their relationship skills and so forth, it's not a uh something that can be substituted with artificial intelligence.
5:01
SPEAKER_02: So I think that's part of the weird thing about this is how harshly the media has judged buyer brokers.
5:08
SPEAKER_02: But the heart of this matter is, and understand, I started just Googling anything I could find about this lawsuit.
5:17
SPEAKER_02: So I must have read, printed up and read um a couple of dozen stories from different outlets and sources, and spent a lot of time on the realtor's website, which surprisingly isn't featuring this at all, which maybe it's not surprising, but I dug pretty deep and I tried to get as many viewpoints as I could possibly get.
5:37
SPEAKER_02: But what I see it coming down to is, and I'm gonna read this part, but the ruling found that the National Association of Realtors clear cooperation policy, that they refer to as CP, clear cooperation policy, violate antitrust laws, potentially opening up the industry to increase competition, changes in traditional business practice and a shift in the power dynamic.
6:00
SPEAKER_02: So, what is clear cooperation policy?
6:03
SPEAKER_02: Now, mind you, again, I may be behind the curve on this.
6:06
SPEAKER_02: There's probably a lot of brokers and realtors out there that know exactly what's happening in NAR at any time of it.
6:12
SPEAKER_02: I don't because, you know, I like to get other things done.
6:16
SPEAKER_02: So, you know, I'm I was kind of new to this, but I always embraced this clear cooperation policy.
6:24
SPEAKER_02: But anyway, I digress.
6:26
SPEAKER_02: So here's what it is so National Association of Realtors, the clear cooperation policy is a mandatory rule that requires listing brokers to submit property listings to the MLS for cooperation within one business day of marketing the property.
6:41
SPEAKER_02: So this clear cooperation policy was adopted in 2019.
6:45
SPEAKER_02: And the reason was you know to address the concern about pocket listings and where properties that aren't marketed to the MLS are only available to a select group of buyers.
6:57
SPEAKER_02: So the whole idea was that, you know, and a lot of this happened during COVID.
7:01
SPEAKER_02: And it's interesting that this happened in 2019, and COVID was right behind, right?
7:06
SPEAKER_02: So the it all gets rolled up into coming soon, and it's coming soon signs, and and when and if ever properties that were listed with a sign in the yard ever made it to the multiple listing service.
7:19
SPEAKER_02: And much of this was contrary to existing NAR policy, and quite frankly, some of it was contrary to state licensing law in various states.
7:28
SPEAKER_02: But the intent of the clear cooperation policy is very clear.
7:33
SPEAKER_02: It's to increase transparency in the market by requiring all listings to be submitted to the MLS.
7:38
SPEAKER_02: This helps ensure that all buyers and agents have equal access to information about the properties, right?
7:43
SPEAKER_02: That sounds great.
7:43
SPEAKER_02: I love that.
7:44
SPEAKER_02: Promote competition by making all listings available to all agents.
7:47
SPEAKER_02: The policy helps level the playing field, promote competition among agents.
7:51
SPEAKER_02: Sounds great to me.
7:52
SPEAKER_02: Protects consumers, ensures that consumers have access to all available properties, and the policy helps protect them from unfair competition and potentially fraud.
8:00
SPEAKER_02: I don't know that there's anything any of us could argue about that, but turns out there was.
8:07
SPEAKER_01: So what I'm saying, I'm confused.
8:09
SPEAKER_01: This all sounds like the opposite of a monopoly.
8:14
SPEAKER_02: I know it's it really sounds great.
8:16
SPEAKER_02: And you know, we've embraced this in our business.
8:18
SPEAKER_02: We always want to be transparent, we we want to let our buyers and sellers know, you know, how this quote game is played, how the business works, how we get paid, you know, who pays what.
8:28
SPEAKER_02: And, you know, I think that the best uh agents among us do just that.
8:32
SPEAKER_02: But it turns out there was some controversy around this.
8:36
SPEAKER_02: So in some quarters, people didn't like it, right?
8:40
SPEAKER_02: Agents that support the policy argued that it would help increase transparency and competition, but the people who oppose the policy argued that it would be too burdensome and not achieve its goals.
8:53
SPEAKER_02: So again, it's hard for me to understand that mindset.
9:00
SPEAKER_02: But and again, I I don't want to sound overly harsh or judgmental, but you know, it always comes down to me the difference between a transaction mindset and a relationship mindset, right?
9:11
SPEAKER_02: And a transaction mindset could lead you down the path that, you know, I'm gonna do everything I can to sell that property and I'm gonna get paid twice, right?
9:20
SPEAKER_02: I'm gonna get both the list side and the and the buy side.
9:23
SPEAKER_01: Right.
9:23
SPEAKER_01: That's really the only thing from my side of this, which is pretty unbiased, but just because of the lack of knowledge that I've had on about it, is that I guess if I could see something maybe potentially problematic, it's that if you are, if you do are a list, if you are listing a property and then you want to find the buyer, or if you have buyers and you want and you have other listings that you would be trying to to match those two, which you know is really just being a market maker, right?
9:53
SPEAKER_01: So it all goes back to the really the kind of moral fiber of the realtor, right?
10:00
SPEAKER_01: Are you doing what's in the best interest of your buyers and sellers or are you not?
10:04
SPEAKER_01: And how do you how do you legalize that?
10:06
SPEAKER_01: How do you legislate it?
10:07
SPEAKER_02: And you could argue if you're doing your job, you know, we get paid to sell houses, we should be market makers.
