Regardless of where you reside on the spectrum of good or bad forecasts for the fallout of these lawsuits, it’s inevitable that changes are coming to real estate. Whether that is foreboding or fortunate for the real estate professional is unclear. Still, one thing is sure: Now is the time to prepare for the industry’s future.
Pundits stress that those shifts in business and policy won’t happen overnight. As such, brokers and agents will have time to start small with their tweaks so they can adapt to the shifting tides.
That’s a sentiment that NextHome CEO James Dwiggins shared as he addressed hundreds in attendance at RISMedia’s 35th Annual CEO & Leadership Exchange at the Mayflower Hotel in Washington, D.C., this past September.
He highlighted the need for proactive preparation for potential changes in the industry due to the inevitable fallout from the lawsuits, and the ongoing battle between NAR and the DOJ.
“You’ve got to start preparing for these things,” Dwiggins said. “We’re going to have to evolve as an industry. It’s not going to look the same in 24 months. We don’t know what that’s going to be, but as leaders, the sky isn’t falling. We’re going to get there, but we have to start taking a proactive approach.
“I’m not waiting, to be clear,” he adds. “My approach is we’re going to train our people now for a reality that is likely going to happen, whether it’s through these class action cases or whether we are dealing with the Federal Trade Commission, which wants to make changes to the compensation structure as it is.”
He isn’t alone, as pundits agree that real estate professionals can and should start taking action today to better prepare for whatever the future holds when the lawsuit dust finally settles.
Transparency and Value Prop at the Forefront
The legal dispute surrounding agent commissions has spurred revitalized discussions around the need to improve transparency between real estate agents and their clients.
As such, industry leaders have emphasized the importance of communication, recommending that agents start sprucing up their talking points with consumers. This includes how they promote their value proposition on both sides of the transaction.
In the days before the Burnett trial began, NAR repeatedly emphasized the value of buyer agents attempting to counter the plaintiffs’ assertion that the widespread use of buyer agents is a sign of market restraint created by NAR rules.
And during the trial, the value of buyer agents came under repeated attack from the plaintiffs, with arguments that are likely to be picked up by consumers to some degree. Specifically, they pointed out that the internet makes it easy to find out detailed and specific information about properties without an agent, and that buyer agents are paid the same regardless of how experienced they are or how hard they work.
The Burnett plaintiffs also argued that buyer agents are actually still working in the interests of the seller, with one former homeseller notably saying that while he had been happy paying his agent, “our problem was paying a buyer’s agent to work against us.”
NAR countered by pointing out that buyer agents often work for months with one client, paying for ancillary expenses out of their own pocket. One NAR witness said she believed that buyer agents actually work harder than seller agents in many circumstances.
“The more frequent we get at explaining this incredible value and service that we provide to buyers, the more they will appreciate it,” said Johnson in past interviews with RISMedia.
Johnson also pointed out that agents and brokers should employ a tactical and experiential route to increase transparency with their clients moving forward, including auditing the information they offer during client intake conversations.
From the topics that must be covered to the timing of the conversations, she recommends that agents start with some form of audit or “perfunctory checklist” of their consultative process with consumers.
Dwiggins pointed out that he and his company have already begun training agents for the fallout from the trials. Part of that training has included revamping conversations with buyers to focus on the value proposition of the buyer broker.
He is also providing agent training in negotiating buyer-broker agreements, which he expects will become standardized for the industry nationwide.
One approach that does not seem to work—or at least did not appeal to the jury at the Burnett trial—was arguing that the internet actually makes searching for homes harder for buyers, and that people need help processing all the information that can be found online. Attorneys for the plaintiffs seized on this, accusing NAR of purposefully misleading the public on that issues, and pointing out that a majority of people rely heavily on internet searches and tools when looking at homes.
The best-case scenario post-lawsuits is that cooperation is made optional, which would not lead to significant changes, Dwiggins believes. He acknowledges, however, that plaintiffs seek to ban the buyer-broker commission policy outright, which could pose even more significant issues for the industry sooner than folks may realize.
Cofano acknowledges that the lawsuits put industry leaders in a “challenging spot” when it comes to preparing for future changes in the competitive landscape. However, he points out that brokerages don’t need to wait for a trial verdict to start making changes that can help their agents when the dust settles.
“If I were a brokerage company, I’d be telling my agents to start getting the buyer-agency agreement signed and supporting the value proposition,” he said, pointing to the need for agents to start treating buyer clients the same way they treat seller clients.
“If they’re going to go under contract, you explain your value proposition and how you get paid, and then you back it up with convincing experience and rationale,” added Dwiggins.
This point has been made in previous RISMedia coverage of the overarching need for improved consumer transparency in the wake of the commission lawsuits.
