In this special edition episode, industry veteran Chris Heller breaks down the settlements of the real estate industry class action lawsuits in straightforward terms and sheds light on what it means for agents, brokers, and real estate companies. For more updates follow Movoto on Instagram @movotorealestate or download the Movoto app.Â
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Transcript
March 25, 2024Hosts: Patrick Kearns and Sophie Brandeis
Guest: Chris Heller, President of Movoto
Patrick: Hello, and welcome to the MovotoMic podcast, a new real estate podcast brought to you by Movoto.com. My name is Patrick Kearns. I’m an ex journalist and ten year vet of the real estate industry who’s currently working as Movoto’s head of communications. Here with me today, as always, is my associate, Sophie Brandeis. Sophie, how are you doing today?
Sophie: I’m doing alright, Patrick. We are busy here at Movoto as there’s a lot of talk happening right now in the news and media regarding NAR, the lawsuit, and all the settlements.
Patrick: Yeah, that’s right. I think that there’s a lot of confusion. There’s probably internal confusion, external confusion, and we wanted to bring in somebody that isn’t going to give you a sort of only biased one sided opinion.Somebody that’s been in the industry for a really long time that understands this stuff can give you sort of a digestible breakdown of like, what does the news actually mean? What does it mean for my business? What does it mean for the future of home buying? What? What’s actually going on? So Sophie, who is that person? Who do we have as our guest today?
Sophie: Right, today on the Movoto Mic, we have our president, Chris Heller. Chris is a trailblazer and a seasoned veteran in the world of real estate. His journey includes earning the title of Keller Williams Rookie Agent of the Year, spearheading top performing real estate teams, and holding key leadership roles in industry giants like Keller Williams, Mellow Home, and currently, Movoto.Chris brings a wealth of experience and insight to the table, making him the perfect guest for our discussion today on the commission lawsuit. Chris. Welcome to the Movotomic, Chris. We have so many questions for you today.
Chris: Well, thanks for having me. Hopefully I’ll have so many answers. Oh, yeah. I have a question myself though, Patrick, in the intro, you said you’re a former or ex reporter. Is there such a thing? Do you ever not stop being on?
Patrick: Yeah, I guess I’m still asking questions, right? I’m still here interviewing Chris Heller. So that seems. pretty similar to maybe where I was four or five years ago in my life, but I’m still an investigator. I’m still a curious person. Uh, yeah. So maybe, maybe you’d consider that a journalist, but with a lot of the Gnar coverage, I don’t know that I want to be considered a journalist right now. I’ve seen a lot of confusion, Chris. So let’s start at the top.
Chris: Yeah. There’s a lot of confusion because there’s a lot of people reporting on it that don’t understand the settlement and they don’t understand how the industry works. So I’ve seen a lot of headlines that were unfortunately just flat out wrong.
Patrick: All right, so let’s, let’s go way back though for our audience and start right at the top, right? Explain the sort of genesis of this lawsuit. It doesn’t come out of nowhere. What’s the history behind the lawsuit? What are the specific allegations made against NAR and some of these big brokerages? Explain where this really came from.
Chris: Yeah, there, so there was a class action and then multiple class action suits that had a variety of allegations, but most of them centered around illegal collaboration, collusion, lack of transparency, and alleging that all these things in terms of commissions and how commissions were paid, how commissions were shared.
And alleging that these were damaging, you know, to consumers, you know, the plaintiff’s attorney was very, uh, you know, forced or, or cause, I shouldn’t say forced. Yeah. Just caused, you know, some of the defendants to settle. The largest one was the most recent settlement with the national association or realtors.What’s significant about that settlement is that it’s a blanket settlement for the majority of the industry. I say majority because certain brokerages above a certain. Of a certain size are not part of the settlement, but 80 percent of the industry was covered by it.
Sophie: So can you explain who these brokerages are? Who is involved? Who are the main players here?
Chris: Of the main case that has gone to trial and thus settled, there were five, five defendants, the National Association of Realtors, Keller Williams, Home Services of America. Remax and Anywhere Corporation. Two of those defendants settled prior to the trial and two post trial with the last one being the one that hasn’t settled yet is Home Services of America. Um, but the most recent settlement was this, the large one with the National Association of Realtors.
