Ep019: Sitzer v. NAR – How Did We Get Here?

Chris: Hi all 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, and back today with my podcast collaborator and our digital marketing directo, Laci LeBlanc. Hi Laci, how are you today?

Laci: Good morning Chris. I’m great.

Chris: I hope you are, I’m doing okay, so happy to be at the end of the year, getting ready for the holidays and all that good stuff.

But before the festivities begin, we are going to dig in part three of our series and with the legal case of SITSA Burnett versus the National Association of Realtors, and today I want to dig into the long-term ramifications of that case, what we can expect going forward. But before we get started, I just want to briefly recap what we talked about in parts one and two of this series. So in part one, if you remember, we covered the facts of the case and we got a basic understanding of how this is going to impact realtors and the profession as a whole. And then in part two, we examined how the four mega brokerages that were involved in the lawsuit RIMACS, anywhere, keller Williams and Home Services for America responded to the lawsuit and why they did what they did. If you remember, rimacs and Anywhere actually settled and Keller Williams and Home Services actually went through with the trial and sadly they lost.

So in this episode I want to start off with a few updates and clarifications about the suit that I learned in the past few days. I want to share that with everybody. I also want to discuss how we got here in the first place and I want to talk about how individual broker owners, what we can do going forward to restore honor, quite frankly, for lack of a better word, but to restore honor to our profession and Laci’s spoiler alert, I got to tell you I think we brought on a lot of these problems ourselves.

Laci: So that’s a big, that is a big spoiler. Culpability is always a big spoiler. Who’s we? You said. I believe you brought a lot of.

Chris: We as broker owners. Honestly, I blame us as broker owners for a lot of what has happened more than I blame the agents who work for us. Quite frankly, obviously we hold their license. It’s our choice. So it’s hard to blame anybody but ourselves for a lot of what’s happened here. But anyway, we’ll get into that here in a minute or so.

Laci: Yeah, that’s a lot to unpack, so I guess we better get started.

Chris: I guess. So a couple of things I’ve learned in the last week. I’ve continued to do some research and listen to experts out there discuss their thoughts on the case, but the Columbus Board of Realtors a few days ago had a hour and a half session with the CEO of CBR, the Columbus Board of Realtors, and an attorney with the law firm of Baker Hot-Stetler, and they did these informal broker forums regarding the lawsuit. So these aren’t in any particular order, so bear with me, but I think it’s important to clarify some things that we talked about in Parts 1 and 2. So one of the main reasons that this case seems so unfair and arbitrary to most of us is it’s because they applied a legal construct in this case called the Perse Rule, and it’s P-E-R-S-E-Rule and again, I’m not an attorney and I’m not going to get deep into the weeds here, but Perse Rule applies to conduct so demonstrably anti-competitive that it’s illegal without the need for further analysis of its actual effects on competition in the market. So because this was an antitrust trial, the Perse Rule was applied and in general the Perse Rule is applied in cases of price-fixing, bid-rigging, all the bad stuff that you can imagine. You’re basically guilty when you go in and the penalties proceed for error. As far as the burden of proof, once the plaintiff decides that the defendant engaged in Perse conduct in this case I believe it was the judge that decided that we Realtors engaged in Perse conduct it’s up to the defendant to prove that it falls within a narrow and well-defined exemption to avoid liability. What that basically means is, when you’re being prosecuted with using the Perse Rule, you’re basically guilty before you get in there and there’s not a whole lot you can say or do about it.

So this Perse Rule is contrary to another legal construct called Rule of Reason. So Rule of Reason requires a detailed analysis of the market and the challenged conduct to determine whether it actually harms competition. So we’re talking about antitrust, we’re talking about the competitive landscape, and this analysis balances the anti-competitive effects against any pro-competitive justifications for the contract. So this is conduct. We didn’t talk about how. We didn’t get to defend collaborative compensation. We didn’t get to talk about the benefits of buyer agents. Everything was just what the judge laid out. That’s because this case was tied tried under Perse versus Rule of Reason.

So again, that’s probably way, way too deep, but in a Rule of Reason case you get to talk about the facts, you get to testify and so forth. So in Perse, focus is on the inherent nature of the contract, whether the Rule of Reason focuses on the actual effect on the market. As far as burden of proof, perse places a heavier burden on the defendant, in this case Keller and Home Services, while the Rule of Reason requires a more nuanced analysis from both parties. Perse rules are rigid and inflexible, while the Rule of Reason allows for a more concisific argument. So that really is the reason why this whole thing is just feels so wrong on its face and why we’re all up in arms. I certainly didn’t understand that an antitrust lawsuit had these sorts of rules, but I think that explains why this feels so unfair and hits so close to home.

Laci: It does a lot to explain the unexplained right. So we don’t know. Or does anybody know, kind of, what is the analysis of the market? What is the you know? Does this behavior, the cooperation, does it actually have a negative impact on competition? Does you know? So I feel like you know. To me, just the names of the rules alone are like per se rule versus rule of reason. It sounds to me like one is better than the other. But I’m no lawyer, right, but it just it does a lot to explain kind of the ambiguity of where we’re at and, like you said, why it kind of seems so unfair and arbitrary. It just seems like it’s missing that part to me.

Chris: But again, not a lawyer Because it was, and again, you know, getting to an appeal process that’s run per rule of reason. I think it’s going to go a long way towards, you know, a successful appeal.

Laci: Right. And maybe more importantly, the actual impact, knowing the actual impact of it on the market, right. Because if somebody does an analysis and we figure out that it actually is negatively impacting the market, right, if it harms competition, then you know a lot of folks, even if it brings about changes in business, they’re going to be like oh well, that’s not the intention. Obviously we’re not trying to reduce competition. The intentions, you know. Maybe they don’t matter legally, but they certainly are something for us to keep in mind. So I think if we get to that point, then really knowing the truth is helpful for the business moving forward.

