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Denee Evans, CEO of the Council of Multiple Listing Services, came to the real estate industry a decade ago, when the word “antitrust” was occasionally whispered at events in reference to the U.S. Department of Justice and a desire to avoid its probing eye.
Now, that whisper has become a roar, and Evans is in charge of shepherding some 225 MLSs through one of the most tumultuous times in the industry’s history. In particular, most of CMLS’s members must implement several rule changes in a proposed nationwide settlement between the National Association of Realtors and homeseller plaintiffs in multiple antitrust lawsuits.
The changes are set to go into effect on Aug. 17, including a prohibition on listing brokers making offers of compensation to buyer brokers on MLSs and a requirement that brokers and agents sign contracts with buyers they are working with before a buyer tours a home.
Evans, who lives in the Las Vegas area, will be taking the stage at Inman Connect Las Vegas next week. In an interview, she told Inman what her members are asking her about, changes MLSs are considering as they implement the NAR settlement and why she believes NAR will not be creating new MLS rules in the next six to 12 months, but may offer guidance on the settlement’s requirements.
This interview has been edited for length and clarity.
Inman: Do you know yet what you’re going to be talking about at ICLV?
Denee Evans: I get to interview [Chief Strategy Officer Blair Hardiek] for the Las Vegas Aces, which is our WNBA team, about building a winning culture. I’m super excited about that because I have been a season ticket holder since they came to Vegas and sort of watched that whole building of that organization to where we just did back-to-back world championships.
I’ll also be talking on the MLS, where we’re at today with a few other CEOs of MLSs. Basketball and MLS: those are two of my favorite topics. Also, I will be on a panel for women leading in real estate. That would be another one of my passions, to help support women growing in their careers and leading.
Your panel on MLS operations and what comes next after the commission lawsuits – is there anything you want to say about that right now?
CMLS did publish a resource document for our members that if they were going to implement concessions going forward as a field, we gave some guidance on how they could potentially do that, everywhere from not implementing [the field] to having the most options about it. We provided five different options because it’s going to depend on that marketplace. What did the members there want? How do they meet the needs of consumers?
We’re at a point of change, and so that just requires us to change and think about things differently. Every part of the industry, whether you’re an agent, a broker, an MLS, a vendor, we all still provide great service to the consumers and help them navigate the journey of homeownership, so how do we embrace this change and still serve them?
Change is always uncomfortable. But I think the more we can lean into that and understand how we can take this opportunity to just continue to provide new and different value and just embrace that, I think will be important.
In that vein, what is it that you’re being asked the most about right now from your members?
A lot of the questions are like, “How do we comply with the settlement?” which is not necessarily something CMLS would do specifically, but that’s why we did the resource of, if you’re going to do concessions, what that might look like. We’ve been holding our MLS Matters [webinars], where people can share what they’re doing on different areas, and bringing them together to talk about opportunities with the changes that are coming. It’s a great opportunity for MLSs, and their boards of directors, to really explore innovative options of how to serve the market.
I think we’re going to see less direct “must-do’s” in the future within our environment and it’s going to leave the opportunity for MLSs to be more innovative, to serve their subscribers and their subscribers’ consumers.
When you say “less direct must-do’s,” do you mean there will be fewer rules from NAR?
Yeah, I think we’ll see less of that in the future, just as we work through the changes that are happening right now. There are a lot of questions on the forms, on the buyers’ rep agreements, on the fields, on the changes, on how much data do we keep from the past. Those are going to be a lot of individual decisions at the MLS level, and for their board of directors — which is agents and brokers — to have the thoughtful discussions of what makes sense in their marketplace.
When we were working on this resource about the concessions field, initially we were talking about potentially sending it out as a best practice. Then we were like, well, we don’t think this is a best practice, we’re thinking these are pick your own adventure — what fits for your marketplace. Truly, the best practice is that you’re having really thoughtful conversations in your market about what fits.
That expands over to lots of different topics right now, and also: What is our potential future? We’ve got to just engage in those really thoughtful conversations about what could it look like, and what are the needs of the consumers, what are the needs of the professionals, and how are we going to continue to meet those and be that efficient, transparent marketplace that is MLS.
When you said you think there’ll be fewer NAR MLS rules, at least in the near future, why do you think that is?
We need to implement what’s happening right now. Even that Aug. 17 deadline for the changes, that’s earlier than what the settlement requires. But I think NAR did that just to make sure we had time at MLSs to be able to implement those changes. Once that date passes, there’s going to be more and more learnings and understandings of how it’s really working in the marketplace and if there are changes that need to happen. Are there changes or refinements that need to be made? That’s going to be a given. That communication between subscribers and their MLS is going to be super important over the next six to 12 months, as we make sure we can continue to provide that marketplace.
Part of the reason I ask is because there haven’t been any MLS rules coming out of the Multiple Listing Issues and Policies Committee at NAR for a while now.
What we might see out of them is maybe some clarification or some more guidance around the current settlement. We think we have some answers now, and we’re making changes based on what we know. But I think there’s going to be some dynamics to this where we’re going to need to get additional feedback in markets, and it’ll be a little different per marketplace. So maybe that group has some requests to say, “Clarify this. Give us some more guidance on this.” I think we still have some bumps in front of us to work through as an industry, but I’m confident that we will get through it. We’ve got to really focus and make sure we get this we get this down, we get it right, and we continue to serve the marketplace.
What sort of bumps do you see?
There’s always this idea of how it works, like, in theory, and then when it actually goes out to market. One big thing could be consumer behavior. Is it going to change much based on this, or they have new requests or different, or how is that going to play out when these agreements roll out in the marketplace? Is there things that need to be altered?
