Ep018: How the Mega Brokerages Responded to the NAR Lawsuit

Chris: Hi Chris McAllister here and welcome to the Connect Practice Track and Grow podcast. I’m here again with my compadre Laci LeBlanc, and this is part two of our discussion understanding the recent civil decision in Missouri against the National Association of Realtors. So good morning, lacey. How are you?

Laci: Good morning. I’m great I’ve had a little time to digest the last conversation we had about this. I’ve got some questions that I’ll hold and see if you answer them, but I’m ready to dig a little deeper.

Chris: So part two is dive into the quote mega brokerage response to the lawsuit. And I have to tell you, for me this is where it gets interesting. I know it’s a little bit of inside baseball that I think it’s critical to separate, you know, what has happened from what may happen. So before we get started, is there any? Is there anything that you thought about that wasn’t clear last week that we should talk about before we dig into this?

Laci: No, I think we’re hitting on it. I think it’s really just more of a clarification of this part is, to me, the most interesting part is why did some of the folks choose to go to trial and why did some, you know, not right? Why did they settle?

Chris: Yeah, that’s the thing I thought was really interesting. So that’s my question to myself as I was doing research was why did Home Services of America and Keller Williams choose to go to trial? And you know I said last time, you know we I did a lot of deep dive research and, you know, found a ton of articles from different sources and printed them out and read through them in detail. That’s how much fun my life is, lacey. There’s a few possible reasons why they chose to go to trial versus settling.

And strategically, you know, these are obviously big companies and one potential reason why they went to trial was to set a legal precedent. Right, they may have seen this case as an opportunity to, you know, set some legal groundwork that can benefit them in the future against, you know, any other antitrust lawsuits that could come down the pike. So taking the case to trial and it could basically, obviously it could potentially help them going further, but you know, in the future. But that’s just speculation. The other reason that they may have chosen to go to trial is to shape public opinion, right, they think that, you know, by taking a stand, something they believe in and I can’t disagree with that. I believe in it also. You know they’re doing what’s right they’re presenting their case in court.

Laci: You’ve just done something a little similar to that. Right, You’re taking a stand. I think we talked about it on the last landlord profitability podcast. That was an ordinance in Ohio and you’re taking a kind of stand against that. So I guess if people want to hear more, they can go and take a listen there. But yeah, I think that is important. I think that shaping public opinion and letting people know where you stand, but overall, just, you know this national association of realtor saying, even for people who are not in the industry, a realtor is synonymous with someone you can trust when it comes to buying and selling your house. So to put that under scrutiny, you know, is big for folks and I think it’s good that they stood up for themselves.

Chris: I have to admit that I’m not questioning their decision. I’m just curious as to what went into it. And the other reason is you know they could have settled, but, you know, maybe they wanted to avoid settling for what they felt was a bad deal. You know, maybe they felt that they could get you know by going to trial they were going to get a better deal. But the last thing they want to do is quote, get a bad deal and that could financially harm them if they had to pay out a lot of money. The other thing is and again this goes back to doing the right thing you know they felt that by going to trial that they were better served as a means to protect their brand reputation. And essentially by going to trial they’re defending their realtor’s which I also applaud and that to settle, whether they admitted guilt or not, but just the act of settling could potentially damage their brand reputation. So you know, going to trial gives the appearance, not the appearance.

I think it’s true for them that they’re fighting for what they believe in, but it’s complex, there’s a lot of different things and then we have no idea. It’s not like, you know, keller or Home Services are out there. There’s the reasons why we did this, but I think we can only assume that they believed in their cause and it was the right thing for them to do so. If that’s why they did what they did, why did Remax and anywhere real estate choose to settle, right? I mean, these are four you know well-respected legacy companies. You know they’ve been around for a long time, insanely successful. Two of them chose to go to trial and two of them chose to settle. So why that? You know? That’s the thing that gets me excited, which is a little sad, I guess, but in any case so one of the-.

Laci: No, I’m jealous of the excitement in your life, Chris, over this. I think this everybody should have something in their life that they feel this passionately about, so I think it’s fantastic.

