NAR Settlement Impact: A New Era for Real Estate Commissions

00:00:00 - Amy Cearnal

All right. I unclicked, automatically adjust.

00:00:12 - Mike Mills

Hello, everybody. Okay. Usually I have a whole introduction all written out where I'm going to tell you about how we're going to solve all your problems today and go through all this stuff. But you know what? We just don't have time to get to all that because we got a lot to talk about, so we're just going to jump right into it. Welcome to the podcast regular guest, Ms. Amy Cearnal. Amy, how are you doing today?

00:00:30 - Amy Cearnal

Hey, good, Mike. How are.

00:00:32 - Mike Mills

Good. Doing good. So we were chatting quite a bit before this kind of getting into it. So hopefully we didn't spin it all out before we got on here, but we're going to dive into this nar settlement today. So this is primarily what it is. Usually I do my podcast on Thursday, but we're doing this one today because this just happened on Friday. And we really got to get into what this all means because everybody's got an opinion these days and they're flying around all over the place. Let's just talk about what actually came out of the settlement. So what are the facts in the settlement that came out? And then we'll kind of start to parse out what that actually means. So tell me a little bit about what this settlement actually meant and what was inside of it.

00:01:17 - Amy Cearnal

Yeah, so just to take a couple of steps back. So this is settlement in what we call the Sitzer Burnett case that was in the federal court in Missouri. It actually also encompassed a moral case. Moral Moehrl oh, yes. I think we're calling that moral case as well. And so basically that's creating this giant class action and saying, hey, anybody who has ever had any sort of claim against realtors in general, hey, you can go into this class and you can claim a portion of the money. That's what the federal government is trying to do with this case of making everything all in one settlement, which does tend to think that, hey, that's going to be a benefit for most realtors out there because then they could kind of control it, have kind of this line in the sand and say, okay, now there's presettlement issues and now there's post settlement issues, and it creates where we do have some relieving of the liability of what happened pre settlement, which that has been a big question mark of what was going to happen. So the settlement was really four pieces. So I'll go through all four pretty quick.

00:02:23 - Mike Mills

Quick real before you do that, we talked about this a little bit when we were talking before the show. But originally these were state cases, but now they've turned it into a federal case. So now it encompasses all the states, is that correct?

00:02:37 - Amy Cearnal

It kind of encompasses all those states. So within the body of the lawsuits. And it's real nerdy stuff that I sit up and read at night, by.

00:02:49 - Mike Mills

The way, Amy's in law school now for all this too.

00:02:52 - Amy Cearnal

But I'm not a lawyer and I'm not, and really, you know, don't take anything that Mike or I say as legal advice or anything like that. We'll just make that disclaimer before we start. Because really we are all trying to read the tea leaves on this. This is a very new settlement. And so we really are trying to just figure out what the best way forward is on some of that. So back to my question. Yes, so there was this goal of putting it in the federal court system because there was crossing of state lines of some of these things. And so they said, okay, we're going to have this state and this state and the state. And so the classes earnestly kind of got a little messed up, in my opinion, to start. And so now it's trying to reset some of the classes and trying to make them to encompass everybody that has something against the class of realtors that are the defendants in this that are being charged. So we'll see. I will tell you, all of this is a proposed settlement. And I think that's part of a little bit of my question mark on this is like, was this proposed and everybody really already had already decided and it's just rubber stamping and we go on, or is this proposed and this was a Hail Mary and from the federal side, either from the Justice Department or for the Department of Justice somehow, are they going to come in and say, no, that's not enough. We need more, we need more injunctive relief, something like that.

00:04:22 - Mike Mills

Gotcha. So we don't know if this settlement will actually be the final one because it hasn't been fully approved, but it could very well be because they could have said ahead of time, yeah, we're good with this, go ahead and put it out there and let's see, which, I mean, again, we've talked about this, but I kind of feel like in order to release something like know as publicly as they have that you would think that they've kind know ahead of time cleared it, unless they're just like you said, taking a can make it know.

00:04:48 - Amy Cearnal

I mean, you know, I would think like, oh yeah, they have it all settled. Know before they're doing know, good Morning America tour and all know New York Times and all this stuff going out. But they also have been fairly arrogant in the past saying that they create some of the rules. So it could be not too. All right, so four parts to the settlement. First part is money. This sister Burnett case, just to remind you, too, it went to jury trial in October of 2023. The jury found very quickly in favor of the plaintiffs and awarded a $5.3 billion jury award. That's a troubled amount. But the potential was 5.3 billion. That was not great news. This number is only 418,000,000.

00:05:43 - Mike Mills

Hey, it's a steal.

