The National Association of Realtors (NAR), a significant entity in the US real estate sector, has recently come under scrutiny, with various lawsuits filed against them. These lawsuits, brought forward by parties like Moehrl, Sitzer, Burnet, and Nosalek, mainly revolve around alleged antitrust violations and controversial commission structures. Today we delve deeper into these cases to understand the core issues at hand. Joining us are Jessica Peterson, Kevin Cottrell and Scott Petronis to shed light and let the mortgage industry aware of the implications of this.
NAR Lawsuits discussion with Jessica Peterson, Kevin Cottrell and Scott Petronis
Listeners. We have a really important update on what's going on with the real estate commission today. I want you to take time to listen through this and share this podcast because this is already starting to have an impact as you're going to hear in just a few minutes as we get into the discussion again, the whole topic that we're focusing on today is the sell side of the real estate commission and what no one thought would ever change appears to be changing. Joining me today is my dear friend, Jessica Peterson, my sister from another mister. I love this gal; she is just thinking so positively in and out and always looking for the opportunity in every crisis and I love that attitude, Jessica. Thanks so much for joining.
Thank you so much for having me, David and I'm really honored to have two other amazing people here as well. Kevin and Scott, can I go ahead and have the pleasure of introducing a little bit about that? Please. Okay. I know Kevin loves this when I share, he's been in real estate since the eighties and started Yes, when he was a newborn, right? Kevin. And Kevin's background is very diverse. He is a coach trainer as me and the leader in real estate. He has a pretty good size team. He has experience as being a top agent as I do myself and he also has a powerful story of moving to a brand-new area and you only two people who are real estate agents and then by year three did a couple hundred transactions. He really knows how to make things happen in all circumstances and his background also is in the commercial and residential. Scott here. Is, I always call him the hidden gem. He is the business development, the guy that knows everything that's taking place and happening and works with all the key leaders and really brilliant from an IT and system standpoint as well, and him and I, we have the privilege to consult together for merger and acquisitions for mortgage title and real estate company. So, thank you both for being here and thank you David for having this meeting today, this hot subject.
It is hot and I am so excited to get into it. Let's start off by giving our audience an overview of what is happening and then start with the cases or if you could even give a little more background even before that on how this thing really is developed.
I would love for Scott to go ahead and dive into that and Kevin to back up because those are the guys that really dug into these cases.
Yeah, I'd be happy to and thanks for having us and thanks for the recommendation. I really appreciate it of course, Jessica it's interesting because there are actually a number of cases right now that have been brewing for a number of years that I think a lot of folks felt like this is never going to happen. It's never going to go anywhere, somebody will ultimately file appeals and try to get these things thrown out which, by the way, is what's been happening there have been multiple appeals filed. There are, however, I'll say 3 primary cases that matter, and there's still also some DOJ activity out there that could also impact the industry, which we probably won't even have enough time to talk about. But the major cases there's what's called Sitzer Burnett, Moehrl and M. O. E. H. R. L. Just for everybody there. I hope I'm pronouncing it right. Otherwise, I might get sued like everybody else. And then another case Nosalek, and at the heart of these cases, they were brought first by individuals, and then they were granted what's called class action status and class action means that other folks can essentially glom on, You've got attorneys that will go out there and search for other potential plaintiffs who will participate in the case and it stems from the way that cooperative compensation, which is at the heart of the industry has been in their mind thrust upon consumers and the belief is that cooperative compensation causes inflated prices confusion within the industry and that essentially for those who don't fully understand and appreciate what the cooperative compensation model is, it's where the seller is essentially paying the buyer’s agent from the commission, and there's an offer of cooperative compensation to bring buyers to the table for listings from an existing seller. The ultimate backstory here is that a few of these folks decided that they were going to bring suit of course some very specific and enterprising attorneys decided to get behind these things because clearly, there's a heck of a lot of everybody talks about the trillions of dollars of commissions within the industry. If that's not something to go after, I don't know what is and, whether they succeed or fail in this endeavor, we don't know. But I think all things are pointing to these things are moving forward and there's probably a couple items to throw in there before maybe digging into some of the meaty stuff.