I had lunch with Helen Hanna years ago, and she said her dad always told her that we had this sellers multi-list, but we needed a buyers multi-list. We’ve made [the MLS] a two-sided market at this point, but not necessarily as conscious as we could be of really matching buyers and sellers in a more formalized way. I think we could be at a place with the agreements, that maybe that really evolves us to this more robust and comprehensive marketplace of both the buyer and the seller in some new way.
How do you see that happening?
There’s a lot of smart people in the industry that have started talking about that a little bit. There’s a real opportunity there because the buyer side is just as important as the sell side. They’ve both got to be there to make it this marketplace.
Is there a reason you think that the settlement itself would lead to that?
The settlement has some key elements that cause fundamental change to to how things are working. Within that, I don’t know where the saying comes from, but “Never let a good crisis go to waste.” It just creates this moment. COVID was a perfect one. That was just awful, but a couple of those silver linings that came from [it are] e-signatures and online signings and all these things that would have taken us years to actually get movement on, but because of that severe disruption and event happening, it allowed us to move exponentially on a lot of important things, specifically for our industry, [such as] virtual tours and videos.
Is there any specific thing you’re thinking of that you might want to ask NAR’s MLS committee for guidance about?
I wouldn’t have an answer to that until after the 17th, as we’re just waiting for our members to give us more feedback.
You were talking about how it will depend on the marketplace, how these changes are implemented. Initially, you were talking specifically about concessions. What sort of factors will determine which way an MLS will go on that?
I’ve heard feedback across the board. Their discussions are from “We’re not implementing anything; we’re just removing a field” and “We’re deleting all data” to some MLSs believe that it’s still an opportunity to inform the marketplace and [for] transparency if a seller is wanting to offer an incentive. We issued four options or five options, and I think there’s probably an equal number utilizing each one of those.
So you’re not telling them, “This one’s the best practice.” You’re saying, “Here are your options; talk about it.”
Yep, the best practice is that you’re talking about it and you’re making a very thoughtful decision on which one of these fits your marketplace and also for rolling it out. One of the challenges is when there’s a policy and there’s one way to do it, it creates consistency. It’s really hard to scale a product when to scale it [is to] implement it in 500 MLSs and they’re all different. So rolling it out maybe in four or five different ways versus 500 different ways is beneficial for consumers, for the professionals, and then for the vendors that support the industry and provide these products and services.
You’ve heard that some MLSs are deleting their commission data?
I haven’t confirmed that, but it’s the discussion around previous data. How long do you hold on to it for? Do you capture it going forward? There’s been a lot of discussion around that as to what makes the most sense because you do need information for appraisers. You need information for market stats. Who is it made available to? Is it available to just the staff? Is it available to the subscribers? Is it not available at all? Again, I’m hearing a lot of different options across the country, which I think is good, because that means they’re all having their own discussions about what fits their marketplace and what are their needs.
I don’t know if you saw my interview with Ed Zorn, but he was talking about how, as a broker himself, how he was planning to use the commission data in future sales, like when he’s talking to sellers, saying, “We’ve changed this thing and we need to think about what that means for how much we’re gonna set for a list price and potentially offer as a concession.” So I think that, as a broker, he probably wouldn’t be very happy if that data were deleted.
It’s very interesting. I don’t even have anybody to refer you to, but I do think that’s been an active conversation and have heard different ways that they’re going to be capturing that and who they’re going to make it available to.
Is there anything you think MLSs should be doing to avoid antitrust trouble in the future?
If anything, I’d say comes back to those individual market decisions. How are you best serving your market? Compete on service. Compete on value. Competition is the heart of our industry.
You’ve talked a lot about opportunities coming out of all this. What specific opportunities are you talking about?
It’s more a mindset about opportunity within the disruption. Putting on a lens of: Where are the opportunities in this? How do I use this to better serve my subscribers? How does it better serve consumers? There was the old way. That was then, and there’s a point in time where we’ve got to move forward. I don’t have specifics because I would be telling you my members’ ideas, I guess.
If we use that knowledge and approach it just kind of changes our attitude about it and allows us to be open to new ideas. That’s the other thing that disruption and change does is it broadens the ability of what’s possible a little bit, thinking that maybe people wouldn’t be open to doing before.
Is there anything you’re telling your members not to do?
I think my biggest thing is not to have your head so down in the day-to-day of just implementing what it is, that you’re not still looking up and saying, “Where are we going?” Because there are a lot of people out there who are looking up and designing that future, and if we spend the next six months getting through this just head down, we’re going to be behind.
There are a lot of changes happening in a very short time frame, but we’ve got to make sure and keep our heads up and still talk about “Where’s the puck going, what’s in front of us, where do we want it to be, and how do we continue to build and make those things happen at the same time?” That’s really challenging because there’s a lot of resources going to put the changes into effect that we’re required to do. Then you’ve got to be thinking about “Where do I need to be in six months?” because the change in technology and information and data is happening so much faster today, and so it’s even more important that we’re just keeping our head up and saying, “What do we still need to build, design and innovate?”
Who do you think is thinking about that?
Everything from Wall Street to current participants in the marketplace to the person in their garage. They’re not necessarily slowing down for any of this, whereas the challenges for the MLSs and the brokerages are there are some significant changes we need to implement. We have to do that as well as still say there’s all this new stuff still happening. So we have to keep our eye out for it and make sure that we’re able to support those ideas as other companies may roll those out. We can still power them by way of what the MLS provides.