Chris: So what’s the reasons? Well, they maybe, but they wanted to reduce legal costs and, more importantly, maybe they wanted to reduce uncertainty in their business and amongst their realtors. You know, settling the lawsuits before trial allowed both remacs and anywhere to avoid costs. Trials can be lengthy, expensive and unpredictable, just like the outcome to this could not have been I don’t think could have been predicted. The outcome, as we’ve seen, is never guaranteed.

I just want to also reiterate I still believe that the National Association of Realtors and Keller and the rest of the planetus I believe they will prevail on appeal, you know, for all the reasons we talked about last time. So I’m not I don’t want to imply that, you know. I think that they are that this decision was correct. My personal feeling is that it was not correct, but that doesn’t mean it doesn’t have ramifications for our industry. The other reason remacs and anywhere may have settled is to avoid any negative publicity and damage to the reputation. You know, just like the other folks that went to trial thought that going to trial was going to enhance their reputation, I think remacs and anywhere felt that avoiding trial was going to avoid damage to their reputation. So you know, maybe they were playing a little bit of defense there.

Laci: Yeah, I think it’s interesting that you can kind of swing this either way and we can look at it as the organizations that went to trial were doing so to protect their realtors and their business and their brand, and the ones who didn’t were doing so to protect their realtors and their business and their brand, right? So I think that’s an interesting two-sided coin there.

Chris: And also for the folks that settled. It allows them to just move forward and maintain control over the outcome, right? So by negotiating a settlement, they avoided the risk of a bad verdict from the durier judge, because that’s always unpredictable and they were able to protect their interest and minimize any potential harm. It also allows them to focus on you know their day-to-day operations. I don’t know if any of you out there listening have ever been involved in any sort of lawsuit, but it takes a tremendous amount of bandwidth away from you, right? The actual hours of the day or minutes of the day that you know you have to work on something like this may be small, but the amount of space that these things take up in your brain is large. So settling allows them to focus on what matters and what makes money and taking care of their agents.

Laci: Yeah, I mean, when you think about it, you know, whatever the decision is on, appeal right applies to everybody. So if you know, if you’ve got folks appealing it and so it turns out that we can move forward just as we were, or whatever the case may be, that’s really going to apply to everyone, Right? So they got to control the outcome at this point, regardless of what happens in the future, because other folks, which I don’t guess they had, knowledge who was going to go to trial or not. But the same outcome is going to happen, whether these folks decided to go or not, because other people are going right.

Chris: Yeah, I just find it very interesting that basically, from what we can surmise are the exact same reasons protecting their clients, their agents, their franchisees. They just took two different tax and I don’t think either one of them was right or right or wrong. I think they did what was right for they and their businesses. So I did that. I dug pretty deep to try to figure out what the terms of the settlement were and this is what I was able to find out. So this is from various Google searches and different news searches to different places. But Remax and Anywhere agreed to and anybody can check my facts Again. You know I only use what I believe are trusted sources but Remax and Anywhere agreed to pay 55 million and 83.5 million respectively to the plaintiffs. Obviously, remax and Anywhere were the defendants. I think I kind of spoke earlier. This is the thing that’s interesting. Remax and Anywhere agreed to stop requiring their agents to be members of NAR, which means they are no longer required to follow NAR’s code of ethics or their MLS handbook, and we’re going to talk a little bit more about that here in a minute. But I thought that was very interesting and potentially consequential outcome of settling. Remax and Anywhere also agreed to implement revised policies regarding offers of compensation to buyer’s agents. So this goes back to that whole thing about, you know, the cooperation agreement that we talked about last time. Remax and Anywhere also agreed to provide training for their agents on antitrust laws and the implications of the settlement, and both of these companies agreed to cooperate with the Federal Trade Commission and its ongoing investigation into antitrust allegations against the National Association of Realtors. So I found that was that those terms of the settlement were really interesting.