1 is the plaintiffs are seeking both structural changes. So, a change to the compensation model within the industry. But they're also surprise, surprise seeking compensation, right? Damages in the form of money, cold, hard cash, the 1st case will actually be heard in about a month, less than a month, October 13th is when the moral case goes to trial. And between now and then, I think what we're going to start seeing is, as we actually saw just this week, you're going to start to see settlements, anywhere is the 1st of the defendants named in any of these cases to actually try to settle and it seems like they're actually going to come to a settlement. It seems like they have an agreement. What's interesting about this agreement is it's not just in the Morrill case, but it would actually apply to the Sitzer Burnett case as well and they're trying to settle completely, which will probably be both monetary damages as well as changes to the way that they handle, their policies and procedures around cooperative compensation. So this might be just the 1st domino of many and then there are some others that have already started to settle MLS pin in Massachusetts and MLS settled for 3 Million dollars in damages as well as structural changes to how they promote listings and cooperative compensation and last year, Northwest MLS, before any of this got out of hand started to change their rules in advance so they didn't settle, per se, or admit any, fault or guilt or anything else but they started to change their rules in advance of seeing kind of the handwriting on the wall. Let's just say it's a big issue. It is at the heart of the industry. and frankly, it's not, this is not something that's just going to go away. It's either going to be settled with significant dollars and structural changes, or it's going to go further to trial and you're going to see a lot of dirty laundry probably come out as these trials unfold, which I think is what everybody is trying to avoid ultimately.
Yeah, I think I would suspect so I can't wait to get Kevin and Jessica's thoughts on this, but I had a question, especially related to the Northwest MLS up in the Pacific Northwest. They trying to dodge a bullet here is what it seems like they're doing Scott and you implied that with your words. In doing so, with these cases open. I know you're not an attorney, but I would like to get your thoughts or anything you've read or heard. Does this open the case for a whole lot of follow-on lawsuits on activity that's taking place here to four? When, in other words, when does this start taking place? It’s just it from now forward or? at what point can they claw back and get commissions that were paid can be brought into legal action. Any thoughts?
I think it's a great question. A couple parts to that and I'm sure that I'm sure Kevin and Jessica will have some of their own thoughts on this as well. Two things that come to my mind. 1 is to your point on clawing back. I think that's absolutely part of the intent here is to say that these damages have been inflicted over a long period of time through a systemic approach to the way that the market has been structured whether anyone agrees with that or not, I think that's what will be at the heart of this. I would say with Northwest MLS, I think they've been pretty smart and careful about not admitting guilt here or anything else, right? What they're saying is. I think what they're trying to do and again, I wouldn't put words in their mouth or anything else. What I would say is smartly, they're saying, oh, you know what? This is a structural thing. This is something that we can handle. This is something that we could modify in forms that we can modify in disclosure language. We could be better at articulating how compensation is handled. and that's, I think what they've tried to do is to downplay it and I don't mean that in the negative sense of downplaying it. That they've said it's not as big of a deal as it's being made out to appear and I think they've been pretty smart about how they've handled it. Because they've looked at it as more of a tactical versus a massive strategic issue.
Jessica, Kevin thoughts you want to add before we go on?
Yeah, a couple of things. When Scott talks about a movement into sort of the two-minute offense of settlement, we're clearly at that point, what's interesting about this is there's already messaging coming out from the lawyers involved in the anywhere settlement that other participants in the lawsuits, meaning defendants are talking about willingness to trade off a settlement for agreements, to structural changes, and how they do business. Now, if we back up from this, the real estate industry is interesting, and this is gonna be the way this actually gets implemented. This is not like a normal employer employee relationship, right? These are independent contractors and to really complicate things. In the case of organizations like Anywhere or Keller Williams, other franchise, or relationships, the parent franchise entity, which Anywhere is can do all sorts of things, agree to all sorts of things. But from a practical standpoint, if I own a franchise location, and I then have independent contractors, it's going to be really interesting to see how this occurs and I know we're going to get into this today. You then layer into that the fact that at the state level, this is the 10th Amendment issue. The states legislate how they want the conduct for real estate to occur. What contracts are used, what the promulgated forms are, what the standards of practice are, how agency works, none of this affects that so you could have states, and we'll dive into this I'm sure today, because the DOJ and everybody else can have any wish they want. Anybody can sell these suits and it's really at this point, mitigation, right? Anywhere's lawyers, much like the big blockbuster suit we saw with Fox, their lawyers said, look, it's a big number, write the check. It's way cheaper than litigating and appealing.
And where you're really going, Kevin, is opening up the door to the next question is what are the potential implications of this? Especially when you look at now that we have DOJ it feels like piling on that's my words. I don't know if that's the right way to characterization, but when you added DOJ antitrust component to this and the capitulation of just rolling over, this is happening. It just seems so inevitable on that. So, Jessica, jump over to you and get your thoughts on start off the discussion on the potential implications.