These are mandates coming out of NAR because of the settlement. Do you think that’s hindering MLSs’ ability to look toward the future in that way, having to implement all of this stuff?
Policy comes out, changes come out. MLSs are used to implementing that. I think the biggest challenge for us is just how tight that timeframe got. It’s a lot of change very quick, and there’s not, I think, quite as much information about what the changes must be or the specifics to them. There are more decisions to be made in each marketplace. That’s one of the other challenging pieces to this, the timeframe, the amount of detail, and that this is so much happening at one very small point in time.
Alright, anything else you’d like to add before we finish?
When people say “the MLS” [they] make it like it’s some The Wizard of Oz behind a curtain. Really own and embrace that the MLS is made up of brokers and agents. Yes, there is the MLS CEO, MLS staff, but really the ones making those decisions and helping to move the MLS forward are the people who are out in the marketplace.
It is the industry that actually makes up these boards of directors and these decision-making bodies to move us forward. So be active participants, even if you’re not on a board, give your feedback in a constructive way that helps us continue to navigate our future and design what needs to happen to power those professionals to serve their consumers.
The company celebrated during a live “growth call” with leaders from more than 1,000 franchisees in the U.S. and Canada. Nearly 150 KW agents have earned more than $1 million in lifetime profit share.
At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
Keller Williams logged a milestone Monday: The major real estate franchisor has shared more than $2 billion in profits with its agents since the program’s launch in 1987.
The company, which has 174,000 agents, celebrated at 11 a.m. Central on a live “Growth Call” with top leaders from its more than 1,000 franchisees, also known as market centers, in the U.S. and Canada.
“This achievement is a quantifiable testament to our strong, growth-minded culture,” said Mark Willis, KW CEO and president, in a statement.
Keller Williams also shared on Monday that between Jan. 1, 2023 and June 30, 2024, its franchisees gave more than $148 million in profits to their affiliated agents. In a statement, Gary Keller, KW’s co-founder and executive chairman, said the profit share program allows franchisees to treat their agents as partners and allows agents “to build their businesses inside our franchise model, which is as powerful as if they owned a brokerage themselves.”
“This profit share milestone results from how we think of our relationship with our business partners,” Keller added. “Profit share is an equal opportunity, unequal reward. Those that put in effort will get the lion’s share of the results.”
Keller Williams is a private company, which means it is not obligated to share any financial information publicly. The franchisor is a defendant in several antitrust commission lawsuits and settled the cases earlier this year for $70 million.
Although that settlement has received final approval from a district court, several homesellers are appealing that decision, alleging the payout is far too low and objecting to the deal’s release of franchisees from liability without requiring them to pay anything to the people they allegedly harmed or change anything about their practices.
Keller Williams’ profit share program specifically is also the subject of multiple lawsuits due to a now-scrapped plan to slash profit sharing for defecting agents. The agents behind the suits alleged the plan would have amounted to breach of contract and unjust enrichment on the part of the company. Those suits are ongoing.
According to the company, through June 30, 2024, 137 KW agents have earned more than $1 million in lifetime profit share while 386 agents have earned more than $500,000. Tens of thousands of agents have earned at least five figures in profit share in that time frame:
3,077 KW agents have gotten more than $100,000 in lifetime profit share
6,648 KW agents have gotten more than $50,000 in lifetime profit share
28,827 KW agents have gotten more than $10,000 in lifetime profit share
“Profit share is the engine of our culture,” said Shawn Rawls, an Atlanta-based KW agent, in a statement. “It gives everybody a seat at the table.”
Through Keller Williams’ current profit sharing model, associates who are with the company for more than seven years receive a portion of their former market center’s profit for life. Market centers take slightly more than 50 percent of their profit, then sponsored associates split up the rest.
The model works like a pyramid, with each associate taking 50 percent of that profit, then the rest being split among their sponsoring associate, and that associate’s sponsoring associate and so on, up to seven levels.
“Each of these programs are set in motion when an associate joins a Keller Williams office and names one person as the individual primarily responsible for bringing them to the company,” a white paper from Keller Williams describing the model states. “It may not have been the first person or the last person they talked to about Keller Williams.
“It may be someone from their Market Center, or it could be someone from another region, province, or country,” the paper continues. “It is the person who was most impactful on their decision to join the company.”
According to KW, agents can designate a beneficiary to receive their profit share distributions when they die.
“Profit share is a legacy that you can leave,” said Jessica Starr, a Simsbury, Connecticut-based KW agent, in a statement. “You can leave it to your loved ones, or you can leave it to a trust.”
The contestants, several of which are powered by AI, offer 3D-printed homes, a tool to identify at-risk homes and mortgage loan readiness assistance, among other products.
At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
Twelve real estate startups will brave the stage at the National Association of Realtors’ technology conference at the end of August, the 1.5 million-member trade group announced Thursday.
The contestants, several of which are powered by artificial intelligence, offer 3D-printed homes, a tool to identify homes at risk for natural disasters, and mortgage loan readiness assistance, among other products and services.
The event is best known for its “Pitch Battle,” a contest hosted by NAR’s for-profit investment subsidiary Second Century Ventures, in which aspiring real estate tech startups vie for $15,000 in cash and the attention of venture capitalists and others who could help them make a splash in the industry.
“The Pitch Battle highlights innovation and impactful solutions to some of real estate’s pressing challenges,” said Dan Weisman, NAR director of innovation strategy, in a statement.
“iOi Summit offers both startups and investors a platform to forge game-changing connections and previews up-and-coming technologies that will transform our industry for the better.”