Chris: I think it’s hard for anybody to argue that if this rolls out and commissions are decoupled like we talked about in the first episode, where the buyer has to pay their agent, the seller has to pay their agent, I think it’s going to be pretty easy to say that’s going to harm buyers, especially first time buyers and buyers of limited means, because I think it’s going to mean that they go out there without any representation whatsoever. I think it pushes us back to the days you know buyer where and agency days so. But none of that conversation was allowed to come up in this first trial and we have to wait for the appeal. So the other thing I learned was the reason why this whole onslaught isn’t going to go away is the other big case that’s pending. It’s actually a federal case and that case is called Merle versus National Association of Realtors at Paul, and this case involves multiple states and multiple listing services across the country. So many multiple listing services and brokers were named, and I also learned that one of the listing service that was named in the suit is actually Columbus Board of Realtors, so Columbus Board of Realtors has its own MLS. You know we were named in this Merle versus NAR lawsuit so it’s not going to go. Hey, we’re going to hear more, but the outcome of Citzer Burnett could have an impact on how Merle versus NAR ultimately plays out.

So one of the things you know we talked about last time about why, you know, remax and anywhere might have settled right. If you remember, they actually settled the lawsuit, didn’t go to trial. Well, settling got them out of Merle versus NAR as well, so it was rather strategic on their part. They didn’t just, you know, not have to defend themselves in this lawsuit against Citzvated. It also got them out of this bigger suit in the 2024, merle and Burnett and did they do again sort of the review. Remax and anywhere made some proactive changes to policy and procedure and you know they agreed to not require their folks to join NAR and all the things we discussed last time, which is great.

The third thing, though, that settling did for them it got them out of Citzer, it got them out of Merle. It also protects them from future copyright lawsuits from people who just see what happened with Citzer and want to get on the bandwagon. So, knowing that now I think I have a better understanding of what their strategies were. And now Keller and Home Services. You know, now that they’ve fought and lost, and again they’re going to appeal, they’ve got to be worried about follow on and copyright lawsuits, you know, being filed against them from, you know anybody in the country, you know whether well-bounded or ill-bounded, and the hard fact is all brokers, larger, small. We should at least be aware that any of us could be dragged into a copycat lawsuit, and that fact alone, you know, could have a chilling effect on the industry. In any case, though, as we record this, it’s the week before Christmas, and according to the folks at Baker-Hastetler and then Clumps Fort of Realtors, we’re unlikely to hear of any new developments in Citzer or Merle until April or May of 2024.

Laci: Yeah, that’s interesting. I think that the copycat lawsuits is something I hadn’t thought about and how really and truly that could apply to anybody. It’s not just scary language, it just if anybody has a client or had a client, I mean, yeah, that really is. That does really clarify the settlement part of it.

Chris: It does.

Laci: That’s a big quote unquote perk of settling. I wouldn’t say there are maybe a lot of perks to settling a lawsuit, but that’s certainly one of them. It sounds like.

Chris: I think it knows it’s expensive to settle, but that’s a pretty good perk. So a couple more reasons why to this. I think there will be changes to how we do business, but I do think they’ll be okay. So what I learned was and we’ve done this briefly and I didn’t have the facts but there are actually several states in the United States that allow non realtor agents, licensed agents, to participate in the MLS, and I don’t have those in front of you. I know one of them is Washington State. I think there’s something close if not that way in New York, I was surprised at how many large MLSs and how many states are set up to allow that non realtor licensed agents can participate in the MLS.

The other thing that was interesting is that there have been many MLSs that have always allowed zero compensation dollars to be entered into listing. I think I remember last week we’d be able to the fact that we’ve, I think, six different MLSs and suddenly at least two or three of them sent a email saying from that long we can put zero in the cooperation field, and that wasn’t the case before. But for years and years many MLSs have allowed that and others didn’t, so there was some sort of split there, for whatever reason, it’s just first preference for you know that MLS. The other thing that I’m still astonished about this but I guess some MLSs and I never tried this, because it freaks me out that some MLSs will allow agents to search for listings to show a client based on the amount of commission or share compensation they’re going to get Right. So and again, one bad apple can spoil the whole bunch, I guess. But theoretically, you know, I guess we’ve always had maybe not every MLS I’ve never tried it but you can search listings and put a field in there for compensation and if you would only want to show listings that have you know, say, a 10% compensation, you could identify those listings and choose to only show those listings. By the same token, if you were to only show listings that had a 1% compensation, you could sort the listing inventory and see exactly you know what’s being offered as co-op.

It freaks me out, right, because I think that behavior is clearly an example of agents putting their interests ahead of the buyer’s agents. I have no idea how many MLSs you can do this with, I don’t even want to know, but that is absolutely contrary to every state law in the country. It’s contrary to the canon of ethics, the code of ethics. It’s crazy that any agent would try to push or steer any buyer client towards a listing strictly because it’s going to put the most money in their pocket. In my opinion, that’s just criminal.

So but in any case, it’s been out there. And the thing and the fact that I want to impress on everybody, even if we have changes and even if these changes result in zero compensation, non-realtor agents, things like that in every one of these three cases the revised policies, when those MLSs or entities decided to change the policies, there was no practical change to any real estate professional’s ability to earn a living. The fact that these big MLSs across the country allowed non-realtor agents to participate doesn’t mean they did, and they certainly didn’t participate in numbers. That somehow moved the needle on our ability as real estate professionals to make a living.

So sometimes changes are made, and it’s the principle of the thing, but there’s no practical negative impact on the bottom line and I think some of the changes that we will see coming out of this period of realtor history ultimately are not going to change a whole lot of how the very best of us make a living.

Laci: I think that’s a good point. You said how the very best of us make a living, so is it true? Does that apply to every? You know we talk about different types of realtors and there’s no good or bad. We’re very clear about that. Right? If you’re transaction centric, that’s fine. It’s not good and bad, it’s just different. But is it better, is it going to be better or worse for the new real estate professional versus the transaction centered profession? Do you see you understand what I’m saying? Like, yeah, if you say the best of us are still able to learn earn a good living.

