INMAN: A BRAVE NEW WORLD AWAITS THE REAL ESTATE INDUSTRY. ARE YOU PREPARED?

Courtney Poulos is featured in this article from Inman.

Beginning Saturday, new rules around commissions take effect, paving the way for the biggest shift in real estate in at least a generation. It’s a brave new world, and it begins this weekend

Image by: Inman, AJ Canaria, U.S. District Court, Courtney Poulos, Victoria Figueroa, Michael Ketchmark and Jim Dalrymple II

BY ANDREA V. BRAMBILA, JIM DALRYMPLE II, LILLIAN DICKERSON AND TAYLOR ANDERSON

August 16, 2024

Rhonda Burnett is a mom and former school psychologist. Jeremy Keel works as an attorney focusing on elder law. Jerod Breit serves as an executive director for Mothers Against Drunk Driving. Hollee Ellis spent years working as a high school teacher.

These four people come from different backgrounds, are different ages, and in a different universe might never have crossed paths. But in our timeline, they have one thing in common that brought them together: They all bought homes, then sued over the commissions they had to pay.

Burnett, Keel, Breit and Ellis are among the many consumers behind a slew of antitrust lawsuits that have rocked the real estate industry. The suits focus on how agents get paid, and after years of litigation they led to a handful of major settlements this year. The most notable of those settlements was between the plaintiffs in multiple cases and the National Association of Realtors (NAR), and it included an agreement from NAR to change various rules.

This weekend marks the deadline when those rules go into effect. The deadline has prompted something of a race to the finish line as multiple listing servicesupdate forms and issue stern warnings, while NAR scrambles to educate the public. Meanwhile, industry leaders are spending significant energy assuaging concerns while agents debate the impacts in online forums.

All of which is to say that consumers like Burnett, Keel, Breit and Ellis have forced the real estate industry into a brave new world. In venues virtual and real, the changes happening now are widely accepted as the most significant evolution in the homeselling business in at least a generation.

To understand what’s happening now, Inman reached out to key players and agents across the U.S. There are two takeaways from these conversations:

  • First, multiple listing services — which are tasked with actually implementing the new rules — have already been rolling out changes. And the apocalypse has not arrived.

  • But second, some in the industry’s trenches say confusion still abounds. As a result, real estate practitioners need to exercise caution as the dust settles.

What exactly is going on?

Realtor-affiliated MLSs have until Aug. 17 — which is Saturday — to comply with the rule changes set by the National Association of Realtors. The changes have the potential to upend how real estate agents and brokers are paid nationwide and, backers say, may also lead to tens of billions in savings for consumers if overall commissions decline.

NAR’s leadership set the August deadline ahead of a Nov. 26 hearing, during which a federal court will consider whether to grant the settlement final approval.

In the next few months until then, industry watchers — including the U.S. Department of Justice (DOJ) — will likely pay close attention to how the new rules play out, and to their impact on consumers, before deciding whether to potentially seek further changes.

Until then, these are the main changes MLSs must put in place by Saturday:

  • Eliminate any requirement of offers of compensation in the MLS between listing brokers or sellers to buyer brokers. Previously, NAR’s Participation Rule, also known as the cooperative compensation rule, required listing brokers to offer buyer brokers compensation to submit a listing to the MLS.

  • Forbid agents, brokers and sellers from making any offers of compensation in the MLS to buyer brokers and from disclosing listing broker compensation or total broker compensation in the MLS. This requires the MLS to eliminate all broker compensation data fields in the MLS.

  • MLSs must not help agents, brokers or sellers make offers of compensation to buyer brokers through any non-MLS mechanism, such as by providing MLS data to websites that function as a platform for offers of compensation from multiple brokers.

  • Require brokers working with a buyer to enter into a written agreementbefore the buyer tours any home. If an agent or broker will receive compensation from any source, the written agreement with the buyer has to specify the amount or rate of compensation to be received or how that amount will be determined. The amount has to be “objectively ascertainable” and can’t be “open-ended.” The deal also specifies that the compensation an agent or broker receives for brokerage services can’t exceed the amount or rate agreed to in the buyer’s agreement.

  • Require agents and brokers acting for sellers to, in writing,“conspicuously disclose” to sellers and get their approval for any payment or offer of payment that the listing broker or seller will make to a buyer representative. They also have to specify the amount or rate of the payment.

  • Require agents and brokers to conspicuously disclose to prospective sellers and buyers “that broker commissions are not set by law and are fully negotiable.”

  • MLSs must not provide the ability to filter out or limit MLS listings that are communicated to consumers based on the compensation offered to the buyer broker or the name of a brokerage or agent.

In order to comply with these settlement terms, some MLSs are instituting hefty fines. Some are also giving subscribers the ability to advertise that sellers are willing to consider concessions to buyers, the latter of which buyers have the choice to use for buyer broker compensation.