The live Pitch Battle will take place on Aug. 28 and the winner will be announced Aug. 29. Each contestant will have four minutes to make their pitch and then another four minutes to answer questions from the Pitch Battle judges.
According to NAR, the prize package is winner-takes-all and includes $15,000, a booth at NAR’s NXT conference in November, a meeting with SCV’s executive team and a feature in Realtor Magazine.
Here are the 12 contestants, along with NAR-provided descriptions:
Azure builds sustainable and affordable housing using 3D printing technology.
Faura provides loss control solutions for insurance companies and homeowners in high-risk properties.
Home Lending Pal offers equitable solutions to homebuying by utilizing AI-powered underwriter and borrower insights.
Kukun is a real estate data, analytics and applications platform for homeowners and the industries that serve them.
LeanCon produces data-driven insights to automate project planning and management for developers and construction companies.
Maverick Systems leverages data to help brokers identify top talent, foster agent loyalty and optimize performance.
PremiseHQ creates advanced digital employees to streamline property management tasks.
PropTexx provides generative AI, data analytics, and actionable, real-time business intelligence for the real estate industry.
Scout helps agents find and engage homeowners with AI-driven automated personalized email outreach.
Tether RE improves critical agent safety from initial client contact to closing.
Tuesday is a social MLS app, built exclusively for agents.
Unlock helps consumers unlock the power of home equity without interest charges or monthly payments.
This is the second in a two-part interview with California Regional MLS General Counsel Ed Zorn on the impending changes to the commission structure and how it will impact agents. Read the first part HERE, and check out his sessions live at Inman Connect Las VegasJuly 30-Aug. 1, 2024. Join us.
Real estate broker and attorney Edward Zorn is nothing if not generous with his thoughts when real estate and the law intersect.
When it comes to adapting to business practice changes associated with a proposed nationwide settlement between the National Association of Realtors and homeseller plaintiffs in multiple antitrust lawsuits, Zorn has plenty to share and will do so at two sessions at Inman Connect Las Vegas later this month.
The NAR settlement includes rule changes set to go into effect on August 17, including a prohibition on listing brokers making offers of compensation to buyer brokers on multiple listing services and a requirement that brokers and agents sign contracts with buyers they’re working with before touring a home.
In a two-part interview, Inman caught up with the vice president and general counsel of the California Regional MLS to get his take on buyer agreements, seller concessions, steering and commission-sharing between brokers.
Part 1 tackled what Zorn will be talking about at ICLV, how listing agents’ jobs will change after August 17, whether seller concession fields will replace offers of compensation in the MLS and why mandatory buyer agreements are consumers’ big win from the NAR settlement.
With Part 2, Zorn dives into the nuances of offering a dollar amount or a percentage of the purchase price as a seller concession, the settlement’s potential impacts on steering, how buyer agents’ jobs will change after August 17, and the No. 1 thing people in the industry should be doing to stay out of antitrust trouble in the future.
This interview has been edited for length and clarity.
You were saying you’re a big believer in having either a dollar amount or a percentage listed when a seller is offering concessions.
On the appropriate property. If you had a home that was subject to FHA lending … I would encourage you to consider offering concessions. If you were doing a $1 million home or a $900,000 home in Corona I would tell you, “Don’t offer concessions.” I would tell you, “Mark the box that says ‘We’ll consider a concession’” and don’t commit to any kind of number whatsoever.
I think you’re going to see [concessions] clump around the entry-level market because that’s the specific buyer that needs the comfort of how this process works, and that this particular home I’m going to put an offer in will work for my situation.
I think mid-priced homes to higher-priced homes will not have concessions. I’m not saying I would put concessions on every property. I would say it depends on what my seller needs.
If my seller is one of those looky-looing, “Hey, I don’t really have to move. I can take three, six months. Doesn’t really matter,” I probably don’t recommend he does concessions. Concessions are a particular marketing strategy to drive a quicker, faster sale and to help a certain segment of people, make it easier for them to buy this home.
I understand that distinction you’re making, but this is a change that’s being made across the board. You have this philosophy determined by the type of property and whether it’s subject to FHA lending, but there are many thousands of agents that will be using these fields that may not have that particular philosophy on concessions and may decide to treat this field as just a replacement for the compensation field. The implementation of it is across the board, so why not just have a Yes or No, and then the FHA buyer can just ask for what they want?
Again, if you’ve ever dealt with an FHA buyer, it’s an easy thing to say, a hard thing to get them to do.
Wouldn’t that be their agent’s job, though, to tell them “This listing is offering concessions”?
Sure. Let me give you shock of all shocks: Buyers don’t listen to me. This is why [the concept of] steering, for those of us who are in the field, is such a laughable idea. You kidding me? You think I could convince you to buy a house if you hated the kitchen? Agents don’t have that power.
But you can say as a buyer’s agent, “Oh, I’ve heard the foundations in this development aren’t good.”
Correct. I can scare people away from homes all day, sure. But my point is, if there’s a home that is good for somebody … and they’re a first-time homeowner, maybe the first in their family to ever buy a house, and it’s at a price that they can afford, but they don’t have the cash, convincing them to put an offer in and just ask for it on the [idea that] maybe you’ll get it, that’s a giant emotional event for somebody. People cry when they don’t get a house. It’s devastating to them.
If it’s a first-time buyer who’s really trying to secure the American dream and get a property, to be told “No” could end their decision to buy a house. That absolutely happens.
I think we’re making some really good quality changes. We’re getting rid of offers of compensation. We’re getting them out of the forms, which I think is super important. It’s one hundred times more important than the concession issue, to make sure that the forms don’t encourage continued commission-sharing.