Oh, wow. That's something we could talk on for hours and hours, David and, actually in the real estate industry right now, the hands-on experience what I'm seeing and experiencing, there's so many different thoughts. I'm not here to discuss commission, how much should be paid, should not be paid, things of that nature. What I am just here to discuss is what's possible and based on that what's possible, what could happen based on different scenarios. I'm also here to share, I am noticing a shift in some different changes. Right now, I have a listing. I have had about less than 24 hours, about 40 calls. I'm It's very fascinating to me to see about 40 percent of them have no representation.
Now you're getting phone calls from the buyer, from the potential buyer.
Yes. And in all the years I've never seen such a shift, but there's lots to go ahead and say about that and I work with a lot of investors. I work with the first-time home buyers. I deal with the luxury. I deal with every day, basic buyer. So, I get to see so much diversity. And one thing I really want to highlight is the savvy investors are like, Jessica will, pay commission, no worries, even off market which is interesting. I'm starting to see a shift of more off market than I have before.
When you say off market, make sure you say off market, explain.
Absolutely. It's where that they don't want it online. They don't want it. They don't want it in MLS. Okay. See, that's what the market is. Yeah. Yeah. That, so it's starting to see a little bit more of a shift in trend towards that as well. I have, again, savvy people and even people say, Jessica, we have no problem. We'll sign a form, guarantee your brokerage gets paid. We just want your expertise. But then I'm working with people who are, let's just say, for example VA veterans, VA buyers. They literally, I just helped one, these people barely even have a thousand dollars to their name, right? How are these people going to be able to pay for someone to assist them? and not only that, they're going to think they could do it on their own and there's so much that they're uneducated on. I even have real estate agents I help locally who even admit to me we're uneducated and really don't know what we're doing. So just to really sit here and think about this, that they're going to attempt to do it on their own really worries me and worries me for the first-time home buyers and the ones that don't have a whole lot of money, to move forward with this.
Yeah, I'd say your coaching business is going to be looking good, folks. You're involved in coaching. I think you're probably that business could eclipse everything else you're doing. There's going to be a real, when Scott, when you were talking. Yeah,
I just want to jump in here because I think this is important. What Jessica is talking about is something where you've got on one side, the average agent who just thinks that the commission they get paid on a cooperating basis it's just a magical field that shows up in the MLS that was driven by the rules from cooperation. But the real big issue here is behind the scenes, and this is your point, David, where you make the comment. I think this is just an inevitability. It's going to happen. It's come out that The National Association of Realtors, through its lobbying, is now working with Fannie and Freddie and HUD to change the rules to allow for buy side compensation to fit within the framework for financing. Why would they be doing that unless they knew there was a consent decree or some settlement coming? I don't think they would be spending the money on it unless there was a decent odds that this was going to get through as part of the settlement to get the DOJ issue to go away.
I can't wait to get into that because the whole Fannie, Freddie, their conversations with them makes me really think that they have already capitulated in this one and gone on to, Scott, you were talking more about the cooperative compensation model and how that is going away, expand on that a little bit, if you would maybe we should get, that's a term that as you talk about it, I go, and yeah, I've heard that, but if you could dive bigger, because for those listeners that are, may not be familiar with what you're talking about there specifically, and as it relates to this very discussion we're having today.