Patrick: And now for people, I would assume in the industry, most people know who the National Association of Realtors is, but for maybe the casual listener that’s being exposed to this group for the first time, who is NAR and what is the profile of the average person that NAR is advocating for?
Chris: So, uh, NAR is the National Association of Realtors. It’s a trade association. They don’t set, they don’t set commissions, they don’t govern commissions, they don’t dictate commissions. Really NAR and part of their mission all along has been to protect and provide for the American home buyers and sellers. And they do that to, uh, The education of realtors to the, uh, up leveling of their professionalism, their ethics, their guidelines.
Patrick: And really realtors are paying dues, right? To NAR. So where, where does that money go?
Chris: Yeah. It’s a, it’s a trade association that’s supported by the dues of its members and the National Association of Realtors for the most part is made up of realtors, you know, the, all the different councils, the representatives, the, the directors are all, you know, brokers and agents.
Sophie: So, can you, can you explain the key practices of NAR that are currently under scrutiny with this lawsuit?
Chris: So, that’s the interesting thing. National Association of Realtors does, for the most part, govern the local associations. The local associations, for the most part, govern the MLSs. In the MLSs, the multiple listing services, that’s, those are the platforms that agents put a property into that then propagates that property to all the other agents and to all this.The public sites that, that we as consumers can see real estate on.
Patrick: It’s like Movoto is powered by the multiple listing services.
Chris: Correct. There is an offer through the MLSs, there is an offer of, of compensation. So when I list Patrick’s home, Patrick pays me a commission and I take a portion of that commission and I offer that as cooperation to other agents, to Sophie, who’s a buyer’s agent. Uh, so Sophie, if she brings a buyer to, to Patrick’s home and they like it, and we negotiate a mutually acceptable, uh, agreement, then that commission is being split in whatever fashion has been determined between myself and, and Sophie’s agent. The plaintiffs allege that that can cause Steering practices. They alleged that that is collusion. Uh, they alleged that, that it would cause an agent to only show properties with higher commissions or not show properties with lower commissions. Yeah. Those are the, those are the, were the allegations or, or some of the allegations.
Patrick: All right. So let’s talk about the settlement because that’s, what was the big news this week. If this settlement is accepted, what’s going to change? Of the things you just sort of highlighted, the things that are under scrutiny, what’s, what will be different?
Chris: Yeah, so there’s several, but there’s like three big changes. One is that the cooperative commission is no longer required and remains optional.
So right now, if I’m paying a property in the MLS, in many of the MLSs, it is required that there’s a portion of that commission that’s offered out to another agent. Now that could be a dollar. Or it could be a percentage or it could be anything in between. The second big change is that all realtors and MLS participants must have a buyer broker agreement executed prior to touring or showing someone a home.And that the final compensation in that, in that agreement, it will spell out the compensation that the buyer would pay their, their agent. And that, that cannot exceed in any compensation that cannot exceed what is in that agreement. What that means is if you agree to work with me as your agent and we agree that if you buy a home that you’ll pay my commission of X amount.
For this example, let’s say it’s two and a half percent. If you find a home you like and we negotiate on, we find out that the seller was wanting to pay me 3%, I cannot accept that. The max I can get is what was in our agreement. Which is the two and a half percent. And then the third change is that, and this is, this is a change that hasn’t been written about a lot, but that all commissions are now negotiated with each party prior to the offer.
So the seller and the seller’s agent, the buyer and the buyer’s agent are agreed to what their commissions will be. The amount of a seller contribution to a buyer’s commission Can be negotiated in the purchase prior to this, most MLSs and associations in most states prohibited the commission to be negotiated in a contract.
The opinion was that the contracts between the buyer and the seller, not the agent. So you can’t negotiate in there with this new change where the seller is paying their commission. But, or they could be paying both, but let’s just say in this example they’re paying the commission to their agent, the buyer’s paying the commission to their agent.
That now can be part of the negotiations of the contract.
Sophie: Let’s shift a little bit. Can we talk about impact? Hypothetically, this settlement is accepted. How will this practically affect brokers, agents on both buying and selling side, home buyers and NAR?