00:05:44 - Amy Cearnal

Yeah, it's great. So NaR is saying that they are not going to have to go up on the charge to the members, which I think all of us should look around and say, well, maybe we were paying too much in the first place. I don't know. That's for another day, too. So they're saying they're not going to go up on the members. I think part of that is that will fall out to see if all of the members that are members right now stay members. So there's still some to come. That's a four year structured payout with the majority of it up front. So anyway, 418,000,000, that's the total amount of money that we're talking about on this. Then we get into the liability limiter. And so that was the other big piece of this, is that all of the brokerages across the country were all waiting for the other shoe to drop and waiting for a lawsuit to get filed on any of us because of so many copycat lawsuits being filed across the country. Those are still out there. However, what this is saying is that this conglomerates everything and releases the liability going forward for the going forward, but for those past sins. So anything pre settlement, they're saying, hey, we are still saying we didn't do anything wrong. You all believe we did something wrong. We're going to change our ways going forward. But you can't come after us for this backstop because we really didn't know. Right from a brokerage perspective, because it is, I mean, that has been a real heavy weight on us since October of like, we were trying to do the right thing. How can we keep going if we were trying to do the right thing? We didn't know. Now we're being told those were the.

00:07:22 - Mike Mills

Rules at the time and everybody followed within those rules. Now they're just saying that. They're saying that those rules were bad or not correct or whatever. And you can't be held liable for when you were trying to stay within the parameters that existed.

00:07:34 - Amy Cearnal

Yes, we could, but luckily with this, this is saying, hey, this limits it for any brokerages that are less than $2 billion in transaction volume. And they're basing that on 2022 numbers.

00:07:48 - Mike Mills

Real quick on that. So did you just say that if your brokerage is under 2 billion, you're covered by this as well?

00:07:56 - Amy Cearnal

Yes. If you're under 2 billion in transaction, you're good. If you're over 2 billion, you're not good ever. A lot of the people that were over 2 billion have already been in this muck. And so they have already figured out settlements or those kind of things. There are some that have not. And so potentially they will have to settle a different amount with the plaintiffs or we'll have different lawsuits, something like that to come from some of those. So the 418 is not the end of the story on it, but it is definitely a big chunk of the story for us anyway. So we've got the settlement amount, we've got the limited of liability, and then we get into more of the practice changes of what we're being asked to agree to as an AR and agree. Right. So this is rather than a judge saying, hey, you have to. Which that was coming, 331. So 315 we came up with said, no, wait, how about if we do this right? So now we're saying, hey, instead of telling us what we have to do, we're going to agree to every buyer to have a buyer representation agreement. And so that is really just clarifying. Agency in the United States, that's saying, hey, if you're a buyer and you want to go buy a house, cool. You need to hire somebody to work for you if that's the case. Otherwise, you're going to be working with the listing agent directly and they are going to have the seller's best interest in mind. If you want to do that, that's fine. But if you want representation, you need to sign something with somebody. You need to figure out how you're going to pay them and then that's going to be your plan going forward.

00:09:27 - Mike Mills

Consumer has a choice. They can work with their own or they can go directly to the listing agent. Okay.

00:09:31 - Amy Cearnal

Yes. So in essence, that also eliminates what we've had for a long time of this subagency question across all the states. Right. So where we have had, where, hey, the seller kind of affirmatively put a contract in place with a listing agent. Buyer might have, might not have. And so then there was this weirdness of who is representing who. And so a lot of buyers thought they had representation, but because they never had an actual contract, really, that agent working for the seller, that agent probably told the buyer they were working for anyway. So there's just been a lot of muddiness with that. This clarifies all this saying, hey, line in the sand, if you're going to represent a buyer, you have to have something in writing with them. It doesn't say what, but it just says some sort of buyer representation agreement.

00:10:15 - Mike Mills

We'll get to this later, but the fact that we don't know what it has to say is going to cause all kinds of issues. But yes, we'll get to that.

00:10:22 - Amy Cearnal

Possibly a problem. Yeah. And just to keep in mind too, the buyer agency agreements as well as the listing agreements. Those are agreements between the brokerage and the client. They're not between the two parties. And so those have always been legal agreements that have not been created by the state. So in most of the states, we have state forms that that's what a buyer and seller would agree to sell on and go forward. We definitely have that in Texas, as you know. But this is different. That is a different type of form. And so it can look a lot of different ways and an individual broker could have a different form. Texas has a know. So there's some different options on that.

00:11:03 - Mike Mills

Right.

00:11:04 - Amy Cearnal

Okay, so that's the buyer rep agreement. So then fourth is the big whammo one. And it says, hey, we have to take all buyer compensation off of MLS. So MLs being our main source of truth, where listing agents put the properties into MLS and say, hey, I have a seller that wants to sell this home at one, two, three main street for 500,000. Oh yeah. And if you're a member of this special club that we have called MLS, you also are eligible to receive a 3% VAc or buyer agent commission if you have that signed buyer rep agreement. Okay, so that's been forever and always. That's part of why we are all members of the MLS, is because we had that guarantee for compensation saying that, hey, if we are representing a buyer, then the buyer doesn't have to write us a check for that 3%. Instead, that is already built into the list price of that 500,000. It says, hey, that 3% is going to get paid from the listing brokerage as a credit to the buyer's brokerage. So that, that way that buyer can have representation that goes away. Right now we already have agents across the United States that are saying, well, but what if we did it this way? What if we did it this way? Well, hey, what if we change this? Maybe we could add it to, yeah, I get it. There are some ways that potentially could game the system. I will tell you, in reading the actual text of the lawsuits, it is more clear that, hey, they do not just want this to shift off of MLS onto zillow or onto homes.com or onto, they want this to be gone away. A true decoupling of the listing agent commission and the buyer agent commission. So negotiate with the listing agent or seller. Negotiate with the listing agent. Agree. What is that listing agent going to do for you? What are you going to pay for that buyer? You should be negotiating what is that agent going to do for you and what are you going to pay for them? And those should both be separate conversations.