That has way more impact on what the risk is of potential steering or using fear of steering, which is really the issue on the seller side, than concessions are.
People have this opinion that concessions will replace offers of compensation. I have actual experience. I have data that suggests that that’s not going to happen, both historical and right now. I agree, people can just put nothing and let the buyer make an offer. I agree that that is something that can happen.
But again, go talk to the heads of, like [the National Association of Hispanic Real Estate Professionals] or any of the fair housing, first-time homeowner groups. They’re petrified about the commissions coming out of the MLS because they know that their body of people are going to be too scared to buy houses. The reason CRMLS is so behind keeping some level of concessions viable to help that group is important.
We can’t throw the baby out the bathwater. That’s what we’re doing if you’re going to attack concessions. At least let’s see what happens.
When you have your listing presentation, you tell the seller you don’t have to commit to anything regarding the buyer agent or concessions. But how do you have that conversation when you do want to offer a dollar amount or a percentage, if it is an FHA property?
It would be part of my explanation going through the comparative market analysis. Let’s say I’m selling a condo in Corona and it’s a 150-unit project and they have a three-bedroom two-bath. We look at the other three-bedroom two-baths that have sold in the neighborhood. Let’s say they’ve sold at $450,000. Three of them sold in the last two months. I’m going to look at what are the concessions that the seller paid to help a buyer get into the home.
I’m going to have that conversation with my client when we’re setting the list price. I’m going to explain to them that there is a set of potential buyers that may have a challenge in buying your property because they don’t have enough cash on hand. So do we want to address that or not?
We don’t have to. The other strategy we can go to is let’s go with the lowest price. Strip out the concessions and compensation … and let’s drop the price, make it lower. But we’re gonna have to rely on good buyer agents to be able to explain that and we’re not going to control that, so there’s a risk there.
This is part of my skill in communicating to a seller: what kind of marketing strategy do we want to go to market with? A lower price, no concessions? Or do we want to push a little bit of a higher price, but offer concessions?
Here’s what you’re going to get when you do the lower price: It will go to an investor, an all-cash guy who’s going to rent the house out because he’s going to see a nice, low price, and going to offer all-cash. Is that what we want? I’d rather have the VA guy or the FHA person in that house, personally.
Do you know of which MLSs are just doing the Yes/No in the concession field?
I don’t. I don’t know who else is going to be comfortable enough to do it because there’s so much fear around it that I think any MLS that’s going to take the tack of “We don’t want to talk to the [Department of Justice]. We don’t want to have any issue at all,” I think they’re going to either do no concessions, or they’re going to do only a Yes/No field and then kind of see how does it work.
How is the buyer’s agent’s work going to change after August 17?
The biggest thing that’s going to change with the buyer’s agent is going to be the need, No. 1, to be properly trained and skilled in communicating about transactions and understanding value, in addition to the things we buyer agents always do, which is emotional support, marriage counselor, friend, confidant.
Here’s the thing that’s going to change a lot and that is you’re going to have to get a buyer representation agreement signed. You’re going to have to be able to demonstrate your value, and you’re going to have to be able to then set your pricing of what you charge consistent with what value you bring to the transaction.
You’re going to need to be able to explain to your buyer how the current process has changed and how they can expect to include your fee in an offer so that the seller continues to pay your fee, just like historically it has been done for decades. You’re going to have to develop those skills. You’re going to have a presentation, you’re going to have to have data.
Realize you’re going to be in competition. You don’t get to just say, “Well, on my last X number of transactions, either this is what I made, or this is what everybody’s offering, so that’s what I’ll put down.” That’s not going to cut it.
If that’s what you do here in Knoxville and you want 3 percent, what are you going to do? Because if you want to move to Knoxville, I charge 2 percent. That’s my rate. So if you charge 3 percent, what are you going to do when I come along — a 30-year lawyer, 20-year Realtor, I’ve done thousands of transactions. Who’s the buyer going to use?
So they need to realize they’re going to be subject to price competition. Make sure that you’re setting the fee that you’re charging consistent with what your skill level is, your value proposition, the services you’re going to provide, and don’t be concerned about what other people charge or what’s being offered.
Then the next thing you need to realize right away as a buyer’s agent is you don’t need any help from the listing agent to decide on what’s being offered or anything like that. Go show every single property, open every door your buyer wants to see that he’s qualified for or she’s qualified for, and make an offer on every single property.
It doesn’t matter if the seller has offered concessions or not. Doesn’t matter. Make the offer and then be ready to negotiate the price against the offer you made. This is where the skills of valuation, understanding how to do a proper CMA, how to make appropriate adjustments for differences between comparable properties and a subject property, including other financial contributions from the seller, how it interacts with that as you start to justify your offer price.
In every offer that I make from this day forward, it’s going to say, “Seller shall pay Ed Zorn Realty X percent, in my case, 2 percent, of the purchase price of closing.” That’s going to be in every offer, and then we’ll negotiate from there.
So I’m not concerned ever about getting paid. It will be part of the transaction, just like it is today. The difference is that my buyer and I negotiated the buy-side fee, instead of the seller and the listing agent deciding on the buy-side fee. That’s a huge difference.
What are you being asked about the most in your work as a lawyer?
When agents are saying “what’s going to change?” what they really need to see are the [transaction] forms. The way you change agent behavior is MLS input and the forms. So it’s those two things together that can be used to change behavior.
With the terms of the settlement agreement and MLSs signing on, the MLS has done their job. We’re removing the commission fields. We’re changing our rules to mandate this buyer representation agreement. The MLSs are doing what they can, rule-wise and technology-wise, to drive those changes.
