NAR Settlement Update

Gary Malin and Neil Garfinkel are back, joining Jamie to discuss the latest on the NAR settlement as well as early uses for AI in the industry.

Listen to the podcast here

Jamie: It's Jamie Heiberger-Harrison and I have my two podcast partners here: Gary Malin, COO of Corcoran and Neil Garfinkel, Abrams Garfinkel, and also Broker Counsel of REBNY.

We've been avoiding talking about the NAR settlement for a long time, and we finally are almost through the door on that one. Neil, tell us, please, what's been going on? Where do we stand?

Neil: As you indicated, there has definitely been a settlement and there was an opportunity for people and entities to weigh in with respect to whether the settlement should ultimately be approved. Those objections have been filed with the court, and I believe that the court has to make a decision by November 26th. Assuming that they don't act on those objections, then our settlement will move forward. The truth of the matter is that to my knowledge, most of the parties that are subject to the settlement have already enacted most of the requirements of the settlement. To some extent, I think it's going to be business as usual, as it relates to what most companies, MLSs, and so on, are are doing today.

Jamie: Is it fair to say that whether or not you were part of the actual lawsuit, your company and everyone is already implementing the changes that resulted?

Neil: First of all, it depends if you are part of the National Association of Realtors. Some companies are a member of NAR, but also members of different trade associations, so it will vary from company to company. There are also lots of companies that were not a member of NAR that may have made decisions to either participate or just of follow some of the guidelines that were suggested there. I think it's kind of a handful of of different options. We're having conversations. Should there be a buyer-broker agreement that's required statewide? And would that create transparency and put brokers and buyers on equal footing? I think that having a buyer-broker agreement is a good thing. I think it does help make clear what the representation relationship looks like, what the compensation relationship looks like, and so on.

I guess the short answer, Jamie, or the long answer rather, (laugh) is that the NAR settlement has certainly affected the way business gets done, and whether you are part of the settlement or not, I think it will ultimately affect you. There's some very good things that I think came out of it, and then there's some things that I question what the ultimate motive, intention and result will be.

Jamie: So this is perfect because we have Gary from a company here to tell us what changes has Corcoran made, or are making as a result of the NAR settlement?

Gary: Because REBNY has yet to finalize its settlement under this global lawsuit, we have yet to implement the changes that we will in terms of mandatory use of buy-side agreements. We've already created all of the agreements. There's a variety of different agreements that you could create to sort of meet different levels of circumstances. Mainly you want to make sure that whatever you're putting in front of the consumer is something that they understand, that they can digest, that they don't need a lawyer to read it and approve it before they sign it. We want to make sure we have a multitude of agreements available.

We've done tremendous amounts of training inside the company. We brought in outside experts to help them -- how to handle objections, how to speak in a different way, how to prove your value. So we have done a lot of work behind the scenes to ensure that our team is up and ready. It's a sort of iterative process in the sense that just because we have agreements today, it doesn't mean that those agreements are not going to be modified and changed going forward. We do have certain agents that are using them now, even though we're not mandatorily requiring them to do so. I think the biggest change will be some time in January, I'm guessing. Things in in REBNY land will be finalized.

Then we're going to start mandatorily have every agent working with the buyer to have a buy-side agreement that will suit the circumstances that exist under that situation. It could be a single property showing agreement. It could be an exclusive, it could be a non exclusive. It could be an area agreement. We're making sure our team is prepared. I think we're ready. It's a matter of making sure that whatever our team is doing puts them on an equal playing field. I think the problem with the current sort of state of flux, for lack of a better way of saying it, is that some people want to use them, and others aren't using them. You don't want to put your agents in a situation where they're having to defend something that maybe they're not required to do at the moment.

Jamie: What about the exclusives, though? Have those changed? If somebody signed somebody up right now, how are they addressing the issue of whether or not the seller is going to pay what they're offering for the buyer?