Kendall Bonner, leader of the Kendall Bonner Team at eXp Realty, echoed similar sentiments, suggesting that buyer agents have traditionally been “insecure about our commission rate,” to the point where discussing payment and their value proposition isn’t as prominent as it is with listing agents.
The same way that a listing agent comes to the table with market knowledge, systems, strategies and tools will need to start happening on the buy side, Bonner explained. The practices that listing agents implement to stand out and get hired will need to be adopted by buyer’s agents.
“If the listing agent has to provide a marketing plan, a buyer agent should have to provide a strategic search plan and explain how they are going to find your next home and get the best deal possible,” she said.
Cofano added that the agent experience will become a more prominent aspect of the buyer-agent value proposition, much like it is on the listing side.
“I think you’re going to start seeing experience matter for buyers,” he said. “That doesn’t mean that new agents won’t have a place, but that place may be at a compensation level that is less than somebody who has been in the business for 15 years and done 200 deals.
“That’s something that has been missing from our industry,” Cofano continued. “Brokerage companies are going to be tasked with helping both that 15-year agent and that brand-new agent understand how to convey their value proposition and support it with what the market will be willing to pay in that context.”
Revamped MLS Relationship
While the status quo of how homes are bought and sold in the U.S. has worked well through the decades, Johnson suggests that the industry may have taken that extended period of serenity for granted rather than looking for ways to revamp and improve practices and communication surrounding the transaction process for consumers.
“We’ve gotten complacent in the thinking that it just works because it works,” she said. “We’re at the point in time where maybe we should have been doing this all along—where we need to improve our education and our communication around it.
“We need to ensure that consumers know their choices,” Johnson continued. “I think, in their best interests, they will choose to be represented and have the listing broker compensate their representatives because they understand that that allows them greater exposure and opportunity to leverage their funds for the price of the house.”
Some notable changes have been made on the MLS side of the coin amid the persisting legal battle. Over the past four years since each lawsuit was filed, organizations have taken steps toward implementing new mandates and tweaks to their policies well before any verdict is reached.
At RISMedia’s CEO & Leadership Exchange this past September, MLS leaders broadly called for loosening their ties to NAR and local REALTOR® associations.
As those relationships remain a key point in the lawsuits (plaintiffs in Burnett have pointed out that requiring MLS membership is a de-facto way to require NAR membership), MLS executives have argued that state and local laws provide regulation, and that the MLS industry is capable of managing itself.
In terms of commission rules, organizations like the California Association of REALTORS® and Northwest MLS (NWMLS) have tweaked purchase agreements in recent years to improve transparency. Notably, the latter announced several changes a little over a year ago focused on providing “greater flexibility for consumers and brokers when listing and purchasing real estate.”
That included prominently stating the compensation the seller offers to buyer brokers on the first page of the NWMLS purchase and sales agreement, and making the compensation offered a direct offer determined by the seller.
RE/MAX and Anywhere agreed to do similar things in their respective settlement agreements.
And REBNY, the NAR-unaffiliated real estate board that oversees New York City, went a step further and voluntarily decoupled commissions on the eve of the Burnett trial, having sellers either pay the buyer agent directly or decline to do so, allowing the buyer to pay their own agent.
At the same time, Bright MLS made recent changes to its listing entry rules, allowing users to enter any amount in a listing’s cooperative compensation field.
While the move—billed to provide more flexibility to subscribers—struck many in the industry as a deviation from NAR’s buyer-broker commission policy, NAR very recently said that an offer of $0 was acceptable in that field. Johnson claims that even before that, the policy was meant to show that everything was still flexible.
“It is true that for many years, we have said you could put any amount in that field from a penny to whatever you want,” she said. “That was intended to show and emphasize that it is negotiable.”
MLS leaders have increasingly begun bracing for more changes, though. Art Carter, CEO of CRMLS, the largest MLS in the country, tells RISMedia that these lawsuits are not “an extinction level event,” and that regulators and plaintiffs in the lawsuits are not shy about what they are demanding, for the most part.
That means MLSs can also begin planning for a variety of scenarios—everything from a forced, comprehensive disaffiliation from NAR (which Carter emphasizes would be bad for everyone, especially consumers) to removing commissions out of the MLS. While many of these are huge challenges, Carter says his organization has put together comprehensive plans for as many scenarios as they can anticipate.
But other MLSs continue to “circle the wagons,” he says, which will only exacerbate negative impacts from whatever change is around the corner.
Getting out of “fear mode” is the first and most important priority, Carter argues. He adds that he doesn’t personally believe that the DOJ or plaintiffs are trying to eliminate buyer agents entirely, and while the changes they are demanding would cause “turbulence,” there are paths forward that adaptable real estate professionals can follow to thrive in a new environment.
“It’s always been about change,” Carter says. “What (the DOJ and the plaintiffs) want is more transparency, and that’s not a bad thing.”