The other part of that now is going to be the forms. I think [the California Association of Realtors] did a good job by getting rid of commission-sharing. Just get rid of it. Eliminate it. We don’t need it. There’s no purpose in it. Off MLS, there’s no purpose in sharing commission.
Now that the [listing agreement] form is gone about sharing commissions, then the other form that matters is the purchase agreement, making sure that purchase agreement forms have a sentence or a process where the buyer can include in this offer on the purchase agreement the request for the payment of the buyer agency, as well as any other potential costs. Therefore, it is subject to negotiation between the buyer and the seller.
But I think what you’re going to find is, by the time you get to January, people are going to look backwards and go, “That really wasn’t that big of a deal.” A lot of hoopla, lots of hand wringing, lots of “Oh my god, what are we going to do?” but once you see the forms and if the forms are crafted properly, the system will naturally flow because people will use the forms to help educate and inform their consumer and that will drive the practice.
I fully expect 90 to 95 percent of all offers will have a request for the seller to pay the buyer’s agent.
Is there anything that people in the industry should be doing to keep themselves out of antitrust trouble in the future?
The No. 1 thing the industry should be doing to stay out of trouble is get rid of anything that supports commission-sharing. That means at a state association level or a local association level that is creating standardized forms, those listing agreement forms should not accommodate or facilitate the sharing of commissions between brokerage firms, between the listing broker and the buyer’s broker.
They should be focused instead on only the commission discussion being between the listing agent and the seller.
This is the first in a two-part interview with California Regional MLS General Counsel Ed Zorn on the impending changes to the commission structure and how it will impact agents. Check back for the final installment tomorrow, and check out his sessions live at Inman Connect Las VegasJuly 30-Aug. 1, 2024. Join us.
The real estate industry is gearing up for potentially huge changes in its commission structure a month from now and many are looking for a guide to tell them what those changes could mean for agents and consumers on the ground.
Edward John Zorn may be the most uniquely-suited to the task. Zorn is not only the vice president and general counsel of the nation’s largest multiple listing service, California Regional MLS, he is also president of real estate investment firm ZEC Investments, a mediator and arbitrator of real estate disputes, and a former adjunct professor of real estate at California Baptist University.
Moreover, he held a California broker license for many years until it expired in 2022, and has held a broker affiliate license under eXp Realty in Tennessee since 2019. Just in his capacity as a buyer’s agent, Zorn says he’s closed 40 deals in the last three years.
So when Zorn graces the Inman Connect Las Vegas stage at the end of July, it will be as someone who both lives the life of an agent and has the legal chops to understand the upcoming business practice changes associated with a proposed nationwide settlement between the National Association of Realtors and homeseller plaintiffs in multiple antitrust lawsuits.
The NAR settlement includes several rule changes set to go into effect on August 17, including a prohibition on listing brokers making offers of compensation to buyer brokers on multiple listing services and a requirement that brokers and agents sign contracts with buyers they are working with before a buyer tours a home.
In this two-part interview, Inman caught up with Zorn to get his take on buyer contracts, seller concessions, steering and commission-sharing between brokers. Part 1 tackles what Zorn will be talking about at ICLV, how listing agents’ jobs will change after August 17, whether seller concession fields will replace offers of compensation in the MLS and why mandatory buyer agreements are consumers’ big win from the NAR settlement.
Part 2 will dive into the nuances of offering a dollar amount or a percentage of the purchase price as a seller concession, the settlement’s potential impacts on steering, how buyer agents’ jobs will change after August 17, and the no.1 thing people in the industry should be doing to stay out of antitrust trouble in the future.
This interview has been edited for length and clarity.
Inman: Do you know yet what you’ll be talking about at ICLV?
Ed Zorn: How to transact in a consumer-centric commission model. [Inman] originally had me on for 20 minutes. I said, “No one in the world wants to listen to some lawyer talk for 20 minutes.” That is a bad idea. So I said knock me down to 10 and donate 10 of my minutes to the other thing that I’ll be doing, which will be with James Dwiggins, Kendall Bonner and Cassie Walker Johnson.
We’re going to be doing some live role playing: buyer and seller objections post-August 17. James is going to moderate and the three of us are going to give examples of “This is what my listing presentation would look like.” “This is how I would communicate things with a buyer.” James will hit us with questions: How would you overcome this objection? Or, what if a seller says, “I don’t want to pay anything?” How do you handle that?”
A lot of people, especially just agents trying to do their job, they want to know how their work is going to change.
Exactly. That’s very much what that program is designed to [address]. Like, “I get all the legal mumbo jumbo crap. Well, that’s cute. I don’t care. What do I got to do on August 18?”
Is there anything you can offer us now about how their work is going to change after that date?
The change is going to be much more in form than in substance. What they’re going to find is if they already have good skills in communicating, negotiating and understanding how to properly value a property, then they’re going to be fine in this new system. If they lack those skills, now’s the time to go get them.
What do you mean by form versus substance?
As a listing agent in the consumer-centric model now, a listing presentation is actually going to be easier, simpler and more straightforward. What I’m going to do when it comes to the issue of commissions with a seller is I’m going to simply talk about my services, what I do and my skill, and we’re going to talk only about my fee, the fee that Ed Zorn Realty is going to charge for providing services to you as the seller.
Then I’m going to explain that under the new system, a buyer is going to have to sign a buyer representation agreement before he sees this property with his own agent and the buyer and the buyer’s agent are going to be the ones who are going to decide what fee the buyer is going to pay for those services.