Gary: Well, that rule went into effect in January here. We decoupled commissions. So it already states very specifically that whatever offer of buy-side comp a seller is willing to offer, it's coming from them versus the traditional assumption of a co-broker inside of the community. Those rules have been up and running for a while. The only real change that hasn't been impacted is the use of buy-side agreements.

Jamie: Was that all part of the same lawsuit?

Gary: No. REBNY was proactive in its feeling that they needed to decouple commissions. REBNY had not yet engaged in any activity with the whole NAR situation. Neil might tell me I'm wrong, but I believe they were not yet involved in it. It was more that they understood that the landscape was shifting and they wanted to ensure they were ahead of it. Because of what was out there, they certainly knew this was coming, but they were not required to do that. It was just good business, understanding the landscape.

Neil: To be clear, REBNY is not a NAR member, and has not been a NAR member for many years. Claude Szyfer who represents outside counsel to REBNY is an antitrust expert who works with a lot of boards nationwide and was a great source of information. While REBNY certainly did not react specifically to that, you could see what the landscape was and what the need was. I actually thought it was brilliant and a very good way of addressing the need for that decoupling and the way it was done. Unfortunately, those rules were not adopted by anyone else. But the idea of a seller being able to instruct their agent to offer compensation through the MLS, I thought was a very good idea, and I still do. I think it creates transparency in the marketplace.

To be clear, the NAR settlement says that commissions cannot be published on an MLS.

So that forces a buyer's broker and a buyer to go directly to the seller's agent to find out what that commission is. It feels like we're going backwards to the old days when we talk about that. The old days where the listing agent kept all those listings and didn't share with anyone. They hoarded the information. I'm very much of the belief that the more information that's out in the marketplace the better consumers can make that decision.

Gary: The one exception to that is, if a company chooses to post buy-side commissions on its company website, they are allowed to do so if they so desire. Any aggregator site, they are not allowed to do that any longer. And even inside the REBNY RLS, that information cannot be quote unquote aggregated. I would say from transparency standpoint, I believe that's going to make things more difficult and more complex for both agents and consumers. I certainly understand being clear about commissions being negotiable and making the offer come from the seller. I don't see any real issue there, even a buy-side agreement, although it might not be comfortable for certain agents, I can still argue that's just about transparency and clarity. But when you can't see information in a world where transparency is absolutely critical to make things effective and efficient, that's the one aspect of the situation that I find somewhat strange because you're making it very difficult on consumers.

Everyone's always talking about consumer advocacy and protecting consumers but I think sometimes they don't understand the practical applications in the real world. It doesn't necessarily need to be here in the real estate industry. It could be a lot of industries. But this is what I and Neil and focused on. I think that's a problem for people. Once again, there's problems, and there's solutions, and everyone will get over it. But it's not as clear as it could be. I I think there's no need for it. Their justification is if you post them, it forces people to pay more money than they want, which I don't think anyone actually believes to be true. But it is what it is, and we're all going have to deal with that together as a community.

Jamie: I think there's another level in that lack of transparency. Not just that it can't be posted, but I would imagine, and I hate to be cynical about this, but what's going to happen is the the listing agent, if it's not posted on the site, they'll know, 'Okay, they agreed to pay 3 and 3', let's say. Now that listing agent gets a call from the other broker, they want to know what's the buy-side fee, and they say 2%, but it's really 3, right?

Gary: If anyone is going to work with a seller, and the seller is going to make that offer because they believe it's in their best interest to move their home A) as fast as possible, and B) get the highest possible price, and their agent is not representing accurately what has been represented and offered by their seller, that's a breach of their fiduciary duty, as far as I'm concerned. And yes, I understand that you know, in situations like this bad behavior could happen, but I would hope that the brokerage community, on a whole, realizes working together and cooperation is far better for everybody, sellers and buyers, than trying to game the system in any way, shape or form.

There is that level of uncertainty where we knew now previously, because everything was posted properly. So let's hope the Wild Wild West doesn't fall in line with your cynical view, because I think that would be bad for the industry, and, more importantly, for for sellers and buyers alike.