Chris: So I’m going to this new phrase that I’m calling the transactionists, and the transactionists for the past four years 2020, 2021, 22, 23, man, they’ve had the run of the table right. You know, for a lot of different reasons, those people looking to make a quick buck, make a deal, focus on the next commission. They really did have a good run and, quite frankly, for those of us who work by referral, you know it’s been a troubling period right. It’s very hard to feel like you’re doing right by a buyer when you know you’re writing a dozen offers on, you know one of a dozen offers on a dozen houses and you can’t get something accepted. And to get it accepted, you know your buyer has to give up inspection contingencies or you know promise to make up the difference if the appraisal comes. In short, I mean it’s been crap. But yeah, I do think that now that we’re basically through this timeframe the past four years, which I want to dig into in a few minutes here I do think the new real estate professional is the avatar that’s poised to do insanely well for the next 10, 15, 25 years. You know again why I think this is going to go away or at least result in changes that are not going to be hard to live with.

It’s that buyers and sellers want representation and they don’t want to have to come out of pocket to pay for it.

Right, I mean, that’s a fact. Historically, you know, for the last 100, 150 years, however long the realtors have been in existence, market dynamics driven by buyer and seller needs are what shape industry practices, and it’s not just industry practices. The needs of buyers and sellers is what shapes state licensing law across the country. You know, we as realtors have always adapted to changing consumer preferences, perceptions and, at the end of the day, we still got paid and the buyers and sellers, for the most part, were very happy with the services that you know we provided, and there is no reason to believe that this isn’t going to be the case next year and beyond. But, having said that, we have to be honest with ourselves about the period of time that we’re in, and I think we have to be willing to look in the mirror and be perhaps have some self knowledge and come to grips with the fact that we, as broker owners, brought a lot of this grief on ourselves.

Laci: Now it’s on to the good stuff. This is what we’ve been waiting for.

Chris: Well, I don’t know. I mean I’m nobody’s harder on me than I am on myself and I don’t mean to become a crime. I mean I think this is going to come across as a bit judgmental, but I do think it’s facts. And we brokers have advocated our responsibilities, you know, since the time that I’ve been in the business, going back to 2001,.

I think that you know we rely on NAR, we rely on state authorities and our franchisers, you know, to do our jobs as broker owners for us. I mean, think about it right. You know you join a franchise. You’re adopting there their values, how they do business, their processes, so forth. As a licensee, you’re subject to the rule of state authorities, bureaucracy to some degree, elected leaders, but not so much. And NAR, my God. We let the NAR write our values and code of conduct for us.

And it’s not that they’re bad. I don’t think any of us would say we could do a better job. But the fact is, I think we’ve come to over-rely on these three things the franchisors that we pay, the state authorities who we get licenses from, and the NAR, whom we all pay to look after our best interest. I think that many broker-owners, I think we’ve lost our way as entrepreneurs. I think that we’ve stopped embracing the fact that we own these businesses. These are our businesses. We get to shape these businesses and we get to decide how we’re going to do business, and we do get to make our own rules and shape our own destinies.

I get a little animated about this, but again a lot of people have been in this business way longer than I have, but I think the first step down that slippery slope was way back when we abdicated our lead generation to third parties like realtorcom and Zillow. I mean, let’s face it, yeah, we broke. Our owners didn’t have to pay as much as we used to for advertising right, I remember when we used to put ads in the paper and that was expensive. But let’s face it, who made out on this deal? It’s ZillowandRealtorcom. We brokers didn’t make out on this. At the end of the day, we lost leverage. So I think that was the first step in the slippery slope, that, for the most part, we stopped doing our own lead generation, we stopped doing our own market making and we decided that we would go ahead and send all of our information to REIT, to the realtor and Zillow, and then allow them to charge back our buyer’s agents for leads. We did that. Somebody made money, but it wasn’t us.

Laci: Yeah, there it is. It’s the Amazon of real estate, right. So it starts out with small businesses doing their own marketing and their old lead gen and kind of selling their own services, and then it seems simpler to have kind of a universal marketplace for everything, and I think it did give buyers maybe more direct access, just like Amazon does, right. But then we start to prioritize the deal right and the numbers versus the relationship, which is exactly the opposite of how this is supposed to work. At least that’s what we believe here on this podcast, am I right?

Chris: Yeah, and instead of acting as mentors and coaches and business partners and collaborators, having something of value to add to our agents’ businesses, so many of our brokerages just gotten into this race to the bottom financially and from a liability perspective. By allowing so many agents to essentially work for free while we take on all the risk and legal liability, we lose sight of the fact that licensed brokers get to choose whose agents they want to associate with and whose licenses they want to hold right, just as agents get to choose which brokerages that they want to associate with, and I think that we’ve lost some discernment in that. In the best case, when you talk about mentoring and coaching which I love working with our agents, the biggest thrill I get out of this job is seeing an agent improve, whether it’s their income, their lifestyle, control of their time, see their life and their business just get better and watch them become more successful. To me, that is a thrill that makes it all worthwhile, and I like to think I’m conscious of learning how to be a better coach and conscious of trying to figure out what’s going to help enhance the practice of my agents and so forth.

But we still use third party coaching. We always encourage all my agents to get personal coaching. We always recommend Bethanian Company. They did wonders for me and love that. But that doesn’t mean that just because we suggest agents sign up with a coach, regardless of who it is, that we don’t have an application. It’s almost like, at best, we want to outsource that right. Okay, well, you need a coach, but I’ve got to do it as your broker. Sorry, you’re going to have to go pay for one.

Laci: So either we can’t Red flag, red flag.

Chris: Or we’re no longer willing to or able to provide that kind of stuff. And I mean, what the hell else is a broker for if you can’t model the way for your agents? And I’m afraid we’ve gotten to the point where so many of us aren’t modeling the way for our agents, because, yeah, I think, it’s worse if it’s because you’re not willing and not because you’re not able.