And the question that comes back to me is Remax left NAR, remax Anywhere left NAR, and I’m a former Remax franchise so I have a lot of respect for that company and I like to feel I know it pretty well. And so what could be those reasons? Well, remax and Anywhere. I think what it comes down to is and you know I’m thinking out loud, lacey, forgive me, but it does come down to antitrust concerns. Right? There’s a lot of noise out there in the world. There’s a lot of noise at the Federal level that there are antitrust issues with the way realtors do business. We don’t think that’s the case, but at any given time tough environment, economically, etc. There are different administrations that can be concerns about antitrust, so that their response to attacking these antitrust perceptions head on was to stop forcing their members to be, stop forcing their franchisees and agents to be members of NAR.

Laci: No, I think that’s the fact that they agreed to cooperate with the FTC right.

With the allegations right, that was the only part of the terms of the settlement that raised my eyebrow at that because it feels a little snitchy. That makes sense If we’re all one big family of real estate agents here. That feels a little snitchy. But I do think that illustrates this point that if they’re worried about the antitrust moving forward, then you know and that’s standard. I’m sure I’m not a lawyer but to agree to cooperate is just kind of part of the deal. But yeah, I didn’t and I didn’t think about it as much from that perspective until now when the antitrust part of it. But you’re right, it’s always out there, you know, in every vertical, in every industry. So that’s always kind of hanging over fixed heads. So that makes sense that it would be and the consequences are huge. Right for that.

Chris: The other thing that came up was that remex and anywhere did not want to continue to be quote constricted by the clear cooperation mandate from NAR, which I find that interesting. So they objected to NAR rules that they believe restricted competition and harmed consumers. So they objected to NAR rules. Their transparency around commission rates was limited and that it prohibits agents. Well, and again, this is so inside baseball. But one of the things they were concerned about was most of the NLSs I think all of them that you’re unable to sort listings by commission amount.

Now you could argue, why would you want to do that? Well, there is an argument that agents are only going to show houses for which there’s highest commission. To me, that feels like it sort of goes against what we all stand for with clear cooperation. But one of the reasons that they chose to settle was they want to be able to do what they want to do and what they feel is right in conjunction with state licensing laws. And they felt that, to some degree, current NAR as good as we might think they are, as I’ve always thought they were that remex and anywhere may feel that they’re too restrictive on their businesses and on their agents. Then maybe we felt right.

Laci: The other thing is strategic. Yeah, I guess that makes sense to me. I didn’t think about that either.

Chris: Strategic flexibility. So by leaving NAR, these companies get to experiment with new business models and pricing strategies that could allow them to better compete with other real estate brokerages and online real estate companies. That, to me, is the most interesting part of this that they felt constricted by NAR, that they can’t come up with new business models and so forth. And when you think about where we are at this point with technology and AI and then Zillow and all this other stuff, we don’t know what we don’t know and when you’re inside that Realtor box, it’s hard to see what’s going on outside of the box and I’m really curious as to what these quote new potential business models look like that could be so compelling and potential money makers that it would cause them to walk away from the National Association of Realtor framework. The other thing is costs. Nar membership fees can be expensive for large brokerages and leaving NAR could save a ton of money in dues for these agencies, franchisees and so forth. And choice.

They may have believed that leaving NAR would ultimately give consumers more choice and improve the quality of the real estate services. I feel like some of these speculations are implying that Remax left, for I think what’s interesting is it feels like these companies left not just because it didn’t make sense to fight and because they wanted to protect their interests as an organization in their Realtors, but I find it just incredibly interesting that they also left in order to pursue a new way forward Right, a potential new way of doing business. That maybe it has to do with the whole decoupling thing that we talked about last time, but maybe there are things out there that people are thinking about that I, in particular, have never thought about, and I gotta tell you, I’m excited to see what they come up with.

Laci: Same, yeah, same.

Chris: Regardless of what happens on appeal, the fact that they left at NAR was a significant outcome of this lawsuit.

Laci: So what does that mean? Now my brain is reeling with what could they be cooking up? That’s what I’m thinking.