For sure and what's interesting is I think it's Kevin mentioned, right? There is this kind of notion that, oh, that's just a field on a form somewhere and somebody just fills it in. And there's an offer of compensation. The entire industry. And when I say industry, what I really mean is the National Association of Realtors and that trade organization, right? They're not a regulatory group. They're not a federal agency, right? I think, sometimes that might be forgotten that they are essentially a volunteer organization that acts partly as a union and partly as a lobbying organization. But they also act partly as a group that filters down into state level associations as well as local associations. There are literally over a 1,000 of these associations across the United States and they essentially set a guidelines and rules related to how real estate transactions essentially are going to be handled. And again, this is not legal. This is not the at the state level like Kevin mentioned. This is not the state law. This is a set of bylaws and rules for those that participate. One of the most, and probably, maybe arguably the single most important is this notion of cooperative compensation, which says, if I as a broker receive a listing and I want to put that listing into the MLS to share that with the world for advertising purposes, right? Because that's really what the MLS database is really all about is advertising those listings so people can find them. What I do is I offer a potential buyer’s representative, right? A representative agent for a buyer. I'll offer them a portion of my commission on that listing right on that sale and the whole notion of this is that's the best way to bring these independent contractors to bear to find potential buyers for that listing to get the best price. So, they will offer a portion of that that commission to that buyer's agent and that's really the heart of this, right? and the argument is that, oh, that jacks up prices. It inflates the, the industry, it inflates property values, which we could get into at a much higher level. But what it says is, that this is at kind of the heart of the issue, but it's also the reality is that model is at the heart of the way that real estate is operated for years upon years and the potential implications of what happens here, like Jessica was getting into is if that model goes away, right? again, regardless of what evidence there is or anything else, right? If it's a foregone conclusion right now that settlements are going to start being made and those settlements are going to include both monetary compensation as well as structural changes, and the heart of that structural change is this the possibility is that the worst-case scenario is buyers will have to pay the agent their buyer's agent themselves, right? That's 1 potential extreme, right? That's 1 thing that a lot of folks are talking about. This completely upends the industry. It changes everything for how things work today. Buyers are going to have to pay their own agent. and to Jessica's point, how does somebody that barely has enough money for a down payment on a home have money to be able to compensate their buyer's agent who's helping them through that entire process? Yes. Now, what Kevin just mentioned with the changes with Fannie and Freddie, if they are able to more, put that into their mortgage that's an approach that might happen. But the other side of this is it doesn't necessarily change the world. It just makes things more clear that everybody understands. This is how it works; people get paid and whatever, right? and I think it's anybody's guess right now as to what those structural changes will be. But I think as we start to see some of the settlement language come out, that's going to be our leading indicator and it will happen in the next couple of weeks. We're going to start seeing.
Yeah, at a rapid rate and by the way, recording this September 6th on Wednesday. So just to give you guys listening to this, not sure when you're listening to the solicitors, but the context when you're, we're actually saying within a couple of weeks, you have an idea how many weeks, if you're listening to this two weeks out, it's happening now and it's, you need to really be paying attention. I think more and more, I'm really surprised that this has not drawn more Press. It's getting some within the circles, but it really hasn't been getting as much attention as I thought it would. Now, maybe I, maybe that's just where I'm looking on it, but it's something that has been missed, but Jessica, as we're talking about this, I want to look at some of the people who will be hurt by this, who are, we're the winners and losers and one of the ones, as I'm listening to the Scott talk now, it's almost thinking, does this mean MLS going to change. Is it going to shift over to a Zillow or does Zillow have a chance to grow in market share? And we see MLS going away and for in favor of a more free enterprise kind of model, because it feels like you said, I didn't realize the structure on those, those are more of a co-op type basis. Is that correct? What's the structure on that of an MLS?
They can vary, David. I think as Jessica was going to say, you’ve got anything from a freestanding enterprise. To something that is jointly owned by the Board of Realtors for the local area to something that is an amalgamation of mix of those, and they're very different and David, the only comment I would make is I think Northwest MLS gives us a little guidance as Scott said, they got ahead of this they unlinked the requirement, and for anybody listening that thinks that it's just a field in the MLS, right? There are a whole bunch of rules, probably for that class that you barely paid attention to in your MLS where it talks about the fact that you have to offer Compensation, right? You can't take listings and put them in there and don't put there's something minimum compensation of some variety based on the rules, things did not change dramatically yet with Northwest MLS, meaning they took the field and said, put anything in there anymore. We'll make the field go away and people are still getting paid cooperative commissions. So, the wild card in all this, and then I can give you the Texas example, right? as Jessica said, I've practiced in six different states, and I've done a lot of practice in Texas. Texas, if you look at most MLS fields, they have three different agency differences, and you can offer a compensation in the MLS David at different levels. Now the lowest level of representation is sub agency meaning You don't actually represent the buyer in terms of what Texas thinks and you have the opportunity there in most MLS is to put zero You can say I’m going to force you to actually represent your client if you want an offer of compensation. Now behind the scenes that most people don't realize that was all driven by the Texas Real Estate Commission based on what the Texas legislature said about agency and representation, and so they aren't like this little island that is directed by the National Association of Realtors they're much more driven in the standard of practice at the state level. So, when you heard me earlier, this is a 10th amendment issue. Everybody can dream up everything they want to do but you're going to have Texas and Florida versus Illinois or Pennsylvania, for example, do things completely differently and how they approach this from a legislative standpoint.
My entrepreneurial brain is kicking in right now. I'm going, where are the opportunities? It makes you wonder why people might've had some foresight that this is coming. That's why Zillow stock traded at the crazy multiples that it did. Scott, you had mentioned that in a previous conversation we had. So, Jessica, back to you on, who are the winners and losers here? What do you anticipate and get everyone else's jumping in on?