Laci: I think there’s a little bit of kind of there’s a heroism in saying, well, I’m not the absolute best person to do this, or I’m available to you, but here’s another resource, or I’m still learning myself, and here’s a resource that I find useful. I think there’s a real authenticity in that, because that should be the attitude, right. Nobody knows everything, but it’s the lack of willingness. I think that is the red flag, right? If you’re part of a brokerage and they’re just not willing to take the time or to develop the resources or do the work, that’s the big.

Chris: Yeah, when I got my license, the brokers were willing to take me on listing appointments so I could watch. They showed me how to show a house. They showed me how to do contracts. I mean, I wouldn’t be here today if it wasn’t for Sue, gary and Tony, you know, when I first got my license, quite frankly, and I’m super grateful for that. The other thing that’s happened is franchise agreements as a rule have quotas and as a franchisee, you have to sign up agents in enough quantity to meet the quota, and I saw this happen during my time at REMAX and, as a rule, my time at REMAX was positive. I learned so so much. But I bought my first REMAX franchise in 2003 and, as time went on, let’s go back.

So was where, historically, the very, very best of the best on their license and when I say best of the best, I mean they were great realtors, great salespeople.

They’re also great businesspeople, because the way REMAX was founded was it was like a bunch of doctors or lawyers who got together and opened an office.

Right, everybody had their own practice, their own book of business, but they all shared the common expenses. So if there were 20 agents and the rent was $20,000 a month each agent would pay $1,000 towards the rent. Right, that’s extreme, but you took the rent, you took the space, you took the taxes, the insurance, the copy or the copy, and you took that and you divided it up amongst the number of practitioners in the building and that became the fee that they paid. Right, and there may have been a little bit of money there to compensate the broker for so forth, for his liability and so forth. But the fact is, back in the day when REMAX was REMAX and again that sounds as faraging, but back in the day when REMAX was REMAX agents had bills. They had skin in the game. The broker wasn’t collecting any extra money, it was 100% commission. But the numbers were even when I owned one that each agent had to pay in even in Springfield Ohio, at least $1,000 a month to keep the place up low.

So historically, that was REMAX 100% commission and you shared the expense of maintaining an office and a practice. Well, the first thing that started the change was okay. Well, let’s see if we can avoid having to make people write checks right, that was the first bad step and let’s see if we can get them on a split and recover everything we need in the form of a split and that’ll pay the bills. Well, that’s what everybody else was doing. That wasn’t the.

REMAX way. But now, suddenly you had to make a quota and maybe the first year in a small market, you had to have 10 agents, and the second year you had to have 15, and the third 20, 25, so forth, 30. The fifth year, and if you didn’t recruit to quota, remax had the right to bill us to quota. So what happened was well, first you start bringing people in who didn’t have, who didn’t, who wanted to split, and then you started to bring in people without experience, and then you started to get new fees and new licensees, all in effort to cover the quota and get enough money into the brokerage to pay the franchise fees. And that’s just one of the things that has, I think, lowered the bar on the quality of agents that we have out there in the marketplace.

So you know, I’m not. The fact is, I think we have to be very discerning about who we bring in, and I can’t blame broker owners out there that have a franchise affiliation for doing what they have to do to meet their obligations contractually and so forth. But I do feel like we’ve got to do a better job of balancing our contractual financial obligations to the franchise with our responsibilities to ourselves, our business and our other agents that are producing. So can you blame that on the brokers? Not so much, but I think you can blame a lot of this on the legacy franchises.

Laci: Yeah, that’s an interesting point. Again, the thing that keeps coming up in my mind is how everything is moving on every side of this conversation, from relational to transactional and kind of the negative impacts that come along with that, and not that some of that’s not necessary, right, the world changes and things happen and you know I think you’re going to talk about next is a great example of how you know things happened and we went from going into Target to picking everything up at Target within two hours and from going to the grocery store to getting our groceries delivered every week for $99 a year to. So you know, things happen and technology certainly changes and some of that maybe is necessary, but that’s just the key point that kind of plays across my mind is, if we continue to go from relational to transactional in every aspect of it, then that’s what buyers and sellers are going to want to right. They’re going to want the transaction and they’re going to start seeing instead of you know how much would you happily pay? Right?

We do that a lot in marketing. How much would you happily pay for a lead? Well, how much would you happily pay someone to sell your home, right? And instead of that question, it’s how little can you pay someone to sell your home? And so that’s where we start to see you know the relationship break down and, quite frankly, you know drivers for this NAR lawsuit right, it’s sellers who are the class action. Right, they’re the class. Sellers are the ones who are going to get compensated in the end, and I think that takes a toll on the relationship.

Chris: Nobody wants to leave a real estate transaction with the seller feeling like they didn’t, they paid too much right, yeah, but I also think it’s this whole transaction approach that’s how we, our tool, our vehicle, our car to race to the bottom of the barrel has caused so much grief overall in the market. Right, yes, the few people that did sell maybe did better and so forth, but it’s like 1% to 10% of everybody who interacted with the realtor quote had a fantastic transactionist experience because of that one moment in time, there were way more buyers than sellers, but the damage that happening whatever you want to call it caused to the overall profession and the other 90% of market participants was devastating and I think it led us to where we are. You know, maybe I had my head in the sand, but I didn’t think here, get asked about any lawsuits prior to 2020, prior to COVID.

Laci: Right, there was nothing on my radar outside of Well, you know, everybody had a lot of time on their hands during COVID, so Well, but you know all I did was, you know, I spent 2017, 18, 19,.

Chris: I was learning about embracing clear cooperation, you know, built the business around it. I thought it was a great policy and we never had conversations about this, you know, until now. Covid hits in 2020, we’re going into 24 or four years of past and COVID my God, it messed with our business. You know, we do property management as well as sales and COVID, honestly, aside from the fact that it was like one big, long string of snow days which was kind of cool at the time, right, you know we were essential. Right, because we did property management. Housing is essential.