Jamie: I think the easy solution is just that whatever you ask, just get it in writing.

Gary: Yeah, of course. We have forms and stuff like that, confirming so on and so forth. But the simple fact is, if someone's not publishing the information under your scenario, and they're looking to play games, that's against their seller's best interest. I would hope that if you were smart enough and good enough to get someone to agree to pay the buy-side commission, they should. I certainly feel that maximum exposure equals maximum price.

No one is ever forced to accept any offer that they don't like. I look at the commission as a rounding error, at least on the buy side offer versus the overall value of your home, and if you want to maximize the value, you should bring as many people in, and then, ultimately, maybe the best deal isn't going to be the one with the highest commission. Maybe the best deal is going to be the one with the best terms and conditions for you. You don't know unless you try.

I just think if people start to play games with this, I fear other repercussions could follow, because then people would feel like people are truly manipulating the market when they shouldn't be.

Neil: I'm going to answer that a little bit differently. The days of assuming that you're getting a commission or cooperating compensation based on membership and a trade association, those days are gone. I think the most important takeaway is get everything in writing. It doesn't matter who you are representing. I don't care if it's a landlord, tenant, buyer, or seller. It doesn't matter. You need to be able to ask the question, who am I representing? How am I getting paid? Do I have that in writing? Unfortunately, in many instances they're not doing that. But it's more complicated today, and they better have something in writing that evidences how they're getting paid. If they don't do that, they're going to have a problem..

Gary: It's funny, because I've spoken to a lot of our agents who are trying to weed through the new system, and understand what the ramifications were, and some of them would say, 'I can always get this signed at this point.' And my point was 'I appreciate where you're coming from. I appreciate your clients, love and respect you, and they work with you, and and they have your best interest at heart. But I will tell you that when money is at play.

things that you think aren't going to happen, do.' And the smartest and easiest thing for you to do is just to make sure, like Neil just said, everything is in writing, all I's are dotted and T's crossed, because when the day is done, any brokerage company is not going to be able to protect their agent if their agent didn't follow the guidelines that are established.

It's exactly why we're not mandating something when it's not mandated by the industry here yet, because I do think that creates conflict that's not necessary. But come the New Year, when I believe this will all go into effect, my belief is that it's good that everyone is on the same playing field, because then, as a consumer, if you go into reputable firms then you're going to hear the same thing from any firm and any agent that this is part of the settlement, this is what's required to be done, so it won't feel foreign to a consumer, and it won't make a broker feel like he or she is at a competitive disadvantage.

Neil: I think the idea of transparency, clear understanding of representation, compensation--all of those things are good. If that's what comes out of this, so be it. We've talked about this before. The people that adopt and adapt to this environment, they're going to be fine. Real estate brokers are not going anywhere, that's for sure, and they still provide tremendous value. They will definitely do that in a marketplace for a product that is tactile, that is emotional, that people need to see and touch and feel and be involved with. They actually bring a lot of value to the table. So I'm not worried about that.

Gary: I do think that agents that I've been calling hobbyists throughout their career, that don't put the time, effort, or attention in to truly understand their value and understand the industry at large. I would think that this industry, under its new iteration, probably doesn't necessarily coexist with the way they do business, and they might end up being out of the business simply because they haven't adapted. And that's you know, their right to do so, of course, but I think the one thing in life that's constant is change. When you embrace change, you thrive. When you resist change, you know it's a whole different circumstance. So I do think you could see some shake up in the ranks of the industry as well, which is only a good thing for those that are really true professionals that can instil their their virtues, and how they work and what they do to people a lot different than others.

Neil: if you're an agent watching this, you cannot bury your head in the sand right now.

You're going to need to be able to have very sophisticated conversations with buyers, with sellers, about compensation, about representation. In theory you should have been able to do that a long time ago. But so be it. But today you are going to have those conversations, and those people who read the agency disclosure form, who read the compensation agreements, who can explain them, who can explain why, and how they get paid, those are the people that are going to be successful. Those who say, 'Oh, it's just business, as usual.'...not so much.