10:11
SPEAKER_02: We're expected to sell our own listings, right?
10:13
SPEAKER_02: We're not expected to put a sign in the yard, get paid 6%, and have somebody else do it for us.
10:17
SPEAKER_02: You know, that that's an absolute fact.
10:20
SPEAKER_02: On the other hand, you know, if you put an offer together from somebody in your database and there's a better offer out there by, you know, that comes to the seller from another agency or another agent, clearly both of those offers have to be presented to the seller, and the seller has to decide, you know, either A, which one they're going to accept, or B, which one they're going to negotiate with, or C, you know, this to simplify, you know, which one they're going to ask for highest and best or ask both for highest and best.
10:51
SPEAKER_02: So you get into, you know, the whole thing about multiple offers, which is also state controlled and to some degree NAR directed.
11:00
SPEAKER_02: So that's sort of this thing about clear cooperation.
11:03
SPEAKER_02: The the thing that's bugging us, I think, deep down is we thought clear cooperation, or I certainly did, was just this wonderful thing.
11:10
SPEAKER_02: We're doing the right thing, we're being transparent, you know, we're showing how it's done.
11:15
SPEAKER_02: And yet there was still pressure from quote within the realtor community and also from without against it.
11:23
SPEAKER_02: So again, one other thing that NAR said and a rule they had, and I know for a lot of us, we get confused between the difference of you know, what state law is in Ohio, the uh canon of ethics versus NAR's code of ethics.
11:38
SPEAKER_02: And, you know, generally there's no daylight between them.
11:41
SPEAKER_02: But personally, I'm constantly worried about things where the law changes in whatever state we're licensed in that I could miss that could jeopardize my personal license, the license of the brokerage, and everybody who's with me.
11:57
SPEAKER_02: So I'm constantly alert and aware and curious about what's happening at the state level, because quite frankly, they can shut us down, right?
12:08
SPEAKER_02: You know, licensee law is a very strict thing.
12:11
SPEAKER_02: You know, if you step out of line, the state has, you know, many remedies and they can prosecute.
12:18
SPEAKER_02: On the other hand, NAR, for which we all pay for the privilege, is designed to protect our interests and hopefully, you know, be at least as or more, for lack of a better word, moral or or transparent than the states.
12:34
SPEAKER_02: So the whole idea is if your trade association is as better ideas about protecting the public than the state licensing uh group does, that you would never have a problem with the state licensing group.
12:46
SPEAKER_02: So anyway, coming back to this, what I found over the weekend was that NAR told us all back in 2019 to avoid misleading claims about buyer agency services.
12:58
SPEAKER_02: And I thought this was interesting because I gotta tell you, you know, up until probably at the end of the week, I'm in violation.
13:06
SPEAKER_02: So because the the gist of it is, but let me just kind of go through these some of these notes.
13:12
SPEAKER_02: So NAR wants its members, and this seems right, right, to avoid misleading claims about the cost of buyer agent services.
13:20
SPEAKER_02: NAR's code of ethics prohibits realtors from advertising or representing their services as free or at no cost, unless they receive any financial compensation from any source of those services.
13:34
SPEAKER_02: I was really shocked by this.
13:35
SPEAKER_02: And, you know, I probably shouldn't be saying this out loud in public, but I was really surprised.
13:40
SPEAKER_02: So, you know, I think every buyer's agent worth their salt, you know, goes to a potential buyer and says, look, here's the good news.
13:48
SPEAKER_02: I get to help you.
13:49
SPEAKER_02: You don't have to pay me.
13:50
SPEAKER_02: The seller's paying me.
13:52
SPEAKER_02: The issue, I think, became where we had many agents not explaining how the seller paid the buyer's agent commission.
14:01
SPEAKER_02: Does that make sense?
14:03
SPEAKER_01: It does.
14:03
SPEAKER_01: Yeah, I think that's I mean, that's telling, I think.
14:07
SPEAKER_01: And it it's scary that it could come down to, you know, whether you stop at no, you you don't have to pay me and don't include the seller pays me part.
14:17
SPEAKER_01: Either way, it doesn't make a lot of difference probably to the buyer, but I, you know, I can see where, you know, that transparency is necessary, but yeah, it's a fine line, right?
14:28
SPEAKER_02: Yeah.
14:28
SPEAKER_02: So there were complaints coming, I guess, from within and without, an uptick in complaints that realtors were using misleading English language to describe their services.
14:36
SPEAKER_02: So some realtors were using phrases that such as no buyer agent fees or buyer agent services are included in the listing price when they actually receive compensation from the seller or another source.
14:49
SPEAKER_02: And again, sometimes I read these things off the NAR site and I don't know where this type of practice is happening.
14:56
SPEAKER_02: But NAR was concerned enough from an antitrust standpoint that they'd ask all of their members to stop doing that and to never use the word free or at no cost to disclose how much money you're going to receive from the seller.
15:11
SPEAKER_02: That makes perfect sense.
15:13
SPEAKER_02: Do not use phrases that could mislead consumers about the cost of your service, such as no buyer agent fees or buyer agent fees are included in price.
15:20
SPEAKER_02: I think the whole no buyer agent fee, I think a lot of realtors were using that in the context of there's a lot of brokerages out there these days that are charging transaction fees on top of charging a buyer for a transaction fee, a couple hundred bucks, you know, I guess we could refer to them as junk fees.
15:37
SPEAKER_02: And I think that some people were marketing against that.
15:41
SPEAKER_02: So I don't know that no buyer agent fees was necessarily malicious, but I can't see how it could be confusing.