Oh, man, you know me. I think everyone's winners. I don't know if I like the loser.
It's a hard question for you because you're so optimistically positive all the time.
Yeah. That's a hard one, but I understand what you're saying. There again, I do agree with Kevin. It's going to come upon a different state level, but I want to address a couple of things because this has been brought up many times that people feel that this is over inflating homes. My conversations with people, they're like, we want to list our home, what it's worth. it's just end of story, but that's just what it is it's not based upon overinflation or anything else. They just want to list it what it's worth the future of this I’ve spoken to some other leaders is they believe we're going to go towards the model of A doctor's office. David you and I we have mutual friends who are very well-known doctors, and you pay a retainer just to have them on an annual basis, right? Just to be able to even call them or to know them. Some people go to a therapist. I feel like real estate is therapy and it's, you pay an hourly rate, to go to a therapist. So, there's many different ways this can ship, but it's also going to ship how brokers work and how they're going to pay and how they're going to structure. Kevin said, in each state level, how it's going to be, and I also see a future shift of the teams shifting, evolving, and one person doing everything going away and my other concern is, people may still think they can do it all now. You can Google, what may be wrong with me and attempt to self-diagnose yourself. You might be able to, but there can also be some really bad consequences from that as well, and, I feel bad for the newer agents, because if you're going to be sitting there and write money or a check, who are you going to be picking and selecting? and again, I really see this whole team future Kevin and I, we've had intense conversations about this. We were actually asked to speak on another national source about the future of teams and how they're evolving. I believe that there's going to be lots of shifts and changes coming and what I'm experiencing right now on this listing, taking all those calls and everything else. It's a lot of work. It's going to be a lot more work for a listing. Interesting.
Your thoughts, Kevin Scott.
Yeah. It's going to change the practice over time and, Jessica and I have talked about this before. You look at people that have talked about the going away of things limited-service listings came out and that on the internet, and that was going to be the end of the fee for the listing agents, right? Oh my God, the fees are going to go to nothing. It didn't play out that way. Real estate is a very heterogeneous asset, and most markets are very diverse, and there is a body of knowledge and experience you need. And to Jessica's point on the buy side, people are going to figure out very rapidly about how this will end up playing out and what's interesting is the brokerages are very low margin. They're also very low cash, meaning not every brokerage is like anywhere where between the debt they've raised, cash they kept on hand, and their ability to finance things as a publicly traded company can do what they did. You're in typically single to very low single digit margins for brokerages, right? You may see a private enterprise like Keller Williams have a lot of money and Gary Keller may do the calculus with the outside counsel and say, we might as well just get ahead of this and big check and make it go away. We'll see. There are some that won't be able to settle except on terms. It's like the short sale business for our real estate practitioners sitting out there. You've got really motivated sellers. They have no ability to sell their property because they are negative equity. But, oh, you're the savior because, hey, you know what? Give me terms that I can accept, and I'll do it. Now, to Jessica's point into the practice, this is going to have some real big implications with the chaos, and you used the word chaos, David, before there's going to be a lot of misinformation, for everybody from the people that are called the low information agents that only look at that as a field in the MLS and then now the brokers are potentially going to have to agree to do some form of education if they're a franchise or franchisee, but then you have independent contractors that can either opt into learning and understanding the new world of how what they're supposed to do from a standard of practice and then the consumers. To your point, David, they're really uneducated on this. This is a very niche lawsuit, right? It could even get settled by all the major players and the average consumer who's driving around, you look at market conditions, right? We're in the lowest level of available inventory we've seen for decades. They just want to buy. They're not thinking I'm paying an overinflated price because my agent's getting paid a commission. So, I'm not sure they're going to be very in favor of this either if it disrupts their ability to buy the house they really want to buy.
I think Jessica's point when she started getting phone calls from buyers as a listing agent, I think it's going to be a lot more chaotic there for a period of time. You're going to have to set a boundaries, Jessica, as a listing agent. Very clear. This is what I do. This is what I don't do. Let's just get this clear and straight out. I think so. First thing is to Boundary lessons. My favorite books are by Henry Cloud on Boundaries. So go get the books on boundaries and set them for you for your business on that. Scott, I want to get you thoughts on this. Then I want to get into back to you, Kevin, on the macroeconomic environment of this thing. But Scott, what's your thoughts as you're listening to Kevin and Jessica talk about this, how it's going to change up the world for a day to day for the realtor and then also thinking of the lenders. Who do we call on if I'm a lender out there being our audience is mostly lenders? So, I want to make, turn some of our comments into, okay, how do we coach our lenders that are trying to navigate all these changes?