Jamie: Early on, when it first went into effect that you had to decouple, I was seeing a lot of the listing agents make more money than the buy side brokers, and I was hearing a lot about that.

Neil: Speaking to sellers, they'll call, and they'll ask, and even agents should talk this way, and my response has been 'what's in your best interest?' If it's in your best interest to drive as many people to look at this property as possible and to make the best offers that they could make for the property. How are you going to do that? What's in your best interest? And, by the way, what's in the best interest of the buyer as well? I think that in most instances they take a step back and say, 'Okay, well, now that we're talking about this. I understand what I need to do here.'

That's the crazy thing about this. If you look at a real estate transaction, it's pretty straightforward from an economic perspective. A buyer can only bring so much to the table. They only have so many resources to bring to the table, or they've made a decision that this is all they can bring to the table for this particular property. A seller knows what they are going to get, less whatever closing costs, and so on. But at the end of the day, there's just a pile of money, and it gets whacked up. So truthfully, none of the things that have ultimately gone on here are really going to change the dynamics of that particular transaction. Both parties are going to have to make a decision. Can I buy or afford this property. Can the seller afford, or want to leave this transaction with this amount?

And all of the decisions that go into that are going to be based on that. So sellers do have that moment -- I recognize that if I don't pay a share of commission or pay a buyer's broker commission, that's less money that the buyer can bring to the table if they're represented.

I talk about best interests, what is in the best interest, and then let the parties make their decision.

Gary: I also think that the original reporting on all of this wasn't necessarily accurate in a lot of different angles, and I think it riled up people that were not necessarily intimately involved in the industry. It's not like people, for the most part, are buying and selling their home every day, every week, every month, every year. Typically, they do a transaction and X numbers of years go by before they dip their toe back into the water and do something differently. I think some of the reporting also created a lot of unnecessary controversy. Because everything was always negotiable before. There was no such thing as a mandatory A or B. It was always a conversation between a seller and his or her agent, to discuss what was in their best interest, like Neil just said.

I understand the questions that people have been asking, because I feel they read something or they're just getting into it today versus 6 months from today they'll read a lot. And that's when a really good agent sits down with their client and goes through everything that Neil just said, and in the end you make a decision as a seller -what's in your best interest? And that you do in conjunction with a valued professional.

Jamie: Let's change gears for a second. I'm fascinated personally by AI, and I'm overwhelmed by it. I've purchased a few different apps, trying to figure out what are the best pieces that can be helpful for my business. Have you guys been doing the same thing in your operations.

Gary: We've created things behind the scenes that enable agents to write amazing descriptions for their properties in a matter of seconds. Obviously, we always explain to people that's just step one. Don't take what it is and not review it, tweak it, make it better. But it definitively helps people with their time. And there's other things that we're working on as well behind the scenes to utilize AI in it's most efficient application for our industry and our business. And I think everybody is doing that. I think it's constantly evolving. Whatever we're doing today, I'm sure in 6 months it will be different. I could say from our company's perspective, my team is actively involved and doing an incredible job.

Jamie: It's great. What about you, Neil?

Neil: We've looked into. We've had presentations. I could just share my personal experience. I asked my team to run an article. I think it was about the property condition disclosure statement. And they ran this article. I read it, and the they confused the property condition disclosure statement with the agency disclosure form.

You may or may not know, but I helped draft the agency disclosure form. Could you imagine if we would have put that out under my name? Now we're confusing those two different disclosure forms. And now people would point back to me and say: 'Well, Neil said this about the form, right? (laughs)

So the point is that number one, it's artificial. it's artificial intelligence. That means that it's not real. Now, I think it has a place, but it definitely is not a replacement for thinking and doing and creating and and so on. So it can be amazing. It could be a great research tool it could help, but it can't replace real life thinking. That being said, I'll give you the flip side, which is an amazing story. A woman has a son who has health issues, and they cannot figure out what's wrong. She's gone to every doctor, and she takes it upon herself to compile each diagnosis from all these different doctors, and she puts it into one of the AI, and it comes back, and it says, 'your son has this.'