We don’t know what that number is, so we don’t need to commit to any kind of number today, but you, seller, should be prepared to understand that it is very likely that the buyer is going to ask you the seller to help the buyer get his fees and other closing costs financed in the transaction. The way that the buyer gets his buyer broker fee financed in the transaction as part of the loan is he puts it into the transaction and it becomes part of the purchase price.
That is when, in my listing presentation, I’m going to unveil my comparative market analysis, my CMA, and we’re going to talk about the comparable properties and what we should list your home for. I am going to have, as an adjustment on every comparable property in the next six months, it’s going to be whatever was offered as compensation in a compensation field.
Starting in 2025, when that field will no longer be relevant because it will now start to be empty, then any type of capturing of concessions where the MLS captured any actual payments made by a seller towards buyer broker fees, or where there’s concessions [such as escrow and title fees and loan buy-downs] … would be put into my CMA.
I would explain to my seller, when you see these three sales, let’s say they were all at $1 million. Realize no seller got $1 million. They got $1 million minus what the seller participated in trying to pay towards helping the buyer buy the house. So now Mr. and Mrs. Seller, how do we want to market? We can market with the same comparable properties, the same price, the $1 million, but be ready to understand that it’s very likely that a buyer who sees these exact same comps is going to include in their offer some kind of request for you to pay some of the buyer’s costs and fees to get into the property because that’s what the other guys did.
Or, if you’d like, we can go in at, $975,000 or $980,000. We can remove those costs. Start off with a lower listing price and maybe that will drive more traffic. Then we will just tell people who want us to pay something that they should add that to their offer and increase the purchase price by whatever the buyer fees are, and we’ll consider it.
What we decide to do will be based on the marketplace. What kind of home is it? How hot is the market? Are we balanced? Is it a seller’s market? A buyer’s market? But the point here is that that you, Mr. and Mrs. Seller, you don’t have to commit to anything here in our listing presentation with regard to what’s being paid to a buyer’s agent or someone on the other side. That would be how I would handle that listing presentation.
I’m going to make the argument that agents and brokerage firms that embrace what I just described as a consumer-centric model in doing a listing pitch are going to capture market share, and they’re going to get more listings than the agent and brokerage firms that hold on desperately to the old commission-sharing, make-offers-of-compensation mechanism.
My argument for that is the group of people that want to hold on to the old way of sharing commissions, you realize the amount that they have to charge the seller is double what my fee is going to be on that piece of paper. They have convinced the seller to pay double what I am charging them. I think that is a hard sell. I think the consumer-centric model is easier to explain, more simple, and will result in more listings than trying to hold on to the old commission-sharing model.
As you’re talking, I’m thinking about the new listing concession fields that MLSs are adding. Do you have any idea how many MLSs are adding this particular field?
I really don’t. I know we are. I think Bright is. I think I’ve heard of some others that are doing just kind of like the Yes/No box where they they’re not going to be putting an amount in, but they’re going to have a statement that says “Seller is willing to consider a concession.” Like, “Do you want me as the listing agent to advertise that you’re willing to consider a concession without a number?” That was one option.
The second option was, “Would you like to offer or advertise a particular dollar amount?” but their form did not have a place for a percentage, which I thought was good. The assumption is that agents will just utilize the concession field as a replacement for the compensation field. That has a risk if you continue to share commissions. If your forms from your state still have commission-sharing in them, that would increase the risk of that problem.
In Southern California, where CRMLS is predominant, we do not have the Missouri problem, we don’t have the Atlanta problem, where all of the listings are clumped around 3 percent. My average offer of compensation across the CRMLS marketplace is something like 2.2 percent. You’ll see everything from 1.5 to 2.5 to 3. My 3 percent ZIP codes are almost exclusively in super high-end neighborhoods. It’s Newport Beach, it’s Laguna Niguel, Beverly Hills. These are the only places that even approach 3 percent, so we have a very giant, diverse offer of compensation.
In Atlanta, Georgia, it’s very common that everything’s at 3 percent. The risk for what the downside of concessions would be is different depending on where you are. It’s not the same across the country.
But here’s the benefit of it, it’s a huge benefit, and this is where CRMLS stands. We’re very much behind concessions, and we’re very much behind concessions that include a specific dollar amount or percentage specifically for the lower-end properties, the properties that would be used or are subject to potential [Federal Housing Administration] financing or [Department of Veterans Affairs] financing.
CRMLS has been collecting concession information for decades on closed listings. A lot of MLSs do because you need that for appraisals and doing CMAs and those kind of things. What we found is that, as an example, I looked at May of 2023, in Riverside County. We had 63 percent of our closed FHA deals had a concession. That’s a huge number. When I looked at the actual concessions themselves, they averaged 1.8 percent across that group of homes.
The offer of compensation over that same group of homes was just under our average. Our average is like 2.2 percent. The average of that group of homes on FHA was 2.1 percent. So I’m literally approaching a situation where sellers are almost paying as much for buyers’ costs, not going to the buyer’s broker, as they are for the buyer’s broker. That’s super important.
First-time homeowners or VA, what you note about that group of people that we work with? They’re scared. They’ve never done this. Many of them are from families that have never owned property before, so they don’t understand the process. What they need is comfort. They need certainty. They need to know when they’re going to look at a property and they’re like, “Okay, it works on my loan, I can afford this, but I don’t have enough money in cash to buy the house.” Then if we can demonstrate to them, “Oh, well, here you have a seller who is willing to contribute as a concession to pay, you know, 4 percent or 5 percent to help you get into their home so you’ll buy their home versus someone else’s home,” that’s a big sigh of relief.