I think it's interesting when you start thinking about this problem and, what's going on in general, everything that has been discussed and what's been publicized is really seems to all be on this massive scale, right? Big money, trillions of dollars, massive commissions, everything else. Big companies that are at the heart of this big organizations like NAR. But the reality is, it is the little people, if you will, and I don't mean that in a derogatory way, it's the average person that will be most affected. What we'll see is to the point on this hasn't been publicized, significantly, right? It hasn't really been publicized outside of this industry. I think Kevin's absolutely right. I think the average person has no idea that this is going on and if there weren't this kind of groundswell within the industry regarding this subject, the average person's day to day life would just continue to go on. So, they're the ones that are going to be most affected and I think. I could be wrong, but let's just give the lawyers the benefit of the doubt that they're doing this to protect the consumer, as opposed to just to get money out of large companies. Let's just pretend for a minute that is the motivation. The thought that this is going to help the consumer, I think it’s ill-fated frankly, because my opinion on that is that the average consumer will be affected. They're going to rely on someone in this process. How does it affect a loan officer? Let's say. Suddenly, that loan officer could be the therapist that the buyer's agent is acting like, right?
That's exactly what I'm thinking too.
Suddenly more of this comes on their shoulders. and are they qualified for that? And again, I don't mean that in a derogatory way, but they have enough to worry about. Yeah, regulation, mortgage regulations, consumer regulations up the wazoo, right? not that I have to tell him, but then you have to pile this stuff on and then, how do you help that consumer navigate do you start fearing, right? Some of them have, great relationships with buyers, agents. What do now you have that entire, like, how does that manifest itself after something like this? and then if you have a consumer that's sitting there looking at a menu of options, right? It's like you're standing in a McDonald's or a Burger King now and, there's nobody at the counter anymore, right? I've got to figure this stuff all out myself and start pressing buttons and now I've got to check myself out and I like does that really help the consumer? No, it helps the companies for sure. It does impact the consumer for sure. I don't see how it necessarily helps the consumer in the way that it's intended to, or at least theoretically intended to,
I love your altruistic approach to the attorneys doing this for the consumers. I don't know a single attorney out there I care about consumers. I can't think of a single attorney who's doing this on a grotesque basis, not to gain that they're doing this for the money. There's huge amount of money in this thing for them and that's there and I hate to say that Person that'll be left in the dust is the consumer trying to figure that out afterwards and after a lot of money has been paid on this, but you really raised some great questions, Scott, that I would love to dive into. We don't have time on this interview, but we probably have to do another one of these two or three more of these interviews on this topic, because you dive into some of those questions you just asked, especially when it goes into how does this play out for the loan officer and what coach we need to make them aware of the first thing, just a word of caution to use listening to this, use wisdom when you do this, check with your compliance, because you can step out to help a consumer and create a liability for yourself and for your company that in an attempt to be genuinely an advocate for the consumer, you could step into the areas because you don't have the knowledge that you need to on all aspects of it. It's just gonna have to be proceed with a lot of caution and a lot of counsel on this. But you open up another area as you were talking, Scott, that I want to go over to Kevin on, and that has to do with the macro environment at macro-economic environment that we in. What could this mean for all of that, Kevin?