00:13:05 - Mike Mills

So are you saying inside of the lawsuit or inside of the settlement agreement that there is specific verbiage where. Let's just say I decide. Okay, well, I can't put it in an MLS. I can't have it in my listing agreement. But when I write my listing description, I'm going to say we're offering 2% to the buyer's agent. You're saying that inside the settlement there's some language that's kind of like, no, you can't do that either.

00:13:27 - Amy Cearnal

Correct. Okay. Right. And again, doesn't mean people won't, does it mean this is Amy's interpretation of reading the language. So there's going to be other people that are going to, I, I have heard that my cousin's brother said that I could put it on.

00:13:44 - Mike Mills

Know my, the, I always heard about the coming soon thing, right. Where we would be like, well, you can put a sign in the yard that says it's coming soon, but it can only be for x amount of. There's, there's a certain level of enforcement that comes into play with all this stuff too.

00:14:00 - Amy Cearnal

Yes, you're totally on the right page. And some of this has been by our design. Right. So nar came up with that rule for, hey, coming soon cannot be more than 30 days and it can't be this and it can't be that. In order to be in our club called Nar and called participating in the MLSs, you can't do some of these things. And we created rule names and we did all these things on there to try to, in theory, protect homeownership and some of these things. But that's part of what we've gotten our hands slapped on. So some of those rules are also going to change. They haven't changed yet. So there's going to be some kind of ripple effects of this. Right. So right now we're dealing with, hey, compensation. Buyer compensation has to come off of MLS. So the way that I read that is, if that is saying, hey, we can't have it on MLS, we've got to have it done separately. There are a few ways that the buyer's agent could still get paid. So yes, you've got to have your buyer representation agreements. This is our Texas one. It's got to say, hey, this is what the buyer is willing to pay. And the way that our form reads right now, which again it could change, it says that the broker, the buyer's broker will seek to obtain payment of the commission by the seller, their agent, and then if not either of those, then the buyer. So we do have in Texas a couple of other forms that are going to be helpful for that where we can clarify and go to the seller. So let's say that we want to show one, two, three main street. I've got a buyer that's interested in it. It's listed by somebody on MLS. And I go to them and say, hey, I would like to present this to your seller. I would like to have them pay a blank commission to me for representation of the buyer. I have a buyer rep that says that. Will they consider it? If they say no, then I could also try. Well, hey, what about you paying it? Registration agreement between brokers. Will you pay that commission? If they say no, then that puts us into the situation where now the buyer is officially paying it and that would be then where we've got to figure out, are they paying it in cash? Are they paying it in a closing cost credit? Are they about rolling it into the loan? But how are we going to do that? Right.

00:16:12 - Mike Mills

Sounds really simple. Sounds like you just made the transaction that much easier. That's a lot of fun. Okay. Because I do want to get into the buyer's rep part because I do think it's a big piece of this. But before we do that, just really quickly. So when we look at just on a top line level, how is a buyer going to pay for their realtor, right, going forward? Okay, so one is they can pay it themselves. We will talk about numbers and whatever, but they can pay it themselves out of their own pocket. Number two is the seller, I want to be sure I use the right words here. Can the seller still pay it or is it the seller's? Brokerage, the listing agent that's going to pay it, how would I say?

00:16:49 - Amy Cearnal

I don't see a restriction in the settlement agreement for either way. Okay, but it just can't be like a promised compensation where it is already baked into the membership of the club and some of that stuff.

00:17:05 - Mike Mills

So the seller can still pay it. They haven't forbidden that. It just can't be offered necessarily, but they can pay it. And then the third way that they can do it is they can get concessions from the seller like you would, closing cost concessions, and we can get into that a little bit, but those are going to be limited because right now there are caps in the mortgage world, which is what I do. There are caps on how much. With a conventional loan, for example, if you put down the minimum, which is three to 5%, you can only get 3% in seller concessions of the purchase price, FHA is six, which is usually more than enough to cover closing costs. So you've got a little bit of wiggle room there. Va is 4%, but va right now cannot. Realtor commissions is one of the non allowables for this, which is an issue which they're going to have to figure that out. And I would imagine, because I've seen this in a lot of places, everybody is very concerned about veteran buyers in this circumstance because they're technically not allowed to have to. I feel like that's one of the things that they're going to have to figure out pretty quickly or make an adjustment on that pretty fast because otherwise you're putting VA borrowers at a significant.