No one could figure it out and guess what? That's what the son had. So for synthesizing tons of information, I think it's amazing for doing that it. The point is, it can't be a replacement. It needs to be used appropriately. But I think absolutely it's going to change the way we do business.

Jamie: One of these apps I bought basically teaches you how to ask the right questions, because with AI, they say it's all about what you ask, and how you ask it. If it's asked properly.

it will answer properly. That's an interesting nuance to it.

Gary: You're making me feel like when I was back in law school. What was that, LexusNexis? If you didn't put the right information in, you're getting some pretty bad stuff out. You're giving me the tremors from law school, Jamie! Please!

Neil: Think about how much easier it is to be a lawyer today than it was when we went.

By the way, I think it's a great thing. I love that. I barely had a computer. I was using the 1st computer -- I hate to date myself. Information and education is far easier today, in some respects.

Jamie: AI would allow somebody, hypothetically, to get a message out to every country, if you have a building you're going to be selling. There's probably a database of what everybody's looking for, and it could be picking that stuff up. It just seems that you could be doing business everywhere. It's just a question of where do we get that? Where do we dig that out from?

Gary: We're in the infancy, right? We're in the 1st inning of a baseball game, and it's only going to get better and better. It's like they always say garbage in, garbage out, right? So if the information that's it going through to give you the information you need is rich and diverse, it's going to give you what you want. But if it's not or it doesn't understand some of the nuances like Neil just said, it's not going to. I think it's important that everyone embraces it, understands it and knows what its power is. But at the same time, also understand what its current limitations are. I think if you go into it with that perspective, then it becomes a very useful tool for you.

Jamie: Good stuff. How's the volume, Neil?

Neil: Banking files picked up. Our transactional has been pretty steady. I'd like to see continued interest rate cuts. It only helps me.

Jamie: What about you, Gary?

Gary: I speak to our agents all the time, and there's definitely optimism in the air. I feel like business is definitely picked up. Is it where people would like it to be? No. But it's definitely getting better. Interest rates aside, which obviously are helping. I agree with Neil. I think there still needs to be some additional cuts, and hopefully there will be. Ultimately at a certain point in life, you need to get off the sidelines and transact, and that is either selling or buying. You can't stay in your current situation forever just because of an interest rate. And I think that it's helped people, now that we're teetering. Do I? Don't I? They'll try to figure it out, because the one thing we do know is if interest rates continue to drop and interest then rises, prices will eventually correct themselves. Everyone always wants the time markets perfectly. There's no such thing. You got to take your personal circumstances, and just dive in and find the best opportunity for you in that given moment.

Jamie: I'm sure there's plenty of people out there that feel like I do. My interest rate is 2.5%. But at some point the house is too big, the property is too big, the expenses are too high for the life that we're living, and so there will be a point that I'll probably give up that crazy rate. But it will have to be at a time that I'm either comfortable getting a mortgage at today's rates, or I'm going to close cash.

Gary: The whole point is you should never, in my personal opinion, shut yourself out of opportunity, just because the face rate of something doesn't really work for you. Depending upon where you bank and how much money you have with the bank, there's so many different opportunities to find the sweet spot that allows you to move forward with your life.

So that's why I always say, speak to people that are intimately involved in these industries, whether it's your personal banker, or whether it's a mortgage broker. Whomever it might be, they're going to give you really good solid advice that maybe you wouldn't have thought of but for speaking to them versus just reacting to a face rate. I think it's much more complex than what the rate is that's out there publicly. Your circumstances will dictate a lot of different things.

Jamie: Thank you, guys, this was great. Let's get together again soon.

Important Links

• Corcoran

• REBNY