Chris: If the proposed settlement Is what comes to be what it changes really is the mechanisms of how agents get paid. Uh, will it change the amount of commission? It, it may, it may not. I’ve seen headlines that the, uh, the commission amounts are going away or commissions will be fraction of what they are in the real world. If I’m selling a home, I have some options. All right. I can say to my agent or my agent may say to me, Chris, you know, our commission’s 3 and we highly recommend that you offer a commission to other agents or a concession to buyers that they can use to pay their commissions to their agents, because that will expose your property to a lot more buyers and a lot more agents. And then with more exposure, you’re going to get a better price, or your house is going to be more likely to sell, or it’s more likely to sell better, quicker at a better price. Um, so I think in the real world, it, for most sellers, that’s going to, to be, um, how things would, will be done in the event that they don’t. Then the agents that representing buyers will have, have an agreement with their buyers that they’ve negotiated what they will get paid during that transaction. So how agents get paid will be different. Right. Listing agent by the seller. The buyer’s agent by the buyer or through the car or through the negotiations that happened at the purchase for buyers. If a, if a seller isn’t willing to pay or able to pay the commission, then the buyer is faced with paying it. Then it could impact, number one, whether they have an agent or use an agent, which would be unfortunate because then they’d be underrepresented or wouldn’t have the benefit of having an expert that could guide them through the process or really help them understand the local nuances of a city or a neighborhood or a community and it could impact their, if they do pay, it could impact their buying power, right? Cause most buyers have a finite amount of money. And if some of us being used for closing costs or commissions, you know, limits the, their purchasing power.
Patrick: Is it fair to say that this, these potential changes are like asking agents to do a little bit more work, defending their value and really just communicating to potential home buyers and sellers, what the services they offer? Why they’re involved? why they’re collecting the commission? Just like, right. You’ve, you’ve outlined it here, but now we’re like, our agents going to have to defend their value more. And is this going to result in, you know, we talk about like 1. 5 million members of NAR or something, and half of those do one transaction. Right. Are we going to see like a lot of those agents just not renew their membership with NAR and not Become agents anymore in this sort of like maybe mass exodus from the industry, but it’s really just a lot of part time agents and the full time agents that are committed to this. Right. We’re going to have to double down on our value here and double down on educating potential home buyers and sellers about what we do?
Chris: Yeah. I don’t, I don’t think it’s going to require any of that. I think what’s, I think one of the positive outcomes of this. Will be that that will happen, right? Because if I’m a, if I’m a buyer and I’m a buyer right now, actually my wife and two of my daughters are looking at properties today in another city in another state and they’re working with an experienced, uh, local agent there. They need to be able to understand, you know, why is this area more desirable than that area? Those types of things that you wouldn’t know unless you really understood the name, you know, the neighborhoods. I’m only going to be willing to pay a commission to, to an agent, an agent like that or an agent if I feel I’m getting value. So. It will be incumbent upon agents to be able to demonstrate, you know, their value at a very high level. And, and as consumers, you know, consumers are okay. We’re okay paying for value. I’m okay paying that agent to help us in that city if they really are helping us and really provide a lot of value. Now, if they’re not, if they’re not professional, if they’re not responsive, if they, you know, Aren’t providing any value, like aren’t, aren’t telling me anything that I wouldn’t already know or that I could find on the internet or any of that other stuff, then I’m going to either want to find an agent that can provide a lot of value or I’m not going to be willing to pay that agent very much money because I don’t think they’re, they’re providing value. So I think one of the positive outcomes of this will be that agents and the good agents already do this. I’ve done this all along. But any agent, every agent now will have to be able to communicate their value proposition in a meaningful way to where. Me as a buyer or seller say, okay, I, I feel good about this. I’m in fact, I’m glad that you’re the one that’s on my side there. You’re the one that I’m hiring. It’s no different than I have an accountant and I have attorneys every year. My attorney asked me to sign a, an engagement letter. Now, the moment that I feel I’m not getting value or I’m not getting enough value from my, my accountant, I’m going to either have that conversation with them or I’m just going to go find another account.