00:18:15 - Amy Cearnal

I, and I do think that that's going to be tightened up. I think whether VA comes out and says, yes, it's a non allowable, but we're going to allow the seller to contribute just like they have in the past to other VA non allowables. It's the same pot of money. It's coming out of the same place. It's fine. Yes, in those, some situations where the veteran would just be actually writing closing costs for that much money, that is going to be an issue. But how many of those situations are we actually seeing right now? Probably not that many. And again, I'm going to get some hate on that. Like, no, there are, there's so many VA buyers that need that. I get it. I get that they do need that, but it also is going to be a situation just like we've seen in the past with VA, where that is just a limitation of it, that we've got to figure out how to meet up those non allowables, just like we have in the past. Just like it's been hard for VA buyers to buy in a competitive market because we don't have the appraisal addendum. This isn't the first time that things have been hard for veteran buyers.

00:19:12 - Mike Mills

Well, and they changed. I mean, it used to be you couldn't pay for the pest inspection, but now they can. So all these things are changing. And again, something like this is going to be a catalyst for that change. I mean, it has to be. They can't put them at that big of a disadvantage. People will go open arm. Okay, so really, that's the three ways. So buyer can pay it directly, seller can still pay it, seller, the listing or whatever can pay it, and then they can be paid out of concessions. Okay, so those are the three ways. All right.

00:19:38 - Amy Cearnal

And I would say on all three of those ways, that's an affirmative decision that the buyer is making to sign the buyer up and say, I understand that my agent is going to get paid this, and this is how we're going to do it in any of those three ways. And so that's where I do think there has been some difference of that in past where it just hasn't been that crystal clear to all buyers of like, yes, my agent is getting this much money. Yes.

00:20:06 - Mike Mills

Okay, so that's where I want to talk next. Okay, so now that we know what's in the settlement, what's agreed upon, or at least it hasn't been fully approved, but the expectation is that it will. And by the way, all this stuff is supposed to take place in July is when it becomes official and kicks in, correct?

00:20:20 - Amy Cearnal

Yes. And I've heard some different numbers July 1 and July 15, but somewhere in there, and we may not have the official official for a couple of months, too.

00:20:34 - Mike Mills

We're all just muddling through the mud, the water in the mud here. Okay, so let's talk about the buyer's rep, because I talk to agents all the time, as you do as well. But my realtor partners that I work with when we're doing the mortgage side, and we have these conversations, been having them for a while, and I get a wide spectrum. I get nothing's going to change. It's going to stay the same. Sellers can still pay it. They're going to. I'm worth 3%. I'll get my buyers to pay it. And I'm like, hey, good, go for it if you can do it. Knock yourself out. And then I have some that, like, well, I'm getting out of the business. It's all going away. And I'm like, so there's a big spectrum here. Okay? So my whole point of all this or my perspective on this is that this is going to be the first time that a buyer's agent is going to have to have a real conversation with a buyer about compensation, okay? Because before it was just assumed in there that the seller is paying it because they always have whether, and by the way, it was always negotiable. So be very clear, right. Whole idea of 6%. Look, they can pay a flat fee, they can pay a percentage, they can do whatever, but just like when you go to a restaurant, you don't have to leave a 20% tip, right? It's not required, but it is kind of standard. And so the standard in the industry for a long time has been the 6% number. But from a buyer's point of view, they've never even felt having to pay that commission before because it's never been a part of their situation. So we're in a world where because of this buyer rep requirement, which is now, they're pretty heavy on, I think it's always been a requirement, I guess, but now they're saying, no, this is going to be the thing that determines how you get paid. Now when you meet with your buyers for the first time, before you show them the first house, before you even walk into the first door, you're going to have to sit down with them and say, hey, how am I going to get compensated in this transaction? Okay? Because hopefully I can get the seller to pay for it, depending on the market and depending on the competition of the house or whatever. But if not, then you're going to have to pay me. And then what's that number look like and what are my services and what are we doing here? I mean, this is a conversation I don't feel like has been had to this extent, at least really ever.

00:22:46 - Amy Cearnal

How do you. No, I totally agree. I will tell you what the thought is behind requiring this before you walk in the front door is not necessarily how that buyer agent is going to get paid, but clarifying for the buyer. Hey, if you tell me anything now, I have a fiduciary duty to you because you're my client. You're my buyer. Client. Where before if we had gone and shown them some houses and they had told us things that they wanted to be held confidential, we really had the responsibility to report those to the seller because we were subagencient seller until such a time that that buyer entered into a buyer representation agreement. And so I know that it's like people are like, oh, yeah, but who's ever going to know that? Who's going to know when we actually signed it? Well, the courts are going to know when they open up the file and say, you showed this house on the 17th, you didn't get the buyer rep signed until the 20th. You went under contract on the 24th. When did you find out that they had a bankruptcy? Right. Whatever.

00:23:45 - Mike Mills

And by the way, on that note, and we talked about this previously, but now that we're in this world of real estate, where lawsuits are just thrown around all over the place, this has to be in the front of every realtor, in every broker's mind when they're doing this, because this is the new reality. The new reality is people sue in real estate. Not that they look, they've sued a long time. It's not anything that's brand new. But at the same time, this is in the public zeitgeist now. So if you get a buyer that isn't happy with what happened or made some kind of claim, the thought that they won't file suit against you, especially if they're going to have to pay you because they signed some agreement, this is where we're at, right?