15:48
SPEAKER_02: So NAR encourages its members to follow these guidelines to ensure they're providing consumers with accurate information.
15:54
SPEAKER_02: In addition, realtors are required to disclose all material facts to their clients.
15:59
SPEAKER_02: Realtors must avoid false or misleading statements about their services or qualifications.
16:03
SPEAKER_02: Yeah.
16:04
SPEAKER_02: Realtors must not engage in any deceptive or fraudulent practices.
16:07
SPEAKER_02: Well, that all sounds great.
16:09
SPEAKER_02: So let me just show you you know, we've got a list with Bruce Brochure on the website that anybody can download, and it goes through and talks about, you know, everything that we speak to a buyer about at that first meeting, right?
16:20
SPEAKER_02: When we get a referral, we invite him into the office or Starbucks or whatever, and we have a conversation.
16:26
SPEAKER_02: And one of those things that, you know, we've always said was the section that says our services are free.
16:31
SPEAKER_02: Our service to you to you as a buyer's agent are absolutely free.
16:34
SPEAKER_02: However, it's important to know that real estate agents and brokers do not receive a salary or hourly wage of any kind, we're paid 100% commission.
16:41
SPEAKER_02: You know, most of our buyers, especially first-time buyers, have no idea.
16:45
SPEAKER_02: So it goes on to say, so where does the money come from?
16:47
SPEAKER_02: And then we talk about we're all realtors, we all belong to the same multiple listing service, et cetera, et cetera.
16:53
SPEAKER_02: And we give an example as to where the money is.
16:55
SPEAKER_02: So from a transparency perspective, we've got this nailed to the wall.
16:59
SPEAKER_02: And essentially, those first that heading in the first sentence where it says our services are free and our service to you are free.
17:07
SPEAKER_02: I've got to rewrite that or I've got to remove that.
17:10
SPEAKER_02: And and we'll do that straight away because we are realtors, we're members of the club, and we have to follow the realtor's uh direction.
17:17
SPEAKER_02: So if anybody else is listening, maybe you're much more diligent than I am and you've already taken care of this.
17:22
SPEAKER_02: But if not, it's worth taking a look at your marketing materials.
17:25
SPEAKER_01: Yeah, I think that's you make a good point when you said something about first-time home buyers and and not understanding kind of the process.
17:33
SPEAKER_01: I do think that, and I'm not a realtor, but obviously we talk about manana all the time and my family connection to real estate.
17:40
SPEAKER_01: And I'm obviously very familiar.
17:42
SPEAKER_01: I'm working with Roost and with you.
17:44
SPEAKER_01: But I think there is something to be said about are we too close?
17:49
SPEAKER_01: You know, what is our perspective versus kind of the general public's perspective?
17:53
SPEAKER_01: What do first and let's say for the sake of argument, a first-time home buyer is the party most likely to be deceived because they have the least knowledge of real estate, you know, and buying and selling properties.
18:08
SPEAKER_01: You know, what is the perspective of those kind of first-time home buyers and sellers?
18:13
SPEAKER_01: And is this misleading to them?
18:15
SPEAKER_01: I think is is worth thinking about, especially for realtors and agents who have been doing this for a long time.
18:21
SPEAKER_01: It's it's always good to kind of step outside of yourself and get a perspective of that, because we could be too close to this to see where, you know, as we express some confusion about it, you know, we're very familiar with roost and your very honestly pure desire to help people find the right home or uh move on to a better home or whatever the case may be.
18:42
SPEAKER_01: But A, that's not the case for every brokerage, right?
18:45
SPEAKER_01: That's not the case for every person out there doing this.
18:48
SPEAKER_01: And B, you know, not everybody knows what to expect.
18:52
SPEAKER_02: Well, you know, like I always say, the road to ruin is paved with good intentions.
18:55
SPEAKER_02: And just because our intentions were pure doesn't mean that we weren't inadvertently confusing people, also.
19:01
SPEAKER_01: Sure, sure.
19:02
SPEAKER_02: So we get to the crux of this thing, this whole idea of clear cooperation policy.
19:08
SPEAKER_02: The thing that the fundamental pillar of the clear cooperation policy is the concept of cooperative cooperation.
19:20
SPEAKER_02: And cooperative cooperation, it's a matter of law.
19:25
SPEAKER_02: And when I was doing my research, what I wanted to find out was since this case was tried in Missouri, I wanted to find because what happened was that the jury found against NAR and the realtors involved.
19:41
SPEAKER_02: And they highlighted the fact that clear cooperation was a problem, but they basically called out cooperative cooperation as a problem.
19:51
SPEAKER_02: Okay.
19:52
SPEAKER_02: So in the case of our business, when we list a property, and I'm just throwing these numbers out there.
19:59
SPEAKER_02: In fact, I'm going to change the numbers, right?
20:01
SPEAKER_02: So we let's say we list a property for uh a 10% commission, right?
20:04
SPEAKER_02: So that's that seller agrees to pay the real estate company a 10% commission upon the sale of the house, and we agree, we disclose to them that we are going to cooperate, we're going to share that 10% with whichever firm brings a buyer, but you know, assuming we don't.
20:24
SPEAKER_02: And traditionally, that share has been half of the total amount of commission that the seller contracts to pay their listing brokerage, right?
20:33
SPEAKER_02: So we get paid 10, they get five of that.
20:36
SPEAKER_02: We give, we pay the other agency 5%.
20:39
SPEAKER_02: And it's a co-op, right?