Chris: Exactly. So what are the effect on franchises? So no longer will REMAX offices franchisees be required to be members of NAR. They are welcome to be members of NAR, but they will no longer be required to be. So, theoretically, these franchises will have more flexibility to set their own policies and procedures. They’re gonna save money on dues, but obviously the fact is that the vast majority of MLSs in the country will only allow you to join if you’re a realtor. So does that make the point? It turns out that there are MLSs in the country very few, and maybe this is you don’t have to be a realtor to join, because when you think of any antitrust issues, it seems like it’s the MLSs that could potentially have some concerns if they’re barring people who aren’t realtor affiliates. So it’s you know and again I think I’m miswired, but I just think what’s going to happen. I’m just excited to see what goes on. But there are reasons why the franchisees would love the flexibility not to have to write checks to the NAR every year.

Laci: Yeah, I think to me that’s where we start to in my mind, and as a consumer, I think, well, if they’re not a member of the NAR, right, if they’re not a realtor, then what are their standards and where can I read those and find those? And I know, not all folks are maybe as ingrained in this as I am, so but I think, when you’re, it’s a major decision, right, for some people, the most, the biggest decision they’ll make buying or selling their house. And so that’s where I start to think, you know, where are they going to define, kind of their code of ethics? And because I’m sure they do it, aside from the NAR existing, but it’s going to have to be more prominent, I think, right, is that a concern for you?

Chris: Well, I think the NAR has done a really great job of keeping everybody honest for over 100 years, right. They have also done a great job of influencing state law, and for the better that’s. You know, basically the reason for existence, so you know what happens. If you know, going down the road, that NAR no longer plays that role, does that mean somehow these big companies are going to play that role in shaping policy? You know laws and so forth at the state level and potentially at the federal level.

I think that’s probably the case that these companies, in and of themselves, have to have a seat at the table because they are just as big and powerful, quite frankly, as NAR. But you know, potentially this could have a huge effect on NAR, which we’re going to, you know, talk about that next time we get together. But I think, at the end of the day, that you have to wonder, as I say this, as I think about this, thinking out loud, if these two companies settled because they want to disengage from any future antitrust lawsuits and so forth coming down the pike. And you know, as I said last time, this does feel like sort of a populist uprising against the real estate industry and real tours and it feels bad for us because it’s been a very tough year. But you know strategically, if you, as anywhere in remex, can sort of step away from those you know antitrust challenges coming and allow yourself to build some new business models around. You know the industry is changing, then you know more power to them.

Laci: Yeah, for sure, again, it’s not like these antitrust challenges and accusations are going to go away.

Chris: I don’t think they are, even after the appeals process runs out on this. So I did some more research on this whole MLS participation by non-realters. I asked the question can licensed real estate brokers who are not members of NAR list properties on the multiple listing service? And it turns out, yes, they can, but not in every single situation. So you know, practically you can leave NAR. You know, as a company policy. I don’t know if in a day-to-day basis people are going to be able to leave NAR, because the benefits of being on the MLS are so, so great and very few MLSs are allowing anybody who’s not an NAR member to participate. So at this point I think that’s a point, but it does potentially open up a whole other can of worms.

Laci: Yeah, what are they? So, when you talk about the MLS, what are the benefits that would be hard to recreate without it?

Chris: Well, the beauty of the MLS is you get increased exposures for your listings, right?

So the whole beauty of Clear Cooperation is we have these organizations that we support pay money into, called the multiple listing services. There’s many of them across the country. They’re regionally put together and every person who takes a listing, every realtor or brokerage who takes a listing, it goes into the multiple listing service and in addition to that, we offer compensation to anybody that brings a buyer right. That’s where the market making happens. That’s where the magic happens. One of the things that I do I am amazed at is that as soon as this ruling came down and I think we belong to five or six MLSs there were two MLSs that within a day had sent out notices that quote now you are allowed to list a property and offer a zero dollar koa. Now, I was always of the impression of maybe it’s because of the MLS that we’ve always worked the most in that it was never a defined field that you had to put a certain percentage or a certain dollar figure. Quite frankly, you’ve always been able and like risked and risked where we encompass most of Springfield and some of Dayton that you could make changes to that cooperation structure because that’s a decision that you make with your seller and it was never necessarily a defined field and sometimes flat fees would go in there right During after the crash, we had all those bank owned properties and the banks wouldn’t pay a percentage, but they would pay a flat fee of, say, a thousand commission and half of that would generally be split with whoever brought the buyer right.