00:24:24 - Amy Cearnal

Yeah. And to piggyback on that a little bit, too, that's what agents have to decide when they are deciding what they are going to charge that client for representation. They need to take that into consideration. What are going to be my cost of defense? What are my costs to insure? It's a big deal. This is a real profession. This is not just the cottage industry. You know, I could have sold Mary Kay or I could have become a realtor. Today, I think I'll choose realtor. Like, let's just do that. No, this is a real legal situation. We are helping people through this major transaction in their life, and they are dependent on us from more of a professional capacity than just a salesperson capacity. And so we've got to be able to present that and help them understand why we deserve that. But also we've got to be able to defend what we're doing to help them reduce risk and do those things to the extent that we can as well.

00:25:14 - Mike Mills

So talk about the buyers rep, then. So what do you think the importance and relevance of this is going to be going forward, and how impactful are these going to become?

00:25:24 - Amy Cearnal

Yeah, like I said, I do think that a lot of it is defining that role and responsibility of what am I going to do as an agent for you? What are you going to do as a buyer for me? And then what is going to be the economic payment, that kind of thing. Beyond that, where I also think this could happen is right now the way that buyer reps are written, at least in Texas, where we know we see these buyer reps written very broadly. They're over the entire metroplex, or I've seen them over the entire state of Texas for a know. I'm going to represent you on anything in the state of Texas within a year. Well, that's highly unlikely that I am going to have geographical competency over the entire state of Texas and that I'm going to be able to represent you effectively over that. When we are split up into a bunch of different MLSs, I don't have access to all that. And you never had any intention of buying that anyway. So we may need to get more clear on what area we are serving that buyer client with, and it may come down to a more granular level. And this is what we've talked to our team about, too, where it may be that we have a buyer rep sign for every home that we go into. And that seems like crazy, like, oh my gosh, a crazy amount of paperwork, all that. But it's not that hard to see that that might be an option where when they schedule an appointment, they click through to say, yes, I understand I'm going to be represented on this one. And this is how the payment is coming. It's either coming from the seller, from the listing agent, or from me as the buyer. I affirm. Okay, let's go see that house.

00:26:51 - Mike Mills

Right.

00:26:53 - Amy Cearnal

This is likely going to be something that has some fluidity over these next months and years as we see this drilling down to make it a better form for both the agent and the buyer. What we don't want to have is a buyer that signs this form, carte blanche, and signs a six month agreement with an agent that then they find a home that they love and they now can't afford to buy it because they don't have the funds to pay for their down payment, the closing costs.

00:27:18 - Mike Mills

And the agent right now. And we'll get into some consumer behavior stuff here in a second. But right at this moment in time, where we're at today, we're in this weird market where, and again, it depends on where you're at, because there are some homes that have been sitting on the market for three or four months, and there are some homes that have been on the market for a weekend and they've got five offers on them. And it depends on where you are. And when we get back into the world of when rates come down, everybody wants interest rates to come down. Well, as soon as rates come down, we're going to get into a really messy place because with all this new information now, because remember, back in the day, sellers always paid title policies. Always. That's what they did. That was part of their ensuring to the buyer that they're going to pay those title. Well, now I've got 20 offers on this house, so no seller is paying a title policy in that circumstance. Right. So the tendency changed. So once we get into a market where a seller has the choice of 20 different offers on their home because we still don't have enough inventory. And, oh, by the way, it ain't coming anytime soon that I'm seeing. So if our inventory is still light, then we're going to be in a situation where we saw in this Today show thing, everybody's talking about how they're raving about how great this is going to be for buyers. This is going to be terrible for buyers across the board. I don't think there's a way that this shake out that it's not right.

00:28:40 - Amy Cearnal

I don't either. I mean, maybe the sellers, because they potentially are going to pick up some short term gain on it because people aren't going to really kind of see it'll be so muddy for a minute of buyer paying and seller got a little bit extra, some of that. But really it's a long term loss for the buyer and a short term gain for the seller, if any gain at all.

00:29:03 - Mike Mills

All right, so with this new little muddy world we're in, where do you see things likely headed at least? Let's talk in the short term. Let's just talk over the next, say, by the end of this year, okay. Through the rest of 2024. I don't think interest rates are coming down dramatically anytime soon. So if anybody thinks that's going to happen. Hey, look, I wish, but you were.

00:29:28 - Amy Cearnal

Doing that for us.

00:29:29 - Mike Mills

Yeah. The only thing I'll give you is if we have some sort of black swan economic event bank, know, we get hit by an.

00:29:36 - Amy Cearnal

No, I don't want that either. Yeah.

00:29:38 - Mike Mills

So outside of that, I don't see that happening anytime soon. Maybe we'll get into the mid sixes by the end of the year, but either know, the Fed says they're going to cut rates three times and the market had seven baked in at the beginning of this year. Now the market only has three baked in and inflation is still high or higher. All right, so let's assume the market kind of stays the way it is right now and there isn't any significant changes to the market. What do you think is a likely outcome as far as how this stuff gets structured, at least in the short term?