20:41
SPEAKER_02: It's a fee, but it's called cooperative cooperation.
20:45
SPEAKER_02: So in the context of Missouri law, but I think this is pretty broad-based, right?
20:49
SPEAKER_02: I'm not an attorney, but this is just a simple matter of fact.
20:53
SPEAKER_02: Cooperative cooperation is a concept that refers to the willingness of different entities, such as businesses, government agencies, or nonprofit organizations to work together to achieve common goals.
21:04
SPEAKER_02: This can involve sharing resources, information, expertise to improve efficiency, effectiveness, and overall outcomes.
21:10
SPEAKER_02: And that's exactly what we realtors do.
21:14
SPEAKER_02: It also turns out that this idea of cooperative cooperation being absolutely legal and part of Missouri law somehow did not make it to the trial.
21:26
SPEAKER_02: For whatever reason, these concepts weren't presented to the jury, which is one of the reasons why we're going to have, you know, this is going to be appealed and it's probably going to go along a lot longer than anybody thinks it will.
21:38
SPEAKER_02: But again, this Missouri Cooperative Companies Act, it's a legal framework for the formation and operation of cooperatives, which are business owned and controlled by their members.
21:47
SPEAKER_02: The Act recognizes the cooperative business model as a unique form of enterprise that promotes cooperation among its members to achieve shared economic and social or cultural objectives.
21:55
SPEAKER_02: So one of the things that's really kind of crazy to me about this, if the The issue is about how much how much commissions are and who's earning that fee or getting paid a fee and not earning it as perceived.
22:11
SPEAKER_02: How how did they lose this lawsuit when it's not illegal?
22:16
SPEAKER_01: Sure, yeah.
22:17
SPEAKER_01: So I was just thinking, I come from my first job was in a manufacturing facility doing marketing.
22:22
SPEAKER_01: And one of my main roles was making sure that our company was listed in all of the state as well as federal like procurement directories.
22:33
SPEAKER_01: So you have to, you know, in order to do that, you have to submit all your information.
22:38
SPEAKER_01: They have to be approved.
22:39
SPEAKER_01: But then once you're an approved vendor, you get priority, right?
22:43
SPEAKER_01: And the essence of this is that cooperative cooperation.
22:46
SPEAKER_01: You're working together, you're sharing information.
22:48
SPEAKER_01: There's a separate kind of directory of products and services that are pre-approved.
22:53
SPEAKER_01: And that to me is exactly the same as this cooperative cooperation, because then anybody who's not on the list is excluded, right?
23:01
SPEAKER_01: From, you know, in a lot of cases, they cannot purchase unless you're on the list.
23:05
SPEAKER_01: If they want to purchase something from a company that's not on the list, they that company has to go jump through those hoops first before they can purchase from them.
23:13
SPEAKER_02: Exactly.
23:13
SPEAKER_02: And in the interest of you know calming everybody down, I think that's an incredibly strong point that is going to come up in the appeals process at some point next year.
23:26
SPEAKER_02: So again, you know, we're all up in arms, and this may not end up being as big a deal as it appears to be on the surface.
23:37
SPEAKER_02: But the fact is the suit was lost, but it doesn't mean that we'll lose the appeal.
23:41
SPEAKER_02: But having said that, you know, personally, I never like to let a good crisis go examined.
23:47
SPEAKER_02: And, you know, as I've gone through this, and we're going to talk more about it in the coming weeks, it has made me think differently about what we do and why, and how we might do a better job in service to our clients as real estate consultants.
24:02
SPEAKER_02: So if you go down the path that clear cooperation is going to go away, and that somehow cooperative cooperation as a matter of law is irrelevant, the phrase that you're going to keep, you're going to hear more and more about the word is decoupling.
24:18
SPEAKER_02: And in our industry, decoupling refers to the separation of buyer and seller commissions, right?
24:25
SPEAKER_02: So traditionally, real estate agents are compensated through a commission-based system, they earn a percentage of the sale price.
24:31
SPEAKER_02: But in a decoupled system, buyers and sellers would pay their respective agents directly rather than the listing agent who typically covers the buyer-agent commission.
24:43
SPEAKER_02: I also find it interesting that a lot of these newspaper articles forget that brokers are legally in charge here.
24:52
SPEAKER_02: Brokers are responsible.
24:54
SPEAKER_02: So I find it interesting that so many of these articles are talking about agents this and agents that, as if they're independent brokerages licensed in and of themselves, which is false also.
25:04
SPEAKER_02: But let's get back to decoupling, right?
25:06
SPEAKER_02: So decoupling has been proposed as a way to increase transparency and fairness in the real estate transaction process.
25:11
SPEAKER_02: And you know, on the face of it, that doesn't sound like a bad thing, right?
25:15
SPEAKER_02: You know, you you're the seller, you want to hire somebody to represent you, you you pay your agent.
25:21
SPEAKER_02: If anybody who brings the buyer, if that buyer wants representation, they would pay their agent, right?
25:27
SPEAKER_02: No different than if they had to hire an attorney, for instance, in a legal matter.
25:30
SPEAKER_02: They would hire their own attorney and they would pay their own attorney.
25:34
SPEAKER_02: So that that simplistic idea does make a lot of sense, right?
25:40
SPEAKER_01: We talk about advocacy all the time, right?
25:43
SPEAKER_01: Like in how your agent or your, you know, and then obviously your brokerage by default is your advocate and should be working in your favor.