So but it turns out that evidently that wasn’t the case for every MLS in the country. And, more important, if there was an allowance for making variable fields in the co-op, that zero wasn’t an option. So if zero is not an option, it sort of does feel like that’s an antitrust violation. Right, that’s definitely an antitrust concern, because if you’re saying that all commissions are negotiable and that contract is between the seller and the listing brokerage, that’s all fine and good. But if for practical day-to-day operation, if that seller says well, I don’t want you to give any of your money to the other company, I don’t even want to offer the other company everything. I’m willing to pay you what I agreed to pay you, but I want you to keep it. I don’t know that has ever happened.

Laci: I don’t know what Right. It’s just so weird. That’s such a hard just thinking day that practically what a conversation would look like.

Chris: If you’re going to say that commissions are negotiable, right, and that we’re not all includes and you have to put something in for a co-op a dollar figure at least well, that does sound like I don’t know if collusion is the right word, but it does sound a little creepy in light of this decision. So I thought it was interesting that suddenly every MLS that we work with made it clear that you can offer $0 compensation, and to me that is a huge outcome, with potential consequences down the road to different business models and clear cooperation and everything else, that practically now you could put a $0 in there and that means that a seller could you know a couple of things could happen. They could say well, you know, if you’re going to charge me 6% and 3% is going to go to the seller, well, I don’t go to the buyer, I want you to sell my house, that’s what I’m paying you for. I don’t want to offer anybody. So you know, I’ll pay you 3%, take it or leave it, and I don’t want you to co-op.

Or, like we just said, somebody could say no, I want you to sell my house, I’m willing you to pay for it, I don’t care if it’s 6%, I don’t care if it’s 10%, but I’m hiring you to sell this property and I don’t want to co-op for whatever reason. And now that’s a possibility that in some instances was not a possibility. You know, less than six weeks ago.

Laci: Right. So let me ask kind of a devil’s advocate question here. So it does seem weird, now that we’re thinking about it, right, that the seller has a say in okay, I’m going to pay this much money for you to sell my house and here’s what I want you to do with it, right? That’s like, oh well, here’s your paycheck, now I want you to spend, you know, 50% of it on your bills and I want you to tie 10% and say, right, so, but it’s built into the original contract, so that, yeah, right.

Chris: So now the seller does have to say the seller has to agree or not agree to offer compensation, they have to be disclosed that we’re offering compensation. So you’re right. If you’re and this goes back to the reason why it’s very likely that you know the realtors will prevail on appeal is, does this add, a violation of the contract that’s signed between the seller and the brokerage. But if that contract doesn’t allow for, or doesn’t obviously allow for, the split between the, the split of that payment, I think that’s where the whole legal argument comes in and it’s very complicated, it’s very esoteric. It does feel like it gets in the way of that contract between the listing broker and the seller, but then, when you think about it, then it does feel like that the whole system to some degree and I hate to say this out loud, but I can see how people would think that the system is rigged in favor of the realtor or if the seller has no say in that, and that’s where the you know the accusation becomes. Well, that’s how you’re fixing prices, that’s how it’s antitrust, that’s how it’s always you know X percent that people always pay. So it’s just one more reason why this is such an incredibly complicated thing and obviously it can go either way, because it has gone either way.

But I still think that there’s a darn good chance, just on the merits, that the realtors will prevail on appeal. But if they don’t, you know, the cat’s out of the back, right it’s. Things have already started, things are in motion, things are changing. Some of the companies are. You know, the big companies aren’t going to, you know, basically follow NAR’s lead anymore. They’re going to go out and they’re going to follow their own lead. And I think that’s what’s the most interesting thing to watch as we go forward in the months and years to come.