So we went ahead and ran our property management business and, to be honest with you, those couple of years are COVID, easiest time of property management ever. Nobody moved, we didn’t have any turns to do, everybody had assistance, the rent was being paid, we didn’t have issues with, you know, having to evict people and not be able to. I don’t know why we were different. I like to think it’s because we were doing the right thing. But, you know, covid, in that respect, was a blessing. Sales were through the roof during COVID, but the business was hard and it weighed on the agents the velocity, the competition, the meanness, the dealing with new agents in the business who got in to get rich quick. You know it was hard for the best among us or the relationship oriented among us during COVID yeah nobody’s using Nana because of her virtual deal making skills, you know.

Laci: Nana because she’s been doing this for, you know, 40 or 60 years and she’s trustworthy and she knows her stuff and she’s but people like Nana during COVID, they’re the ones that were quiet, quitting.

Chris: They’re the ones that just bowed out gracefully. They’re the ones that got out of the business and caused that brain drain that has, you know, made the whole industry, the whole profession, less than you know it was four or five years ago. Because, you know, god love Nana but she can’t go on forever and nobody wants to continue to fight a losing battle and I think you saw a lot of fantastic people just sort of fade away. You know we couldn’t see how COVID was affecting us until it was, you know, almost too late. And I, you know, I’ve been pretty open about this. You know we thought we were just, I thought I was God’s gift to business. You know, during COVID and then as soon as the assistance started to try up a couple of years ago, you know we realized how much problems we had in the business from a management perspective, as soon as people started moving again and not paying rent again because assistant tried up. You know we found a lot of problems with our operation and we’ve spent the last two years, you know, basically getting our arms around that and fixing it and we dropped a ton of owners that didn’t fit. You know our values and we also had to turn a lot of staff and start holding some people accountable again. So you know, I say COVID was the best of times and worst of times. And then, of course, from an agent’s perspective, we had agents who had to fight like held, you know, when there weren’t enough listings and too many buyers, and then rates started to go up as we came out of COVID. And now we’ve got agents that are, you know, fighting like held just to get through the year, because this year is a easy 40% drop to last. So it’s odd that COVID, we didn’t feel COVID as a horrible thing when it was happening, but we’ve definitely felt COVID as a horrible thing in the two years since it started to go away.

And you know, again, I’m all for accepting responsibility and we as broker owners have to deal with the world as it is. But COVID has, I think has done a lot, has a lot of the root cause for why the general public, or certain segments of the similar general public, is looking at realtors with so much disdain. You know, and like you said, covid was about virtual deal making, it was about transactions. It had nothing to do with personal connections. I mean, for God’s sake, you couldn’t talk to people, you couldn’t shake hands, ethical standards suffered either from ignorance or from a choice. You know no peer accountability that nobody modeled away. You couldn’t look at anybody’s eyes. You know all those things cost to a deterioration of the business, and for many of us, covid became the excuse for everything. So you know, again, sort of alting myself and the broker owners. I know that I’m sure I used COVID as an excuse before. You know, I finally got real about what was going on in the last couple of years.

There are a few of us out there that set standards for conduct, process and performance and came out stronger for it, and I feel like we’re one of those companies. You know, when we talk about the new real estate professional, it’s about embracing what brokers should be doing, but so many of us didn’t take that opportunity. You know, the last couple of years COVID was torture for the people, for the relationship oriented among us. Right, we couldn’t help clients like we wanted to. You know, dealing with competition, waiving, inspections, and it’s just a crazy time. And you’re right.

We had sellers out there, though, who didn’t. They didn’t want a relationship with us either. Right. They didn’t need any help. All they needed us to do was to stick a side in the yard and wait for the offers to roll out. So this is perfect storm of things that happened to the profession. That, I think, has just had broad ramifications, negative ramifications for the whole industry, and we’ve all been, you know, to some degree painted with that brush. I mean, at the end of the day, it was a mess, and it still is to some degree. So it’s no wonder our reputation is tanked.

Laci: Well, you think about the. You know the buyers versus the sellers, and a lot of what we’re talking about seems to me again as somebody who’s adjacent to this business and not a realtor myself but a lot of it is sellers. It always seems to me like a seller’s market, even when it’s a buyer’s market, because the seller is the one in the position of power. So I’m interested and this is what I think keep thinking about as we’re going through is how all this impacts sellers. But the buyer seems to be the one that gets kind of the short end of the stick, no matter where you’re at. Because if you’re a buyer and it’s a buyer’s market or whatever, there’s still so many things you need from an agent to make this work Right, to make this work on like. As a seller, you’re just selling your house right. You want the best offer, you want the, and there certainly are a lot of hoops to jump through for an agent, but it just always seems like the burden is primarily on the buyer and the buyer’s agent.

So all of this talk about sellers you know rights, or sellers you know not wanting to do the, to pay or whatever the case may be is. It seems like we’re just missing a big part of the conversation.

Chris: Well, I think that’s why Citzer and Bermont is so troubling, because we know what a negative impact this has on buyers. And for Citzer Burnett to be an excuse to attack buyer’s agents as being overpaid, you know, as I said, it’s just crazy. It’s buyer’s agents that hold this whole business together. But I want to talk about one other thing that I think has really impacted our reputation, and part of this was COVID, but it was coming on even before COVID, and that’s online training. You know, back in the day, if you wanted to get your license, you had to take state approved pre-licensing classes and you had to go to a classroom and you had to take them. Yes, you could take some night classes, you could take some weekend classes, but you know, classes were also held Monday through Friday during the day. You had to do continuing ed, and every state has a continuing ed requirement. I think in Ohio now, it’s 15 hours every three years or 20 hours every three years, I forget.

You have to go take continuing education classes and what’s happened is and COVID accelerated this was instead of going someplace with other people, right, people who invariably were at different levels of performance, different time in the business, you know you would go to these classes and even if it was a shit class right, boring as hell. You know, you heard this last year. You at least made a contact. You at least eyeballed the other guy across the room, right. You met the instructor, whatever there was personal connection right. And now all of that has dried up, you know, and what’s happened is, with all this online, you know, pre-licensing and continued ed all we’ve done is make it easier for the least skilled and prepared among us to not just get a license but to keep a license. You know the standard arguments are you know, okay, I’m online, I get increased accessibility, it’s cheap, which is crap, because you know every board offers pre-continuing ed that covers your state obligations, right, flexibility yeah it does offer flexibility.