25:52
SPEAKER_01: And it kind of we don't say it because it's not necessarily true in your favor alone, right?
25:58
SPEAKER_01: But like if you're representing the buyer and the seller, or if you have a listing that you want, you know, to show the buyer that potentially might work out, then maybe that's the really again fine line.
26:08
SPEAKER_01: So I can see where that would be an argument for decoupling.
26:12
SPEAKER_02: But there and it does simplify the process because the other thing that has always been a little gray, and I know every state is a little bit different, you know, we work aggressively in Florida and Ohio, and there's differences between licensing laws, you know, in both states, but there is zero legal link between agency and compensation.
26:38
SPEAKER_02: And that's where probably the public gets confused because I know agents get confused, right?
26:43
SPEAKER_02: You may have, in the eyes of the law, you may be in an agency relationship with a client with a fiduciary duty to serve, and yet you're getting paid someplace else.
26:55
SPEAKER_02: And that's been something that has been taught in real estate classes in Ohio for the last 22 years and maybe beyond, as far as I know.
27:02
SPEAKER_02: But the one thing to keep in mind is the agency law in a given state has nothing to do with how you get paid.
27:14
SPEAKER_02: You know, you may have to fulfill an agency obligation and never see a dollar.
27:18
SPEAKER_02: So you could argue if there's a way to bring those two things together, that would make it clearer for everybody.
27:23
SPEAKER_02: And so proponents, you know, that's one of the things proponents of splitting it up, decoupling, you know, talk about.
27:30
SPEAKER_02: But they also argue that the coupling would give buyers and sellers more control over the fees they would pay.
27:36
SPEAKER_02: So they would negotiate, the seller would negotiate whatever fee they're going to pay their listing agent, and the buyer would negotiate whatever fee they're going to pay their buyer's agent.
27:45
SPEAKER_02: The fact is, all commissions are negotiable, and the commission that the listing the seller agrees to pay the listing agent is always negotiable.
27:53
SPEAKER_02: And nobody is dictating how much of that fee is going to be shared or offered as compensation in the multiple listing service.
28:03
SPEAKER_02: Now, having said that, it turns out that there were several MLSs that wouldn't give agents the option of doing a zero compensation, right?
28:15
SPEAKER_02: So that little thing makes the whole thing look bad, but that's a longer discussion in another episode that we're going to do.
28:21
SPEAKER_02: But anyway, decoupling, right?
28:23
SPEAKER_02: So you get more control over your fees.
28:25
SPEAKER_02: You know, two sides get to negotiate their fees, the buyer side and the and the seller side.
28:30
SPEAKER_02: That would more align the agent's activities to their agency.
28:36
SPEAKER_02: So that makes sense.
28:37
SPEAKER_02: So the critics of decoupling argue that it could lead to higher costs for buyers and sellers, as agents may charge higher commission rates to compensate for not receiving a portion of the seller commission.
28:49
SPEAKER_02: So, you know, it could go both ways.
28:50
SPEAKER_02: But the key arguments are if you're for decoupling, you believe it's increased transparency.
28:55
SPEAKER_02: You get a clear understanding of how much they're paying in commissions, and they can compare rates more easily.
29:01
SPEAKER_02: Arguments for decoupling also, fairer representation.
29:03
SPEAKER_02: Agents would be incentivized to represent their clients' interests more effectively.
29:07
SPEAKER_02: In other words, it would bring their compensation closer in alignment with their fiduciary duty.
29:13
SPEAKER_02: Greater choice.
29:14
SPEAKER_02: Buyers would have a wider pool of agents to choose from, as they would not limit to those who are affiliated with the listing agent's brokerage.
29:20
SPEAKER_02: Well, that I don't agree with at all.
29:23
SPEAKER_02: You know, the whole idea about clear cooperation is, you know, that we offer compensation to every other brokerage, every other agency.
29:32
SPEAKER_02: So if there's, I guess there is there are some people out there, and I guess we've met these buyers that feel like that if they don't buy from the listing agent, they're not going to get as good a deal or they don't understand the system.
29:44
SPEAKER_02: Arguments against decoupling, higher costs.
29:47
SPEAKER_02: Buyers and sellers may end up paying higher commission rates as agents may charge more to compensate for not receiving it.
29:52
SPEAKER_02: That's it, that's an argument against reduced efficiency.
29:55
SPEAKER_02: The transaction process may become less efficient as agents would need to negotiate two separate commission agreements instead of one.
30:02
SPEAKER_02: Conflicts of interest, there's a potential conflict of interest if buyers and sellers are paying their own agents directly.
30:07
SPEAKER_02: For example, an agent may be incentivized to recommend a property that is more expensive in order to earn a higher commission.
30:13
SPEAKER_02: Well, that possibility exists now.
30:18
SPEAKER_02: Overall, the potential impact of decoupling is uncertain, but there will be pros and cons.
30:24
SPEAKER_02: So I don't know.
30:25
SPEAKER_01: You can go either To me, it sounds like a lot of extra work for, and as someone who is typically just the buyer in this trend, um, it seems like a lot of extra work for the the buyer or the seller.
30:36
SPEAKER_01: Is that something you're concerned about?
30:38
SPEAKER_02: On the surface, Lacey, it sounds like somebody's trying to solve a problem that doesn't really exist.
30:43
SPEAKER_02: You know, the system works if you have a professional licensed professional serving performing their duties, what they're obligated to do for their clients.
30:53
SPEAKER_02: If you don't, that's when it gets muddy.
30:55
SPEAKER_02: So you end up with a situation where, you know, one bad apple spoils the whole bunch.
