The complicated process of ensuring that the real estate industry complies with incoming policy changes is underway, as concerns about loopholes surrounding commission-sharing have already started a discourse among regulators and innovators—potentially, an amicable one.
The ongoing dialogue was highlighted by a recent meeting between the National Association of REALTORS® (NAR) and the U.S. Department of Justice (DOJ) to discuss incoming policy changes and DOJ concerns regarding implementing and adhering to settlement provisions set to take effect on August 17.
In a memo to members obtained by RISMedia, NAR President Kevin Sears claimed that the meeting was a big step in having “a meaningful dialogue” with the DOJ.
“While there is much more work to be done, the meeting was productive as we try to find ‘common ground’ on topics that define how we do business and support the dream of homeownership in America,” he wrote.
Sears states that DOJ officials raised concerns regarding industry participants using potential avenues to “circumvent” the coming practice changes.
“To be clear: NAR—and I personally—oppose any attempts to circumvent the settlement,” Sears wrote. “The practice changes should be implemented fully and in good faith, in the service of promoting consumer empowerment, consumer choice and healthy competition.”
Among the changes is the elimination of buyer broker compensation offers on multiple listing services, which has spurred innovation among industry professionals trying to bridge the communication gap between the buy and sell sides of the transaction.
While the DOJ’s scrutiny of shifting policies and industry adherence hasn’t branched into this growing sector of companies, it has already begun spurring discussions among them.
Dan Cooper is the founder and CEO of Gitcha, a consumer-facing platform allowing buyers and their agents to publicize what they want in a deal.
The crux of the site is for buyers and their agents to be able to be upfront about what they are looking for in a deal, allowing sellers to decide from the beginning who they want to work with.
That can include compensation, but Cooper points out that his platform isn’t meant to be a workaround for industry professionals.
“This is a standalone product,” Cooper says. “It’s not to circumvent commission sharing, but to proactively communicate what you want to have that you would put in the offer.”
Cooper made similar arguments in a recent social media post expressing dismay for being categorized as a company exploiting a loophole in the settlement.
“While real estate agents can use Gitcha as an alternative to past practices, and we will continue to innovate to help them with all the upcoming changes in the industry, it was not built to circumvent anything,” Cooper wrote.
His post went on to state that the platform is designed to be integrated as a workflow for agents, not a workaround.
“We are also a consumer-facing site, where consumers get to see the postings by agents. We aren’t an agent-only, secret society of commission sharing, and our product wasn’t created because of the settlement or the lawsuits,” Cooper wrote.
Steven Hattan, co-founder of ListingSplit, echoed similar sentiments. His consumer-facing platform is the polar opposite of Gitcha, allowing homeowners to publicize the financial incentives they are willing to offer to attract buyers.
“This is a seller platform, and it has nothing to do with the settlement,” Hattan says. “It has nothing to do with NAR and the structure of the platform, and it has nothing to do with listing agents.
“We are strictly a site for sellers as if you were for sale by the owner, and you wanted to advertise your house on ForSaleByOwner.com,” he adds. “You can mention your bedrooms, you can mention bathrooms, you can even mention that you want to offer a commission to a buyer’s agent.”
What to watch for
While both Hattan and Cooper are confident that their respective platforms uphold incoming rule changes, both tell RISMedia that they are open to feedback and willing to adapt if that were to change.
Hattan says, “If the Department of Justice approached me and said, ‘Steve, listen, we’ve got some problems with what you were doing,’ my response would be, ‘Let’s go sit down and have a cup of coffee, and let’s figure out where our discrepancies are and let’s try to fix this because we both have so many things in common.’ We want transparency; we want competition…there does not have to be an us and them. We can work together and make this work beautifully.”
Sears’ memo also states that the Justice Department is monitoring buyer representation contract drafts and revisions, encouraging members to “evaluate them for clarity and emphasis on consumer choice.”
That clarity, or lack thereof, was a central issue in recent tensions between the California Association of REALTORS® (CAR) and the Consumer Federation of America (CFA).
In a recent press release, the latter entity heavily criticized CAR’s draft of a buyer agent agreement and commissioned a report that called the form “unreadable” and “anti-consumer.”
“The concern that DOJ has and CFA shares is that the litigation settlement provides opportunities for the industry to avoid uncoupling the rates,” says CFA Senior Fellow Steven Brobeck.
Brobeck tells RISMedia that if the rates are coupled, that could open the door for collusion among agents on both sides of the transaction to influence consumers to pay more in commissions, which has been the crux of past and present litigation facing the real estate industry and its largest brands.
With that in mind, NextHome CEO James Dwiggins tells RISMedia that attempts to include commission sharing in listing agreements in the new age of industry rules will open the door for further litigation and damage to the industry.
“This is not that hard to understand,” he says. “If we just move that same practice off the MLS and onto standardized forms that everyone is using—developed by a committee of competing brokerages—the lawyers will come back for round two.
“They’ll sue everyone again on the same basis only using standardized forms this time—whether justified or not, and we’ll end up right back in court,” Dwiggins continues. “We’ll all end up settling again or spending a fortune defending the claims, hurting our reputation further, and paying the lawyers hundreds of millions more.”
Given the current “consumer-centric model” in the industry today, Dwiggins notes that sellers no longer need to advertise buyer incentives.
Instead, he says listing agents need to state that their clients are “willing to entertain any requests for offers of compensation or concessions” in the purchase agreement.
He also encourages buyer agents to put their requests in the purchase agreement.
“It can be that the seller pays your compensation so it can be financed and doesn’t affect IPC, or you can request a concession toward buyers’ closing costs—or both,” Dwiggins says. “The buyer then uses those concessions to pay closing costs—whatever they might be. It’s a negotiation, which is literally what we do every day.
“All the rest of this workaround stuff everyone keeps trying to figure out is going to end up in more lawsuits,” he continues. “The DOJ does not want this, and while I disagree with almost everything the DOJ is doing, again, we need to be skating to where the puck is going, and not where it is.”