It allows realtors to quote learn at their own pace and at their own time. The fact is, it’s flexible and I do this as everybody else does. You can multitask your way through it. You know, my goodness, you know, even when I know the material and I’m going through it at my pace and I pass the test many times because the state says that the class online has to take a certain amount of time, the system will slow down and make you wait to go on to the next segment or question because there’s a stated time frame. Right, it’s just this stupidest thing. And the variety of options. The options are all the same.

I’ve used several vendors. You know you watch a video, you do a little reading on the screen, you answer some quizzes. You know you get a receipt. They report it to the state. You know, those are the arguments in favor and I don’t know that they’re that good.

But let me tell you what’s hurtest is that there’s less interaction, right, there’s no opportunity to meet, learn, connect, have a relationship with instructor or by the realtors. There’s no sharing of best practices. There’s no sharing of you know, well, I had this problem and I did this and this. There’s no accountability. You know, there’s no way that we as broker owners can ensure that our folks actually learned anything, and most of us don’t care if they learned anything. If anything, it just focuses on compliance. It’s a check mark and, honestly, I think it’s a scam, because these classes aren’t any better than online correspondence courses and they get to charge for them and, at the end of the day, we lost camaraderie, we lost collaboration, we lost learning from each other. You know, even, like I said, in a crappy class the most boring class on earth where you’re staring at the clock, I at least always met somebody that I didn’t know before I walked in, and what we’ve lost is profound. You know, when you got a pre-reported class and some of these classes I’ve seen are, you know they’ve been recorded literally years ago and any updates were, just because of any state law, changed. You know it’s just the same stuff over and over again and you don’t even hear about.

I mean, quite frankly, you know I felt a little bad that this whole sitzer thing was off my radar, but I think, had you know, covid not happened? And well, first of all, I think if COVID hadn’t happened, we wouldn’t be in this mess anyway. But you know COVID hadn’t happened, there would still be pressure on commissions, pressure, you know, antitrust concerns and so forth, but at least we would have been talking about it amongst ourselves because we were going to be together. You know, if I were king, you know I would offer the very best, you know value I could and as an education provider, and I would charge for it. And the other thing I would do is, I think that I mean we’re starting to see this.

You know we’re doing, you know, in-person, continuing that again, which I’ve started to go to as much as I. You know I’m afraid of getting bored, but I’ve started to go because of the connection factor and at a minimum we should have been doing continuing ed in a group via Zoom, not doing continuing ed one at a time, watching videos and checking off multiple choice questions. I am kind of surprised in retrospect that the various states allowed that to happen. You know, even in a Zoom alternative, you force people to come, you force people to turn on their camera, you enforce basic rules of respect in classroom etiquette and we didn’t do that. And you know I’m all for technology, but I really would hope that these education providers and yes, they would have to charge more for it, but I think it would be far better content and more useful content.

Laci: Well, I mean, I think this is. I have a confession, because I think this has been the case for and against online education in any form for a really long time and I think that there there’s a big difference in effective online education and online education. And my confession is when, you know, we chose to keep our kids home from school, kind of during that second school year of COVID. So it started out online and then they could have gone back in person and we chose for our kids to stay at home. And for my son, my daughter did kind of the Zoom school right, so they were meeting in Zoom classes and it was through her school.

For my son, he just really was not feeling that everybody was in tears every day. So we chose an online education system and I won’t mention the name. We weren’t unhappy with it, but that’s exactly what it was. He was watching videos. They were not interactive. He was checking off the you know ABCD answers at the end. Every lesson had kind of a test at the end to make sure they had figured it out. But he would finish his classes Even if I gave him twice as much to do. So he made it through two school grades right In that one year and he finished them in a couple of hours a day.

He didn’t get any of the any, didn’t retain a lot of it, and for us it was a stopgap measure and we weren’t thrilled with it, but it’s what we felt like we needed to do at the time.

But my daughter, on the other hand, really developed a lot of skills that allowed her to self-paced, that allowed her to figure out what she needed to do and how to do it, and it really was super beneficial for her to have that online education. For my son we he was just further behind, really and truly, and they’re both smart kids, so they called up fine. But, but my daughter was it’s just like she had been to school and she actually gained some really useful and cool skills that she could use later. My son, on the other hand you know it’s kind of like he was he was half in school, he got the information, but he lost out all of the other benefits. So I think this is a really very similar situation that we’re talking about here, and so it’s not a new conversation. It’s something that we’ve been talking about since online education started in any form.

Chris: Yeah, but I appreciate you bringing that up because I hadn’t even made that leap. But you’re exactly right. It’s one thing to quote, go to class in the zoom time machine, right, Whatever, but you know to actually. You know, go to zoom and it’s not so much a time machine as it’s, it virtually puts you someplace else. Where you’ve got people, you’ve got a screen, there’s conversation, they know if you’re paying attention, they know if you’re not paying attention, and it’s interactive versus pushing out videos and doing checklists at the end. It’s pretty stark the contrast, quite frankly. And again, I think that’s one of the reasons why we realtors are in the shape or in. So I’m the cranky old uncle at the Christmas dinner.

Laci: Get off my lawn.

Chris: Get off my lawn back in my day. One of the things I think we have to stop signing. We have to stop signing up people that are, you know, just looking for a get rich opportunity. We can’t continue to be body shops as broker owners, you know, willing to just let anybody with a pulse and a license, you know, hang their license with us. It’s a profession, it’s not a hobby and it’s not a job. It’s an entrepreneurial venture and I don’t understand why we don’t talk about that more. You know, this isn’t something that you punch in. You know, take a lunch and home by 430.