31:00
SPEAKER_02: And I'm afraid that's part of what we're dealing with.
31:03
SPEAKER_02: But let's let's just keep going down this path a little bit further.
31:06
SPEAKER_02: I just want to make sure we're not missing anything.
31:08
SPEAKER_02: So, what are the pros of home buyers and sellers paying their agents directly?
31:12
SPEAKER_02: Well, they get direct control over their fees.
31:14
SPEAKER_02: It's absolutely clear, there's no question, they don't have to rely on their agent explaining the process to them or they having to understand it.
31:22
SPEAKER_02: Potentially they could negotiate a lower fee, you know, than the typical 3%.
31:27
SPEAKER_02: Uh, two so direct control over the fees, that's a plus.
31:30
SPEAKER_02: Increased transparency, I won't know that I won't I won't agree that it's increased transparency.
31:35
SPEAKER_02: I will agree that it's easier to understand.
31:38
SPEAKER_02: So in the end, I guess that's transparency, right?
31:42
SPEAKER_02: It simplifies the process.
31:43
SPEAKER_01: So I guess if you you could put your entire, you know, when you think about mouseprint and how many people have all these disclaimers, like on a at the end of a a prescription commercial, for example, like it's all there, right?
31:56
SPEAKER_01: But if we can't understand it because they either talk too fast or they use too big of words, then is it really transparent?
32:02
SPEAKER_01: So I think they got to concede on that point.
32:04
SPEAKER_02: And then again, uh this cracks me up because this is not how we work, but maybe this is how other agencies work.
32:10
SPEAKER_02: Home buyers and sellers have a wider pool of agents to choose from when they are not limited to those who are affiliated with the particular brokerage.
32:17
SPEAKER_02: If you're following NAR's guidelines, that is not an issue.
32:20
SPEAKER_02: But evidently, in the eyes of the public, the perception is that it is still an issue.
32:24
SPEAKER_02: So that's a concern because you could argue to a huge degree the perception is reality.
32:29
SPEAKER_02: Potentially, they could get better services.
32:31
SPEAKER_02: Agents who are paid directly by their clients may be more motivated to provide better service.
32:35
SPEAKER_02: But what are the downsides?
32:36
SPEAKER_02: And some of these are easy.
32:38
SPEAKER_02: Added responsibility.
32:39
SPEAKER_02: Home buyers and sellers have to take on additional responsibility of finding betting and hiring a suitable agent.
32:46
SPEAKER_02: Well, they should be doing that anyway.
32:48
SPEAKER_02: Potentials for conflict of interest.
32:49
SPEAKER_02: When home buyers and sellers pay their own agents directly, there's potential for conflict.
32:53
SPEAKER_02: An agent may be incentivized to recommend a property that is more expensive, lack of market knowledge.
32:58
SPEAKER_02: You know, that again, that can happen now with clear cooperation.
33:02
SPEAKER_02: Here's another thing that's interesting that we're not sure people are aware of.
33:05
SPEAKER_02: You know, you are only obligated to pay compensation to another realtor if they are a member of your multiple listing service and your board.
33:14
SPEAKER_02: If, for instance, we're in Ohio here, we it's really strange.
33:18
SPEAKER_02: We have the Columbus Board of Realtors, which is huge, and then we have Western Regional, which includes Springfield and Urbana, which we're members of.
33:24
SPEAKER_02: And then a couple miles down the road, you've got the Dayton Association of Realtors with their own MLS.
33:30
SPEAKER_02: And the fact is, you know, I don't know that anybody turns a Columbus agent down when they send an offer over to a Springfield listing.
33:42
SPEAKER_02: And of course, that listing agent is obligated to present that offer to the seller.
33:49
SPEAKER_02: But what people tend to forget is there is zero obligation on the part of that agent's brokerage to pay a cooperative fee to that Columbus realtor if they're not a member of the Springfield MLS and RIST.
34:03
SPEAKER_02: So it's a little aside, but it's something to keep in mind.
34:06
SPEAKER_02: Legal issues.
34:07
SPEAKER_02: Homebuyers and sellers should be aware of the potential legal issues involved in paying their own real estate agents directly.
34:11
SPEAKER_02: They may need to sign a contract with their agent.
34:13
SPEAKER_02: They may be liable to damages if that agent makes a mistake.
34:17
SPEAKER_02: And this is interesting too, because I know there's areas of the countries where exclusive buyer agency agreements are common.
34:23
SPEAKER_02: That is not common where we work in Ohio, and it is not common in Florida either.
34:30
SPEAKER_02: So one of the things that would come out of this if decoupling were to keep going is that exclusive buyer agency agreements would be just as well known, just as useful as exclusive right to sell agreements are.
34:44
SPEAKER_01: Yeah, can you tell me more about the they may be liable for any damages if the agent makes a mistake?
34:50
SPEAKER_01: Can you give me an example of that?
34:52
SPEAKER_02: Well, you know, let's say you're a listing agent and I don't know, let's see.
34:57
SPEAKER_02: And again, I'm not an attorney, Lacey, but let's say you have a listing agent and they they say something to the buyer or the buyer's agent that wasn't true, right?
35:13
SPEAKER_02: It could be say it's something, maybe it's something about the condition of the house that was or wasn't disclosed.
35:19
SPEAKER_02: Maybe it's something about uh a dollar figure that somehow is is is going to be rebated back, maybe something about their loan, for which they would obviously not know anything if they're not representing the buyer.
