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Attorney lays out how real estate can survive the commission suits

Publish Date: January 26, 2024

Written by Andrea V. Brambila

- Originally published at Inman News - Andrea V. Brambila

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The bevy of commission lawsuits out there are most likely to end in settlements and those deals will have to include both money and industry rule changes — and the money’s the easy part.

That’s according to attorney Ed Zorn, who spoke at Inman Connect New York this week in a session called “Anticipating MLS Evolution: The Pathways to Potential Settlements.”

During his talk, Zorn proposed mandating buyer representation agreements, eliminating the multiple listing service’s compensation field, adopting an optional seller concession field that the nation’s largest MLS is deploying this week, and paying for commission suit settlements by creating a fund and depositing between $100 and $200 from each transaction side nationwide into it for the next four years.

In offering these suggestions, Zorn offered a possible way forward for an industry mired in ever-proliferating antitrust lawsuits seeking hundreds of billions of dollars in damages and from which it seems no real estate entity is safe, including brokerages, franchisors, Realtor associations and multiple listing services.

Zorn is vice president and general counsel of California Regional MLS (CRMLS), the nation’s largest MLS and one that is facing its own commission suit as of last week, though he prefaced his remarks by saying that his “ridiculous opinions” are his and not those of CRMLS.

Mandatory buyer rep agreements

The two pillars of the MLS are cooperation and compensation and the latter is under attack from the U.S. Department of Justice (DOJ) and “super aggressive plaintiff lawyers,” according to Zorn.

“They don’t want listing agents and sellers sitting in the living room picking how much money is going to be paid to the buyer’s agent,” Zorn said.

What they want is for that to be decided by buyers directly with the buyer’s broker, he added.

“I don’t think that’s all difficult to build from a rule and policies perspective,” Zorn said.

He suggested that MLSs should mandate that subscribers use buyer representation agreements, pointing out that many agents don’t use them because their competitors — other agents — don’t have to.

“Why don’t we as an industry mandate it?” Zorn said, adding that it’s entirely within the industry’s power to do so.

Get rid of the compensation field in the MLS

The rule at issue in the commission cases, known as the Participation Rule or the Cooperative Compensation Rule, requires that listing brokers make a unilateral offer of compensation to buyer brokers in order to submit a listing to an MLS.

Zorn maintained that MLSs “can survive perfectly fine without compensation.”

For instance, Zorn, who is also president of real estate investment firm ZEC Investments and held a broker license for many years until it expired in 2022, pointed out that in commercial real estate, compensation is simple: He and his buyers sign a buyer representation agreement before he starts showing them properties and then when they make an offer on a property, there’s a provision in the contract that says the seller will pay his compensation at closing and that the amount is a negotiable term between the buyer and the seller.

“It’s done thousands of times a year,” Zorn said. “It’s not new. I think that’s a future that we can embrace in the residential world and deliver to these plaintiffs, the DOJ, and consumer advocates what they want. Why do we fight it?”

Add an optional concession field, like CRMLS

If the industry removes the compensation field from the MLS, Zorn said he would like to see an optional field added in which the seller would be able to offer incentives directly to the buyer.

“What the plaintiffs and consumer advocates hate is the incentive to the buyer’s agent,” Zorn said. “Why are we incentivizing a buyer’s agent? The buyer agent has a buyer that they’re supposed to be representing. They should require zero incentive.”

CRMLS is rolling out a “concession-to-list price” field this week, according to Zorn.

“It is not required. It’s a free form text field” that any listing agent can fill out,” Zorn said.

Inman has reached out to CRMLS to ask whether CRMLS is keeping its compensation field and will update this story if and when we receive a response.

Zorn said CRMLS has a different concession field that is required to close out a listing and most listing agents put zero in that field. Meanwhile, 39 percent had a concession, such as covering title costs, that didn’t have to do with compensation because of the separate field still in place during the time period CRMLS analyzed.

The new concession field is for communication purposes between the seller and the buyer and not contractual, according to Zorn.

“It will be up to the buyer’s agent and the buyer to include whatever their deal is in the contract of purchase,” he said.

“I would add a standard of practice that says it is unethical to leave a transaction with more money than whatever the written agreement was with” the buyer client so that if a seller offers more, the buyer can keep the difference, he added.

Creating a fund for settlements

In regards to the huge amount of damages awarded and sought in the commission lawsuits — at least hundreds of billions of dollars, if not a trillion, Zorn scoffed at the numbers.

“They mean absolutely nothing,” Zorn, a former trial attorney, said.

“The only thing that matters is how much money can the defendants actually pay to these plaintiffs,” Zorn said.

He expects the class action cases to be resolved with settlements in which the defendants give up around 40 to 50 percent of their cash or cash equivalents — amounts similar to what Anywhere (formerly, Realogy) and RE/MAX would pay under proposed settlements in the bombshell suits known as Sitzer/Burnett and Moehrl.

Zorn proposed that in order to pay for commission suit settlements, the industry, through the title company escrow officers of each home sale, pay into a fund for each transaction side for the next four years.

There were 20 million transactions, or 40 million transaction sides, in the last four years, he said — 5 million home sales annually on average. So assuming the number of sides stays about the same, $100 from each future side would add up to $4 billion, $150 from each add up to $6 billion and $200 from each would add up $8 billion.

“Anyone here who’s a defendant in these lawsuits happy to pay 200 bucks per deal to the future to get this over with?” Zorn said. “$8 billion. The money can take care of itself.”

Zorn ended his talk by saying the MLS community has an opportunity to evolve “in a way to enhance and ensure that cooperation remains the lifeblood of what we are, so we can continue to deliver the greatest gift that the real estate broker, their agents and consumers ever, which is the multiple listing service.”

The audience applauded loudly as he left the stage.

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