I’ve heard people say, ‘Well, why don’t you just lower the list price and let people add the concessions in?” That doesn’t work. That comes from people who don’t represent first-time homeowners. It’s not about price for a first-time homeowner. It’s about how much money do I have in my pocket to pay for, not just my own agent, I’ve got to pay for a down payment, I’ve got to pay title fees, I’ve got to pay escrow fees, I have to pay discount points on my loan so that I can qualify. I have to have two or three months worth of reserves in my bank account once I close, as a condition for the bank to give me the loan.
It’s all about how much cash they have on hand, more than price. It’s important, as we take away compensation offers out of the MLS, and the consumer benefit that that derived was the certainty that buyers knew at least their agent would get paid and they kind of understood how the transaction would come together, we need to have something there to help that group of people continue to be encouraged to buy property.
Concessions are the way to do it. With the new rules, with a buyer rep agreement having to be entered into before you show a property, we’ve eliminated the offer of compensation steering problem. That’s why we’re so much behind concessions.
What we see in the actual data that we have to date is that only 50 percent of the people who use concessions will actually put in a number. The rest of them will not put in a number, but will just be an invitation. Of the people who are putting numbers … in our current [concessions-in-price] field, 40 percent of them are putting a dollar amount in, not a percentage. When someone’s doing offers of compensation, 99 percent of the time, it’s a percentage, not a dollar amount.
Oh, and by the way, 98 percent of all listings in the CRMLS system over the last 40 days that have utilized the concession-in-price field have an offer of compensation in it already, which is my proof positive that it’s not a replacement. If the CIP field was a replacement for compensation, these people would just put in zero for compensation and then put 2 percent or 2.5 percent in concession. That’s not what they’re doing. They’re offering 2% or 2.2% as offers of compensation, and then offering another 2% or 2.5 percent.
I have two dozen listings in CRMLS where their concession offer is 5 percent. Nobody’s offering a 5 percent commission. By the way, those properties are also offering commission. So I actually have data to demonstrate that the concession field has a use that is different than just an offer of comp. Now that C.A.R. has rolled their new forms out and they’ve removed offers of compensation and commission-sharing from the form, it will even be less likely to be used as a replacement because commission-sharing between brokers is not going to be happening at all.
You were talking about how it wouldn’t be a replacement, isn’t it hard to tell right now? Because right now you do have a compensation field. So for all you know, starting August 18, the amount that’s currently in concessions will double, or just be higher, because people will be adding in buyer compensation.
So what? [The commission suit plaintiffs’] argument is that real estate practitioners have all agreed and colluded … and we all say “You have to offer 2.5 percent or no one will show your property.” So what does it matter now, if on my FHA-type properties, say I have a property that I’m listing for $600,000 in Corona, California, and my seller says, “I got a new job. I’ve got to be in another state in six weeks. Get this house sold as fast as you can.” My recommendation to them is, “No problem. Let’s offer 5 percent as a concession because that way, let’s say a buyer hires an agent at 2 percent, that gives the buyer another 3 percent to use to pay for escrow, for title, and their loan costs.”
I would tell my seller, “Hey, if we do a 5% concession, you’re gonna drive lots of buyer traffic to this property.” I don’t care and the seller doesn’t care how they use that 5 percent. I don’t care if you’re using your sister as your agent and she’s charging you zero and now you use the whole 5 percent to buy down your loan points and pay escrow and title fees.
Do you see the distinction there between agents getting together and setting a number? And remember, you can’t have steering when the buyer and the buyer’s agent have agreed to the price that the buyer is going to pay the buyer’s agent before we ever show properties. How are you going to get steering?
Well, if you can still see what the listing broker is offering on listings, like on the listing broker’s website, then you, as a buyer agent, can say, “Hey, this is what they’re offering. Let’s put this in the contract.”
That’s not how that works in real life. It’s a cute theory, but in the real world, what am I going to do? Let’s say I’m going to represent you. You’re going to move to Knoxville. You’re telling me, you and I are going to enter into a separate contract for every single home I show you? I can tell you that’s not how that works.
No, but if listing brokers are continuing to offer what they offered before, whatever that is, 2.5 percent, 3 percent, and if you are in a market where that tended to cluster, like Atlanta you mentioned, then what’s to stop buyers’ agents from saying, “Well, this is what I’ve gotten paid before, and this is what is being offered on listing brokers’ websites in general, so I’ll put that in the contract”?
Other buyer agents who want to actually work. You know what has never happened on the buy side? Any kind of price competition whatsoever because no buyer even talked about it. No buyer or buyer agent ever talked about how much money the buyer’s agent was getting. It wasn’t a topic of conversation. It never happened. No buyer price-shopped one agent to another agent, and virtually no buyer had a conversation. Forty-five percent of buyers don’t even know what their agent got paid even after closing.
People keep criticizing concessions and this concept that if I see a price, we’ll all collate around it, like somehow we’re keeping every rule exactly the same. We’re not. Every single buyer, before they walk into a single house, will be forced to have a conversation about what they’re going to pay their agent. So what buyer agents are going to do is they’re going to decide how much I need to get paid to work with this buyer, and that’s what my fee is going to be. So, I’m not going to charge somebody 3 percent when other people will charge, 2 percent or 1.5 percent. That’s a conversation we’re now going to have to have before we ever open the first door.
The big consumer win is the mandatory buyer rep agreement, so that the buyers now will become price-conscious and will be participating in the payment of what fee they’re willing to pay for the services they receive.
By the way, don’t expect that necessarily that the fee goes down. It’s not a foregone conclusion.