35:31
SPEAKER_02: But the fact is, and and again, we could dive deep down into agency law, which I'm I'm not an expert either.
35:37
SPEAKER_02: But when you are when you're somebody's fiduciary, that's kind of a two-way street, right?
35:43
SPEAKER_02: You your obligation is to take care of your client, but if you're not qualified to take care of your client and you make a mistake and that client's paying you for a service, ultimately, if you do something incredibly stupid, that that client could be liable also.
35:57
unknown: Okay.
35:57
SPEAKER_02: So it happens constantly.
36:00
SPEAKER_02: I think you've got to be really clearly stupid in public.
36:03
SPEAKER_02: But yes, that that is a remote possibility.
36:06
SPEAKER_02: So, sort of in summary, you know, I do think there's a darn good chance this thing's gonna go away, but I also think it's a good chance that in going away there'll be some sort of settlement and it'll be modified, even if NAR and and and Keller and uh home services went on appeal.
36:24
SPEAKER_02: I think we can all count on that there are going to be some changes um to NAR's rules and and guidelines.
36:31
SPEAKER_02: I do the the the alternative to this is simply that there would, it's not simple, it it would it would be hard for us, but there would be a decoupling of agent commissions and uh buyer agent commissions and selling agent commissions, buyers would pay their own fee and uh sellers would pay the other in the extreme.
36:54
SPEAKER_02: There's arguments pro and con against decoupling, but that's really sort of the worst case scenario as I see it.
37:03
SPEAKER_02: The other thing I want to say is, you know, why is this happening now?
37:07
SPEAKER_02: Why is this such a big deal now?
37:10
SPEAKER_02: Why are we so freaked out?
37:12
SPEAKER_02: And I think it's because it's hitting us as realtors at a really bad time.
37:17
SPEAKER_02: You know, we are the economic canaries in the coal mine, and we've felt the effects of inflation and higher interest rates far more than any other industry, right?
37:28
SPEAKER_02: We know this has been a tough year for our profession, and this feels like somebody else is piling it on and trying to take money out of our pockets and make it that much harder for us.
37:38
SPEAKER_02: You know, the other thing I would say is this ultimately will pass, you know, eventually.
37:45
SPEAKER_02: You know, as far as the economy goes, we may be the first to feel the negative effects of higher interest rates and inflation, but we'll also be the first to notice the improvement when rates do start to drop or at least stabilized.
38:02
SPEAKER_02: Because as soon as those rates stabilize and even drop just a bit, I think we're going to find a whole bunch of pennant demand in the market and things are going to loosen up again.
38:12
SPEAKER_02: And the other thing I would say is, you know, right now it's a presidential election year.
38:18
SPEAKER_02: And, you know, going into what 23rd year, I guess, at this.
38:23
SPEAKER_02: And every four years, every presidential election year, the market gets a little wonky and people get a little wishy-washy, a little bit scared.
38:33
SPEAKER_02: And this time around, we've got two wars going on in the world, all kinds of things going on in the country.
38:39
SPEAKER_02: And these, you know, you could argue are troubled times.
38:43
SPEAKER_02: And subconsciously, and again, it's not just unique to, you know, this year, but subconsciously, people are less likely to get excited about committing to a 30-year mortgage at any interest rate if they're uncertain of the future or their future in particular.
39:00
SPEAKER_02: So I don't want to be the harbinger of bad news.
39:02
SPEAKER_02: I'm not trying to throw a wet blanket on anybody's hopes for 2024, but I think you have to be cognizant of the fact that 2024 could still be a tough year.
39:12
SPEAKER_02: And I think that's part of why we're taking this so personally.
39:18
SPEAKER_02: Yes, it's our profession.
39:19
SPEAKER_02: Yes, it's potentially taking money out of any of our pockets, but it's just coming at a bad time.
39:25
SPEAKER_02: And the other thing, just because now that I'm down this rabbit hole, I can't stop.
39:30
SPEAKER_02: Every one of the business articles, newspaper articles, everything I read that talked about the worst case scenario, every one of these articles quoted a representative of a company I've never heard of called Keefe Broyet and Wood.
39:47
SPEAKER_02: So KBW.
39:49
SPEAKER_02: And I guess they're an investment banking firm that specializes in the financial services industry.
39:56
SPEAKER_02: And they've been particularly vocal about the demise of the traditional real estate business, citing a number of factors contributing to the decline of the once dominant industry.
40:07
SPEAKER_02: So it's almost like these folks are short-selling real estate, right?
40:11
SPEAKER_02: So I thought this was interesting.
40:13
SPEAKER_02: So these people are counseling their investment banking clients that real estate is in for a bad time because of technology disruption, because of shifting in consumer preferences.
40:25
SPEAKER_02: They hate the commission structure.
40:27
SPEAKER_02: They're adamant that's changing or already changing.
40:30
SPEAKER_02: No question.
40:31
SPEAKER_02: It's tough to make a dime as a broker this year.
40:33
SPEAKER_02: So they're talking a lot about consolidation and competition.
40:37
SPEAKER_02: But it also seems like that they are pushing to get NAR off the map for whatever reason.
40:44
SPEAKER_02: And I just thought it was interesting.
40:46
SPEAKER_02: And I'm not saying these guys are wrong.
40:47
SPEAKER_02: I'm not saying there's anything nefarious, but they seem to be the only ones that took an active interest in writing about and publicizing their take on the situation.
40:56
SPEAKER_02: And it looks like they've been down on real estate for quite some time, and that this was the key source that almost every article I read referenced.