Laci: Yeah Well, I mean, we’re operating under the assumption that if you know, say you know now a seller doesn’t want to the person, to their realtor to or real estate agent to split their commission. We’re assuming, I think, that the buyer’s agent will be paid then by the buyer.

Chris: But yeah, that gets into the whole agent to say, okay, I’ll pay.

Laci: You know, I’ll split my commission. They’ve given me the 6%, I take it all and then I’ll split my commission with as a finder’s fee, or you know some other terminology like where’s the regulation around that now? Now it’s.

Chris: If that’s the case now, it’s kind of unregulated, right, like that’s the key is there’s still a difference between what NAR says is okay and what state’s state law says is okay. And you know, I am far more concerned on a daily basis about what the state has to say, because they’re the ones that can yank my license. You know, nar basically can yank my license, that can throw me out of the club.

Laci: So man, there’s so much more to unpack about this.

Chris: I know, and it just is mental gymnastics and you know it may all be for naught. But, like I said, I do think the things have already gone into motion, things are already happening and at the end of the day, I think commissions will continue to be compressed. But to your point, lacey, I don’t see buyer agents going anywhere. Right, you can’t what a buyer agent does or has to do. You know, to get a first time buyer, for instance, into a home, these days, that is where the magic happens.

You can’t argue with me that the buyer’s agents are overpaid. You cannot digitize. You know educating and coaching a first time buyer through their home purchase. You can’t digitize taking their parents through it, right? I mean, I can’t tell you how many times. You know agents think they’ve got the perfect house, the perfect deal, everything’s great, and then the parents show up for the whole house inspection, right? And then all of a sudden, we’re renegotiating everything. And I mean the buyer’s agents. They are the.

I gotta tell you to think that buyer’s agents are overpaid or to attack buyer’s agents over this, that the process that they do, the service they perform, is going to have to be done by somebody and maybe they’re going to have a different title than buyer’s agent, but the fact that we’re attacking buyer’s agents are the ones that are being overcompensated in this, as I feel like it’s just dead, dead wrong, and you know we’re going to get into that later when we talk next time, because you know, next time is my question, the working title for part three is how did we get here, how the hell did this happen? And I want to talk a little bit about that with you next time we get together.

Laci: I look forward to it. I think this is answered a lot of questions that I had after last time. I think the order is perfect. I will say that I bought a house from family and my Nana, as we’ve talked about before, was my real estate agent and she took no commission, bless her heart. But she really did earn something because it is you’re exactly right the buyer’s agent for especially the first time home buyer, like I was, is really doing a lot of the legwork and the emotional support and you have to think that clear cooperation does it.

Chris: It makes sure that every buyer agent gets representation. And again, you know agency is a legal term. Compensation isn’t the same as agency, but it does mean that every buyer, regardless of especially if they don’t have money to pay their own agent right as an extra closing costs and so forth, it means that every buyer gets representation. And you know you want to believe that every agent, of course, is skilled and in the rest of market conditions and so forth, you know, think about it. These days. You know interest rates are high. You know a good agent’s going to know how to ask for closing costs and how to use those closing costs either to get a buy down on the mortgage, to lower the initial monthly payment.

You know navigating whole house inspections. You know helping. You know the buyers and buyer’s parents quite frankly understand that. You know let’s look at the things that could adversely affect habitability of the house and let’s set these other ones aside that are, you know, costs of home ownership. Right, I mean, there’s so many things just in the realm of contingencies that you know buyers agents earn their income and in many cases more. So all right, I’m preaching but I’m down with buyers agents. I think this whole thing is interesting. I think it’s a little bit scary. I still think there’s a good chance that the realtors are going to win on appeal. But even if they do win on appeal, changes are coming and we need to not just anticipate those changes, but the new real estate professional needs to capitalize on those changes. So that’s where we’re at today.

Laci: Where we’re at today, and next time we’ll talk about how we got here, okay, Thank you so much.