We got to weed out the transactionists, you know and I use transactionists I guess I do use that as the derogatory term because I think there is a place for quote deal makers, as we talked about before. But we’ve got to weed out the transaction to transactionists that come and go, you know, based on the market, and we’ve got to focus on those with a long term outlook, you know, that want to build a business on productive, profitable and when relationships. I think we’ve got to think hard about, you know, our time dilettants. You know, people that are looking to become a realtor as their second or third career because they think it’s a status symbol and it’s nice to tell their friends oh yes, I’m in real estate now. This is what I’m going to do next. You know where? They think that by getting a license and becoming a realtor with a legacy firm is suddenly going to, you know, be just like it is when you see those folks on HGTV or on Instagram. I think we’ve got a question to you know, the whole idea and I do this too, I’ve done it, but I’m questioning my way forward is you know, we’ve had so many licensees out there who got their license because they want to invest in real estate and their whole goal is to save commission dollars, right?

I don’t think that’s a good practice. I think it’s bad for us, I think it’s there’s liability issue and I think for them, you know, trying to save 3% on a deal is a poor substitute for actually learning how to, you know, run a profitable real estate business. So you know I am ranting, but, quite frankly, it’s those agents that do one or two, three, a handful of deals every year or two that you have to worry about. They’re the ones that for which we have liability, because they don’t know what they’re doing, they don’t practice enough to build up any sort of institutional intelligence or, you know, muscle memory about how to do this job. They never learn anything, they never get better. And people who actually close a steady stream of units and I always think units is a far more telling indicator than a dollar volume close, total, close volume but those who have a steady stream of units, at any price, they’re the ones that naturally keep getting better at real estate, at being a realtor, at their profession, and they’re the ones that are far more motivated to protect their business and their license, which in turns protects our business and our licenses as brokers. It’s those ones to two, three year people, you know, dilatants, that I think we’ve really got to. You know, think through.

The other thing I would say is you know times of tough, and I’ve had several agents come to me and say you know I need to do something, I need to get a job, I need to do this and in that and it is not a crime If somebody needs to go get a job to get through a tough year I would much rather have somebody you know say hey, you know, I’m going to go take this catering gig, you know, or I’m going to go work at Amazon through the holidays Because you know they want to stay in the business, they want to keep going, they want to move forward, they have faith that it’s going to get better.

But in the meantime they’ve got to do something to keep body and soul together and I think that in the past we’ve discouraged that and I think that’s something that we have to promote, right, you know, when it’s appropriate. I don’t think it’s a some it’s not a failure, it’s. It’s not a scarlet letter, it’s a fact of life. And if we want to keep people in the profession long term, we’ve got to figure out how to help them help themselves, get through the good times and the bad. I have zero problems with an agent who’s committed to the business having a part time job while they’re getting started or to get through a year like this. You know, I would rather have somebody work a few hours a week outside of the industry than, you know, be making bad decisions you know, based on what they’re going to have to do to make the next you know mortgage payment.

I and again I think this had we taken an approach like that, you know, sooner than this year, we probably would have had a lot less quiet. Quitting of the best among us are the most promising among us and in the resulting brain drain. You know, we have to be honest about what this business is about. It’s not easy, it’s entrepreneurial, it is 100% commission. You can’t get past that. We have to embrace that and as brokers we should be talking at least as many people out of the business and out of getting their license as we recruit into the business.

Laci: We started starting with this podcast.

No, I think that’s important and I think that, like you know, if somebody had been honest with us, and you know in high school, like they told us, you go to college. Right, if we’re your college, you get a good job and then everything kind of magically falls into place. Your life is going to be. You know exactly what you expect it to be because you went to college and you got a good job, quote unquote. But that’s not how it is right. Nobody talks to you about you know how to pay your bills and you know optimize your taxes and save for the. We don’t talk about any of that in school and I feel like it’s a very similar conversation that needs to be had when you’re talking to somebody. You know talking to somebody about coming into the real estate business and I feel like, if you’re honest, that conversation really takes care of itself.

Right, if you’re honest about it if you had been honest with me in high school I would have said no, I’d like to opt out of adulting. Thank you very much. Right, and if you’re honest about real estate as a business, then I feel like the people who are not cut out for it are gonna be like you know what that sounds like a lot. And when I think about the way of the new real estate professional and how, if that seems, if working by referral and if building those relationships and really embodying the idea of a real estate professional, if that sounds like too much for you, then it is and maybe you should rethink this right Right.

Chris: Better we have that conversation early on, right?

Laci: Yeah, exactly.

Chris: I mean. The fact is, I think we could shed 30% of the realtors in the country and do a far better job for our clients. But that’s heresy, right? That’s not what the legacy brokerages want, the giant franchisees. They need as many bodies as they can and, quite frankly, the National Association of Realtors needs as many bodies as they can get. Their profitability is built on a large number of licensees, paying dues and franchise fees, and we’re gonna get into this later and I think part five, the conclusion of this series. But I think that’s why NAR and the mega brokerages will transform, if not start to fade away, in the next few years.

Laci: You know, I had my kind of the idea of your broker is only successful if you’re a successful kind of mentality.

Chris: is that safe to say yeah, exactly, and you know I’ve had my you know my agonizing reappraisal. You know, with agents and you know, for the longest time somebody would knock on my door and say, wow, this looks like a cool company, can I sign up? My God, I just said yes, right, I didn’t do any due diligence, I didn’t disagree, I was just so excited somebody wanted to hang their license and a warm body.

Yeah, and you know, expected and wanted the best for everybody. And it’s only in the past year or so, maybe year and a half, that I really started to take the time to articulate my vision for what I want this company to be and the type of people that I want to work with. And you know what do we need to do from a marketing perspective and a messaging perspective to you know, screen in agents. You know, introduce agents to Bruce to see the world the way we do. Well, at the same time, very politely, you know, discouraging those that don’t see the world the way we do, and I’m gonna put this in the show notes. But part of my personal evolution in that regard is I put this scorecard together called the Great Bit Self Assessment, and you can see it at wwwgreatbitagentcom and it’s basically the eight core values that we share at Roost and it allows somebody to assess themselves where they are today and then come back and do this work hard again for where they’d like to be in the future. And I think it’s a cool exercise for anybody listening to this and I think it helps you become really self-aware. But the other thing it does is it makes it pretty clear the type of brokerage that we are, or at least aspire to be. So, in conclusion, this has been a long one, we see.