00:30:12 - Amy Cearnal

I mean, I really don't know that there will be that much of a difference, which that's not a head in the sand type of situation. The buyers are going to have to figure out a way to figure it out, especially in the short term because they are going to be so lost without, because there's nothing set up yet for them to do it by themselves. Right. Maybe there will be alternate options that get set up in the coming years. Honestly, I think we had talked about this, too. I had been waiting for that to happen since October or since pre October of like, there's going to be comers to the market with a completely different platform for a buyer to come and buy without an agent. We just haven't seen it yet. It could pop between now and July, but likely that's going to be pushed out. People are too dependent on the income coming in off of agents right now, and so they just are not looking at developing alternate lines. But that will stop. There will be other comers to the market that say, hey, buyer, rather than call your agent, you can click here, you can do this, I can help, whatever. And it's going to have some lower cost, different options for those buyers. But until that happens, right now we're going to be in a very similar situation that we always have done. Also, keep in mind, a lot of the buyers out there, even though this feels like so, like, oh, my gosh, buyers can't afford it. Well, most buyers are sellers, too, right? Yes. We have some first time home buyers. We have some, maybe investors are coming in. They're not selling the same time, whatever. But most buyers are. They're selling a property and they're buying another property. They have made money on that. They actually potentially didn't pay the full commission on that. And so it just shifts it over to the other side and we're still in the same net situation. So it's more about giving the power to those consumers for them to affirmatively make that decision. But it doesn't really change the net situation that far off. And y'all can call me Pollyanna and say, oh, no, it's going to screw up. But those baby first time buyers, I get it. They are going to have a harder time in this short term. And that may be time for mom and dad and grandma and grandpa to come forward and say, hey, I'm going to help you to establish your start of homeownership, just like they've had to do with some of the down payments and the other things, paying over closing cost or paying over appraisal and those kind of things we've seen in the past.

00:32:32 - Mike Mills

Yeah, no, I think there's going to be certainly circumstances. I think it's going to be pretty, I don't want to call it status quo, but there's not going to be dramatic changes between in the immediate future. Right. But I do think that there are going to be things that start to bleed in and there will be circumstances because of this that arise in different situations. Like we already started to see in certain parts of where we are at in Arlington where people were posting listings and they were saying, okay, I'm listing this property, but we're only paying buyer's agents 1% or whatever because they kind of knew this stuff was coming. So you start to see these little one offs start popping up. And then if you have a buyer that wants to see that property now, do you have your buyer's rep agreement signed? Do you know what you're going to get paid to do this? Because I think it's lost in the general consumer and the public on this is realtors don't get paid until the loan closes. Right. I mean, the payment does not occur until the loan.

00:33:32 - Amy Cearnal

Remember that if part, if the loan, it's a really hard situation we've been in for a long time. And so maybe some of that does tighten some of that up, that, hey, we're working with real consumers that are ready to go and transact that we're not spending time with and putting them in the car until they are ready to go.

00:33:52 - Mike Mills

Yeah, well, okay, if I'm looking at it from a consumer's point of view right now, so I'm coming into this market and all this, I don't know anything about what's just happened because really they don't, if we're being honest, we all know, but even in our industry, there are plenty of realtors and mortgage people that are like, hey, do you know what's happening with this? What are you talking about? What's going on? Okay. All right. Well, I guess you're not reading the news, but okay. But that just tells me that the general consumer for the most part is not paying attention to this. And then once they don't pay attention to any of it until they're ready to buy. Now I'm ready to buy or I'm ready to sell. So what's the situation? They go online, they start looking. So let's just say I'm a buyer because this is going to be the immediate impact for most. And I go on to the hated zillow or the redfin and I look on for homes for there because usually how it goes, right? I decide I want to buy a house. I wonder what houses are available out there. If I decide I want to buy shoes, I go look at shoes before I go to the store and buy them. So I go look, I see some houses. Ooh, I really want to see that. Okay. Now I've got to find someone that can show me this house. Okay. Well, thus far it's not unusual, even in the past market, where that buyer will call whoever the agent is on that listing agent, right?

00:34:58 - Amy Cearnal

Correct.

00:34:58 - Mike Mills

So they could call the listing agent. Where we get into how listing agents represent buyers in this situation, or like they have it in the past, I'm going to call my grandmother, call my mom, call my best friend, see who the realtor is that they worked with to see if I can get some references or my neighbor does it or whatever. So then they reach out to them. Now I want to go see this house. Okay. So as you as a broker and talking to your agents and your brokerage that you are responsible for, what are you going to tell those agents when they sit down with that buyer or talk to that buyer for the first time? How's that conversation going to.