41:08
SPEAKER_01: So it's reality, as you say.
41:11
SPEAKER_02: It is.
41:12
SPEAKER_02: So in summary, you know, stay the course, enjoy the holidays, make your connections, you know, let's do our jobs.
41:20
SPEAKER_02: There could be changes, there will be changes, but will they?
41:24
SPEAKER_02: But there's regardless, there will be changes.
41:27
SPEAKER_02: But is the world going to come to an end?
41:29
SPEAKER_02: Probably not.
41:31
SPEAKER_02: And it may just be minor changes, you know, if NAR wins on appeal.
41:36
SPEAKER_02: So sure.
41:36
SPEAKER_01: Yeah, I think that's important.
41:38
SPEAKER_01: This is a multi-part conversation.
41:40
SPEAKER_01: This is a this is hours and hours really to truly understand.
41:44
SPEAKER_01: And this is not the whole of it.
41:46
SPEAKER_01: This is what is this case and what's behind it.
41:49
SPEAKER_01: But certainly the KBW, when I'm looking at these notes about technology and consumer preferences, and in my mind, it's like they're preparing us to buy and sell homes like we do on Facebook Marketplace, right?
42:02
SPEAKER_01: You you go shop online for your mortgage broker, and then you put in an offer through a, you know, through through like a real estate site, and the seller is responsible for accepting your offer.
42:12
SPEAKER_01: And I just that seems that's so maybe, you know, maybe one day, but nobody's there yet.
42:18
SPEAKER_02: I I think that's very insightful.
42:20
SPEAKER_02: And I still think, and I always will, that you know, you're talking about the largest financial transaction any of us make in our lives, right?
42:29
SPEAKER_02: I mean, quite 99% of us make in our entire lives.
42:33
SPEAKER_02: There's going to be a space for quality advice and counsel, right?
42:38
SPEAKER_01: Absolutely.
42:38
SPEAKER_01: I was a mess, Chris.
42:40
SPEAKER_01: Like I, I mean, for years I looked for my first house.
42:44
SPEAKER_01: And what it came down to when I chose, I mean, obviously my realtor was going to be my nana, but when I chose my mortgage broker, it was who made me feel comfortable.
42:55
SPEAKER_01: I did not shop around.
42:57
SPEAKER_01: I went with the person I trusted.
42:59
SPEAKER_01: I went with the person who promised to walk me through the whole process and you know, help me feel secure in my anxieties.
43:08
SPEAKER_01: And that's I went with the relationship.
43:11
SPEAKER_01: That's what I went with.
43:12
SPEAKER_01: And I'm not a I'm not ignorant to the process.
43:15
SPEAKER_01: I'm not a smart person.
43:17
SPEAKER_01: And I do care about you know my interest rate and the value of my investment.
43:22
SPEAKER_01: And but in the end, relationship one and one big, because that's what made me feel comfortable in the biggest purchase of my life so far.
43:35
SPEAKER_01: So I think that's a a huge point.
43:37
SPEAKER_01: And I just can't imagine, you know, finding a house online and submitting an offer and never having anyone to advise me in the process.
43:45
SPEAKER_02: But now you're talking about things that that can't be digitized.
43:49
SPEAKER_02: Now you're talking about something that AI is not going to take over.
43:53
SPEAKER_01: Or legislate it, really.
43:54
SPEAKER_02: Or legislate it.
43:55
SPEAKER_02: And what you're really talking about is the value of Nana functioning as a buyer's agent, as a as a new real estate professional, right?
44:06
SPEAKER_02: She's doing the job that technology can't.
44:09
SPEAKER_02: And I think that we should be secure in the fact that is simply not going to change.
44:14
SPEAKER_01: I think that's a podcast in and of itself.
44:16
SPEAKER_01: Nana, who has embraced zero technology for the most part, I'm still posting her Facebook ads for her rental properties being the epitome of the new real estate agent at 80 plus years old after doing this for you know 40 or 50 or 60 years.
44:32
SPEAKER_02: So there's a ton of other things I'm going to talk about.
44:35
SPEAKER_02: There's some other nuances in this that I want to talk through the next time we get together.
44:40
SPEAKER_02: So this is a rabbit hole for me, but it's interesting.
44:44
SPEAKER_02: And I think the ramifications are ultimately far reaching for us and our listeners.
44:49
SPEAKER_02: So thank you for letting me get clearer on this as I talk it through with you today.
44:53
SPEAKER_01: Yeah, I hope it made things a lot clearer for anyone who's listening and who has a really an investment in this case and the outcome.
45:02
SPEAKER_01: So I'm excited to hear the rest of what you have to say in the coming weeks.
45:06
SPEAKER_02: All right.
45:06
SPEAKER_02: Fantastic.
45:07
SPEAKER_02: Thank you.
45:08
SPEAKER_01: Uh-huh.
45:09
SPEAKER_01: Talk to you soon.
45:11
SPEAKER_02: And there we have it.
45:13
SPEAKER_02: Thanks for listening in.
45:14
SPEAKER_02: If you want to continue the conversation, go to www.connectpractice trackgrow.com.
45:22
SPEAKER_02: That's connect practicetrackgrow.com, where we have additional information about the podcast, archived episodes, and an option you can select to be a guest on the show.
45:32
SPEAKER_02: We'd love to hear from you.
45:34
SPEAKER_02: So that's it.
45:35
SPEAKER_02: We'll be back next time with another episode of the Connect Practice Track and Grow Podcast.