So, in conclusion, I really feel like we brokers have to step up. You know, we have to restore honor to the profession. I know that sounds a little melodramatic, but you know, I think this requires a collective effort from broker owners, leaders, individual agents, and you know, there’s some things that we have to do to enhance our profession, our reputation and so forth. And I think that we have to be conscious that we can’t any longer outsource our ethics or standards of behavior and conduct to NAR. You know, our franchise or, god forbid, zillow. We have to take an interest in our business and our agents. We have to take 100% responsibility. We have to stop treating our agents as numbers. You know and this is a big thing and this is probably a bigger discussion but you know, just because our agents are 1099 contractors doesn’t mean that we can’t hold them to a certain standard, right, it’s because they’re not employees, you know, I think If that’s the case, then you know I’m a 1099 contractor for all of my clients, and just they.

Laci: they’re high expectations.

Chris: Yeah, I mean, I think we treat our agents worse than employees because, you know, maybe it’s because we expect them to pay us. I don’t know. I understand it. But you know you may not be able to say to a 1099 contractor that they have to punch in at eight o’clock in the morning and go home at four. But you certainly can say to a 1099 contractor that if you want to be a Roosterl’s company agent and we have a meeting, you know every quarter that we want you to attend in person or on Zoom. You know we can make that a standard and if somebody doesn’t want to do it, that’s fine. But you certainly don’t have to. You know there’s always circumstances. I know this sounds very simplistic, but they may not be Roost agent material.

Laci: You know A great fit.

Chris: A great fit. So, anyway, we’ve got to focus on an enforced ethical standards. I think that you know it should go without saying we can hold our agents accountable and we should set standards for our agents. And that’s part of you know what I think I’m starting to do with the Great Fit Agent Assessment. I think that we have to at least know what is available in the world for continuing ed and training. We have to be educated on what’s available and we have to let our people know what’s available and why we think it’s worthwhile or not worthwhile. You know, we may not be doing the training, but we can’t advocate our responsibility for what we feel is going to provide value and enhance the practice of our agents. There’s a whole big difference, obviously, between agency as defined by a law and fiduciary sociability versus compensation. And I think we agents have to continue to talk about this and urge our realtors to educate their buyers and sellers Because, again, if we were more transparent, if more agents were more transparent about how we get paid, we wouldn’t be having this problem with this lawsuit.

To begin with, you know, agency defines a legal relationship and a fiduciary duty between an agent and their client. That has nothing to do with compensation. Compensation outlines the financial arrangement for the agents services. Agency and compensation are essential components of our business, but ensuring that agents act in the best interest of their clients is paramount and the market has always allowed us to be fairly compensated for doing that. And as we talked about I think it was episode one, you know, many times agency and compensation are not well aligned and they could be better aligned. But again, if we just explain to our buyers and sellers how and why we do what we do, this is, you know, commissions are negotiable. This is how we, you know, use the commission dollars, I think that would have gone a long way, you know, to making this. We wouldn’t have been in this situation we’re in. But let’s face it, you know, during COVID, how many listing agents really got to have that conversation with a seller. The sellers weren’t having it any more than we were prepared to provide it.

We’re certainly not forced the issue. You know we’ve got a cultivated workplace. You know environment for accountability, transparency, integrity, of course, but we’ve got to educate the public and that’s really the main thing. And one more you know I guess we’ve got to preaching one more time. You know we’re business owners. We’re entrepreneurs and we have to run our business as a business for today, but we also have to balance what investments we make, what we do today, so that we can ensure that we’ve still got a business to run tomorrow. There’s nothing easy about this right. It never has been no industry.

Is it easy to own a business? It’s always harder than you think it’s going to be, and I really feel like it’s time that all of us just accept that and get back on with it. I think if we just did a few of these things and talked about transparency, talk about how we get paid, you know, spend more time with our clients, learning and so forth, you know, I think we will restore quote honor to our profession. Placy, we just don’t do well by ourselves. You know, any more than your son, you know, did as well as maybe he would have liked or you would have liked, you know, with his online education, you know, versus how your daughter, you know, went through it or how they both would have gone if they were in school.

As a rule, whether you’re an introvert or an extrovert, we don’t do well in isolation.

We don’t do well as loan rangers, and I think if there’s anything that’s taught us the last four years, that’s the case. We’ve lost our ability to, you know, to relate to customers and clients and to each other, and I think that that is the root cause of lawsuits like this and why I think we can fix it, but you know there’s going to be some drama on the way. Realtors have to be held to a higher standard and brokers have to be held to a standard. It’s higher than that. It’s time to take back what is ours as broker owners, assume our responsibility and the rightful place in this transformation. And you know, lacey, you said it a couple of times we are entering the golden age of a new real estate professional and, as you know, scary and you know quote negative this period is, or the last year or so has been. I do believe with all my heart that the next 10, 15, 25 years are going to be wonderful for those of us that really want to learn the ways of the new real estate profession.

Laci: Yeah, I mean, you’re trying to restore honor and pursuance of trust, right? And we all know that the people you want to do business with are the people who know you, like you and trust you, right? So you know there’s nothing that requires more trust than the largest purchase of your lifetime, right? So I think that’s a fair assessment. I don’t think it’s melodramatic at all. I think in order to earn, you have to earn that trust or, in some cases, you know, earn that trust back from both buyers and sellers, and that’s really the paramount of what you talk about day in and day out, even when we’re not talking about lawsuit and the negative stuff. That’s just the culture of the new real estate professionals. So I couldn’t agree more.

Chris: Well, this has been on a long one today, so thank you for bearing with me and, if those of you out there listening made it to the end. Thank you very much, and check out greatfitagentcom.

Laci: We’ll see you next time.

Chris: Bye.