00:35:33 - Amy Cearnal

So first off, that's important, having that conversation. And that's what sometimes has not happened, right? It's just been like, hey, Amy, can you go show me one, two, three, Main. Okay, great. I'll meet you over there at five. And then you're there. And there was never really a substantive sit down. Hey, let me explain this to you. Let me show you what this is going to look like and let's agree to work together on this. And that is really important and should happen. So that needs to happen first. And if you're having that conversation, then that does give you time to really help them understand, like, hey, here's what your down payment is going to likely look like. Here's what your lender closing costs, here's what your title closing costs, and here's what the closing cost of representation are. Are you prepared for all that? Are you okay with all that? Do you understand that? Are you ready to start this transaction and go forward with that. And if you're having that kind of conversation, things go a whole lot better than if it's like, oh, wait, you had me click, click, and I didn't know I was going to pay that. I thought I was only, it's the transparency that we've got to have with those buyer clients to make sure that they understand what they're signing and that we can do that. And so that's the conversation I'm having with my agents right now is like, I'll be damned if you all think that you can just send this for somebody to sign and then you're going to get mad and try to charge them for that. If you never had a conversation with them about, hey, you may have to pay me that. If you have not had that conversation, then good luck. I mean, much less could I charge that. But if you had to get up, and I do like what you were saying earlier about what is the judge going to say? In my head that's constantly, every single moment of the day, I'm like, I'm presenting because I'm like, what would the judge say about this? What would the judge say about this? And so what would the judge say.

00:37:21 - Mike Mills

Amy? They signed the document. But they signed the document, Amy.

00:37:26 - Amy Cearnal

Smart enough to read it. Well, we should also be smart enough to help them understand and guide them through this transaction. And here's the good news on this. When you talk to clients about it and tell them they get it, they get that they can't do this on their own. They get that this is a really hard thing and they need help. They may negotiate with you on the rate, but they want somebody to help them with this. This is the same situation that we've had in commercial. This is similar to what we've had in lots of other industries. This is not something hugely new. We just need to actually have some conversation with them.

00:38:00 - Mike Mills

Yeah. And I think that's going to be the part that, because I think a lot of agents right now are worried about, worried about their future, because I don't think we can exist. And again, we chatted this beforehand, but we got to feel and be real about the fact that commissions are probably coming down. Would you agree with that?

00:38:20 - Amy Cearnal

Maybe. It's hard to know. I will tell you, Spencer and I have worked a lot on this. We started kind of when the case went to trial. So back at the beginning of October, we started really breaking down. What do we do for a client? How many minutes does it take for each subsection of what we do for a client and then looking at, okay, then what does that mean? How many hours does it take for us to serve that client? And then looking at, okay, what would we charge them? And is that a fair dollar per hour for that?

00:38:49 - Mike Mills

Right.

00:38:50 - Amy Cearnal

And if you can charge that and you've got people that will do that and those kind of things, then no, it shouldn't come down. But that's also, I'm coming from an MBA, I'm in law school. I've done this for 20 years. I am coming from a different perspective than somebody who just got their license. Somebody got their license, like a part.

00:39:10 - Mike Mills

Time car sales guy that came over and did real estate for half a day.

00:39:13 - Amy Cearnal

Yeah, I mean, it may be a lower deal for that. Just like I don't represent tenants and not because I don't love tenants. I love you. I really hope it does. But right now it doesn't make sense economically for me to represent tenants. And so just like it may not make sense for me to represent every buyer out there. A lot of buyers, yes. But some maybe I can't make it make sense because they can't afford me type deal. Right. And so we should have some of that happening where there will be different opportunities for buyers at all different levels, and that there will be an opportunity for them to pay an appropriate amount for them, but also for that agent to make an appropriate amount for them and for them to go on and make a living doing this cool job in a substantive way.

00:39:59 - Mike Mills

Well, you've always used the analogy, which I really like about the accountant, right. In that there is turbotax. If you are a straight w two employee and you get a paycheck and that's it, there is the local bookkeeper. If you've got a little thing that a side business that you're running, there is the full blown CPA that can, if you've got a corporation and a little side business that you run with your taxes. And there is the CPA firm that if you are a large business owner and have got multiple properties and multiple things, they are going to pay. Each one of those is available and in the market, and each one of them costs. A dramatic difference between what you're going to pay out for it, depending on the service level that you need.

00:40:40 - Amy Cearnal

Right. And it's no big deal for me as a business owner with multiple businesses to strike a check for 15,000 a year for my CPA services, but for my dad to do that when he's like, why do I have to do that. I retired. I have a very simple deal he can totally do on a turbotax, and it's okay. Now, does that mean that everybody, that I'm encouraging all these buyers to go out and be unrepresented and that kind of thing? No. I mean, there is definitely an opportunity for buyers to be abused in this system, and that is a big failure of this whole thing. Nobody is denying that that sucks. There is a real likelihood that people are going to be harmed with that, that they are going to overpay for homes, that they are not going to understand financing, they are not going to understand repairs. It's going to potentially lead to higher rates of foreclosure because they didn't understand what they were getting into beforehand. Even though they're working with quality lenders and that kind of thing, it just helps to have other hands to help guide them into appropriate decisions for their family that that's just not going to be there on some of these deals. And so that is a major failure of this. But I also can't tell them that for every single transaction, they have to have a Rollsroyce type realtor experience for everything.