Additional resources: 

MLSs race to change

With the Aug. 17 deadline looming, many MLSs began rolling out rule changes in recent weeks and months. And the world has not ended, executives indicated.

  • For example, MIBOR, a broker listing cooperative serving Indiana, pushed its changes live on July 1. When the changes went live, there were 5,000 total residential listings in MIBOR. In the 30 days since removing fields for buyer agent compensation, agents added another 4,400 listings.

  • “In that month there were about 9,000 opportunities to do something wrong,” MIBOR CEO Shelley Specchio told Inman. “We only had 39 compliance tickets — 39 people we had to reach out to and explain to them why they couldn’t do what they tried to do.”

  • The California Regional Multiple Listing Service, the largest MLS in the U.S., went live with its updates on Aug. 13. Art Carter, CRMLS’s CEO, urged agents to play by the rules: “Don’t add an addendum. Don’t add anything that can be displayed to all of the users of the multiple listing service because there will be a fine attached to it.”

  • CRMLS general counsel Edward Zorn told Inman he felt confident that most MLSs were prepared for Aug. 17 and had communicated with their members about the changes: “The MLSs have stepped up and done what they needed to do to be ready for the change.”

  • Brian Donnellan, CEO of Bright MLS, the nation’s second-largest multiple listing service, spoke with Inman Tuesday — the day before Bright was set to implement its changes — and said his organization would take an “educate first” approach to addressing potential violations.

  • “We’re going to do our best to make sure that we educate folks prior to fining them,” Donnellan said. “At the end of the day, I would imagine we’re going to have to fine people because this is a really big issue. Everybody’s looking right now.”

  • Donnellan said he expected to hear mixed emotions about the changes once they’re implemented and Bright members interact with the updated system. “These guys eat what they hunt. They’re probably a little bit more stressed than anybody else. I can see where their stress comes from.”

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Agents scramble — but questions (and frustration) linger into the 11th hour

Multiple listing services may have scrambled to roll out changes, but some in the agent community — echoing recent comments at Inman Connect Las Vegas — told Inman the process has been nothing short of confusing.

  • Courtney Poulos of ACME Real Estate in Los Angeles, whose firm has long specialized in exclusive buyer agency agreements, has seen mixed messaging at times. She specifically criticized the lack of “any true protocol for open houses,” among other things.

  • “It has been a very confusing rollout,” Poulos also said. “I think that [NAR] announced the proposed settlement changes before they had a good plan for rolling out the procedural stuff. Our association [the California Association of Realtors] had educational seminars with new forms that they then had to revise, and then had a new seminar saying, ‘Forget everything we just told you, we revised the form.’ So the rollout has been very sloppy. It’s causing a lot of confusion.”

  • Over in Orlando, Florida, Veronica Figueroa and The Fig Team have already been dealing with rules changes because the local multiple listing service — Stellar MLS — put those changes into effect on Aug. 6. Figueroa’s team has been fine, but she said that isn’t the case for everyone in the area.

  • “If I’m speaking honestly, I don’t think we can say we’ve been fully prepared to the point that we weren’t going to have some breakage or some friction,” Figueroa told Inman. “We’ve already seen fines in the MLS, and there’s a lack of transparency as to what those fines are for.”

  • Meanwhile, Andrea Geller of Berkshire Hathaway HomeServices Chicagotold Inman that she is “as ready as I can be.” But, she added, others aren’t. “I’m concerned about the other agents around me.”

Additional resources: 

What happens now? 

Though the deadline has arrived, a number of questions remain unanswered. Will sellers generally keep offering commissions? Will buyers pay out of pocket? Will the DOJ push for bigger change? Will commissions meaningfully trend down? No one knows at this point, but those are all issues worth watching in the coming months.

The future of NAR is also an open question. The settlement came after a period of tumult for the organization, with scandal and executive turnover dominating news cycles in 2023. Now, a rival organization is making a bid for new members, some industry players have cut ties with NAR, and the organization still lacks a permanent CEO. The coming months, then, will act as a critical test for an entity that has defined real estate for decades.

Agents and the organizations that serve them will also have to exercise caution lest they run afoul of the rules in the immediate future:

  • CRMLS, for example, told its members that they should expect a $2,500 fine if they include language around compensation within the MLS.

  • Michael Ketchmark, the lead plaintiffs’ counsel for a case known as Sitzer | Burnett, told Inman in an exclusive interview this week that he will be watching the situation closely: “If anyone thinks they’re going to be able to avoid the application of this settlement agreement and the law by creating some new forms or hiding this cooperation on new websites, they’re wrong. If we get any sense that people or corporations are doing that out there as a way around this, we plan on taking swift legal action.”

  • Agents who want to make it through this period of change, then, need what Figueroa characterized as a “mindset shift.” “I think what’s important right now is confidence in your consultation, competence and being able to truly articulate how you’re going to get [consumers] to the finish line by getting them the best price, the best negotiations, and that you’re an expert that has proven results.”

Courtney Poulos