If it in the worst case, which I'll preface this by saying it's absolutely not going to play out this way there's no way that the federal government or the Federal Reserve and all the related parties would ever let this occur is the housing market directly and indirectly is way too big a portion of our economic engine in the United States. It just absolutely is. If you go back to our earlier comment about the National Association of Realtors working behind the scenes, it's starting to come up now as a fix, if you will, to have Fannie, Freddie, et cetera allow buyer agent fees to be financed in because look at it this way. That's a hedge, right? If some wacky set of rules and agreements come in place. The state legislators have not caught up in the various states. You can't have the housing market, which is already at the lowest level of transactions for decades, seize up. It's already on the minimum amount they could possibly allow. You can't have things being served up to loan officers saying, how do I fix this? They go put something through DE or one of the other things. It comes back and goes, Nope, doesn't allow commissions to be financed for buyers. So, they're, I think, trying to get ahead of it. But if you look at it, where I think will end up happening is you'll see a bunch of agreements, a bunch of settlements, there'll be a lot of noise and then behind the scenes, then they have to work, right? The lawyers get their big check, right? Take 83 million I don't know 40 percent of that's going to the law firm. So, there's a whole group of them right now from the practical standpoint to Scott's point, what ends up happening at the consumer level is you look at these class action lawsuits and consumer products and things like that, they might get a settlement check of 3 cents or 18 cents. They never get a lot of money. Now, the difference between like the manufacturing sector, where maybe they were building this product that's changed, or the, Johnson the talcum powder, where they agreed to not do that anymore, real estate and claw backs are an impracticality, right? The turnover in the real estate industry for agents, they're all gone. If they went to go back 10, 20 years, and they looked at the number of agents that are still in the business, it might even be single digits. people that are still left in the business. There's also been a lot of brokerages that have merged, failed combined, et cetera. there are new brokers that are like EXP Realty. If you go back more than 10, 13, 14 years, Real didn't exist. You look at all these different brokerages, they just weren't even in the business. So, from a practicality, I think chaos starts. The legislatures at the state level jump in and try and get some semblance of order because their economies depend on real estate and then you have the wild card of what happens with the Fannie Freddie, can we in the interim figure out how to finance this, right? I could step back and use the analogy of property casualty insurance, right? When all the carriers were leaving Florida and closing down one of their practice one after the next. What did Florida do? They set up citizens as a stopgap for insurance and then they've now come out and said you have all these new roles. You can't just up and leave and go away because they knew that if that happened, the housing market would seize up in Florida if you can't get property and cash insurance. This is like a cousin to that, right. If you can't finance, you can't purchase in the off chance that anybody thought David I'll give this back to you. What do you think happened to the loan products? If Fannie, Freddie at all, but the prices were over by three to 5 percent and all of their underwriting. What would that do to the financing market?
It's going to have a devastating effect on it.
I believe this is a litigation tactic and claim that has no basis in fact, it's salacious enough that it gets a juror if they ever got to trial to think, oh, my God, this is awful because they can take the number of transaction time the salacious claim come up with an amount that the average juror can't even fathom the average news anchor can say it. and it's oh, my God, everybody's been overcharged and the lawyers for the brokerages and the other participants say, we can't get over there because those numbers are too big, it's too risky and that's how it gets settled. I don't think we ever have a chance of pricing resetting by 3%. Its market driven to Jessica's point, people don't come to us as listing agents and say, oh, I want to maximize what I'm getting and minimize this. They're just like, I want to get a market price. What's the market price and buyers coming in, especially in the low inventory market are not calling up Jessica and saying how do I get this? And avoid paying a buyer commission. They're not, they just want to hope that they can buy something because she gets 40 calls on a brand-new listing.
There's so much demand for this property here. So, as we wrap up this podcast and this interview, very interesting. Thank you so much for you guys coming on. What's your prediction of what happens? Where do we go from here? Give us some insights, Kevin. Scott.
Okay. I would say first off, I agree with Kevin wholeheartedly on the fact that there's no way that this could go to the point of. Everyone agreeing that there's been a massive inflation of prices on, a 43 trillion-dollar asset value as it sits today, right? It's just that would destroy the economy. And there's no 1 that would allow that to happen. I don't think anybody could comprehend that. So, I don't foresee this barreling down that path like a steam locomotive where it cripples our economy. What I do see is I think we're going to see the settlements pick up. I think we're going to see some structural changes that are going to be forced on the industry. But I think those structural changes at the end of the day could ultimately be positive because what they do is clarify. How are people compensated? Why are people compensated? Why do things work this way? I think it could have some positive impacts on the facts that perhaps some agents are just don't belong, right? it starts to clean out some of the industry. And given where we are from an inventory point of view, there aren't enough homes for the number of agents out there, frankly. So, I think there, there could be some positive outcomes of this. I think the worst part of the whole thing is that it had to come to this. So, no matter what, I think we have to look at every industry. It doesn't matter if you're in the software industry or an insurance sales or anything else, right? There's a commission structure built into everything. So, you can't pretend that, that this was an unknown in real estate. It's just it's laughable. You can say that there are some structural things that could be done better. And I think that's what we're going to see is where we will see some impact of this. We'll see it happen fairly rapidly. Settlements, no settlements, whatever happens. I think we're going to see this, happen fairly rapidly. And I think we're going to see the industry get behind trying to turn this into some positive change and that's ultimately, I hope what it should be and what it becomes.
Yeah. Kevin?
I concur with Scott's assessment. I think we're going to see more settlements. The thing about settlements at mass scale, meaning large brokerage operations, Multi state multi market tens of thousands or 100,000 plus agents. It's a long time between the settlement writing the check defining the settlement terms, the change in practice, and it is getting done and it's not going to be something that's like a light switch where they flip it overnight, and all of a sudden there's mass change. That said, I want to anchor this point even if anywhere wanted to do this, and let's just pick on my favorite, one of my favorite states of Texas. I would expect that the fast-track methodology of the Texas Legislature and Texas Real Estate Commission, they'll have the standards of practice fixed before the brokerages. they're going to have it down to their franchisees because they're going to be ahead of it. If there's something wacky that they see that they agreed to nationally in the global settlement, they'll already have it fixed and then for agents here, your brokerage isn't in charge of most of this stuff. Your real estate commission and the state legislature is. So there's going to be a push pull where they can have all sorts of stuff they agreed to and then it comes back and if they have great legal counsel, it's going to be written in there that ultimately, this is driven by state law and local practice as legislative in the local markets, and that's at the end of the day, there is no variance to that, right? we have no states in the United States that vary from this, and so we probably, my prediction, we're going to see a little bit of the playbook that worked with COVID, where from a pro-business standpoint, anti-business standpoint, you could probably pick some of your winners and losers based on what they did with lockdowns. and for you poor real estate practitioners that were in markets that weren't very Pro your business and your ability to do business. They may take longer than the states that it really didn't change. They were very akin to making sure that practitioners could and the final point I want to agree with Scott on is this couldn't happen if you want to put a positive glint on it at a better time, if we need to reduce the agent count because the transaction volume is lower, this is way easier to do it, 4 million analyzed transactions than it would be at 6.5. It'd be much more. It'd be much more chaos.
Thank you. Jessica final thoughts.
In addition to what I already foresee, I want to bring up that I do foresee each state having their own. I could easily see new disclosures. I could see major changes in the MLS and what they're offering, and part of that disclosure is probably going to be a little bit more of an educational piece to people. My hope though is to give the homeowner the option. It's you open up a store or business, you could do everything yourself completely fine, or you can pay for advertising. So, I really hope it's up to the homeowner and to still have that option out there for people and that's pretty much what I see is starting each state and disclosures and more educational and then I can only hope that it's up to more of the homeowners.
I want to thank the three of you coming on the podcast here and sharing what you have all day. I think there's going to be a need for a pretty quick sequel to this as this develops out over the next couple of weeks. Let's get back together, keep me informed. and when you see an opportunity for us to do this again, so we can bring this to our listeners, I think where I'm really starting to focus is okay Lenders, what are you going to do in this? Where is the opportunity? any time you have disruption, there's opportunity that's found in this direct disruption, and that's what we all need to shift to Jessica. Your brain just goes there automatically, your compassion, you think of everyone, but you're always looking. Where's the pony in the pile? and you spot them quickly and all three of you do and I'm just so grateful that some time ago, he introduced me to Kevin and more recently to Scott. Every time you introduced me, someone Jessica, it just turned out to be such a blessing. How can individuals get to know you or meet and learn more about you? What's the best way for them to do Jessica, let's go with you first?
LinkedIn or Facebook are my top two preferred methods to go ahead and connect with me, or you can reach out at jessicapetersonofficial.com and David, I would love to encourage every loan officer to share this with all real estate agents that they care for, because so many are unaware and clueless what's happening.
Yep, absolutely. Kevin, how can people reach you?
Be it Facebook. Or LinkedIn and I agree with Jessica, we should really get this out in front of many agents because some of this announcement of the anywhere settlement was posted on some of the larger Facebook groups that have hundreds of thousands of people in them and the comments belie the fact that 95 or 99 percent of the agents don't even have a clue about any of this stuff.
That's really true. It's excellent. Very good. Scott, we'll get this out. I promise you that we're going to pump it and make it available to you guys. You can help in pushing this out to the world all right, Scott, you're how can people reach you?
LinkedIn is perfect. Easy to find me Scott Petronas on LinkedIn and yes, It's miraculous. to me that this is so widely unknown for the folks that pay attention on a daily basis, we are all clamoring about it every day and looking for this info for the folks that are just going and working day to day and I can't, knock anybody for just going at their, sometimes ignorance is bliss and this is one of those things that unfortunately you can't be ignorant about. You have to understand the potential implications.
If listeners will put links to their LinkedIn profiles in the show notes It's a really interesting, let's get you back soon and do a sequel to this as it develops. Sound good. Perfect.
Yes. Sounds great.
Thank you.
Thank you very much.
Bye. Bye.
Bye.
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