00:41:55 - Mike Mills

Well, and that's, again, that's where the service level starts to change. Because right now, whether you're buying, I was going to say $100,000 house, I don't think those exist anymore. But whether you're buying a $250,000 house or a $700,000 house, as a buyer, your experience from that agent is pretty similar, right, as far as what they're doing for you and everything else. But in this new world that may be coming, headed our way, that experience might be a different experience for the buyer, depending on the purchase price of the home, because it's going to come down to economics on who's willing to do whatever work that is necessary for that buyer to get that property. And then what the pay is going to come with that.

00:42:35 - Amy Cearnal

And again, it's just not that uncommon to other industries, too. If I'm going to get divorced and I hire Harvey Spector to come in and Spencer hires somebody down the street, there's a disconnect in, it's not, it's just not always necessary to have this high end fee necessarily on it, but it doesn't mean that it's a low end fee, either. It's more of getting some appropriateness on the fee for the services that's being provided and for the agent that is showing up at the door.

00:43:09 - Mike Mills

So for any agents that are concerned about all this and trying to figure out, okay, where's my place? I mean, we've already been through a market where I don't know the recent numbers, but I mean, we lost half of realtors and half lenders in the last 18 months, almost.

00:43:22 - Amy Cearnal

No, not that many on the realtor side anyway. Or not according to NAr numbers. We're down a little bit, but we're only down like, I think they said, like 5%, 3%, something like that. It's not very much right now.

00:43:34 - Mike Mills

All right, so anybody that is nervous about this whole thing and how it's going to work out, what would you tell them? It's like, okay, what do I need to do to make sure that I can maintain my career in this new environment and not just for the short term, because obviously there's a lot that's still left to be hashed out in this because I think it's settled, but nothing's settled. And so not just short term, but even long term on where things are headed.

00:44:03 - Amy Cearnal

You've got to come to work, right? If you're a realtor, be a realtor. Don't also do this or this or that kind of thing. If you're going to be in this. Let's get in it. Let's figure it out. Don't think that you're just going to have clients that just automatically fall in your lap. You're going to have to have these conversations and work at it. You're going to probably need to take class. You're going to need to figure out what your, I'm going to say, value prop, which agents are like, I don't know that. Okay. It's just what you do and how much you charge, you're going to need to figure that out. You're going to need to be able to tell people about it. Those are not things that require a college degree. There's not things that are impossible. It's just things. You may need to practice them. And so you need to come to work and practice those and be in the real estate industry all the time. If that's what you want to do, if that's what you want your business to do, if that's not what you want your jam to do, that's cool. Maybe just go ahead and think about something else then, because that's what it's going to take. We are all starting over in a lot of ways. This is like, we just all graduated from realtor school. We've got to figure out now how to go into the living rooms and help serve clients in a different way. And so, yes, we have a great basis for that, but we've got to really talk more about what does that look like and help those clients walk through this major transaction of their life. And I'm not any better than you are at that or whatever. We're all in it together. We've got to figure out how to make that path forward. But you've got to be here in order to do that. So participate would be my biggest advice.

00:45:34 - Mike Mills

Like you said, you have to know what your job is and what it's worth, right. And you have to establish that with your buyers. And you have to establish that with your sellers because we haven't talked much about sellers. We've been talking mainly about buyers. But the seller side of thing is going to change as well.

00:45:51 - Amy Cearnal

Yeah, they've got a big decision to make. How do they want to handle compensation, too? Because they could just hire a listing agent and say, you're my person, I'm not paying anything to the others, but we don't know how the market is going to react to that. It's fine. We just don't know yet. And so they're going to have to really make some affirmative decisions, too, on how do they price and how do they decide on comp as well.

00:46:16 - Mike Mills

Now, do you see a place where the listing agent even plays a bigger role now, because we move into a place where as a listing agent now, you're going to be showing some houses, you're going to be opening the doors to get them in. I mean, again, maybe not right away, maybe this may take a minute, but is that world headed our direction, too?

00:46:35 - Amy Cearnal

Yes. And I will tell you, we talked about this a lot at our business planning for 2024 that this was likely coming. But yeah, we're here now. Let me read you this one line from the listing agreement that speaks to that, too. So this is the Texas listing agreement, but it says broker will use reasonable efforts and act diligently to market the property for sale, procure a buyer and negotiate the sale of the property. That's our duties as a listing agent. Well, so, yeah, so if somebody calls and says, hey, I don't have an agent, but I want to see your listing, we need to get up, go show the house. Right? I mean, we have a fiduciary duty to your seller to procure a buyer. That does not mean if you want to get paid extra for that, negotiate that, figure that out, whatever that looks like for you and your brokerage, if that means that you're representing the buyer. If that means that the buyer is unrepresented, however that looks. But you've got to figure out how to do more as a listing agent. That's where. Then when we're talking about, like, our commission is coming down. Well, how can they come down when now I'm having to do that much more in order to serve that client right. So it's hard to know exactly how that's going to fall out. But there definitely is some implication on this listing agreement side and how that's going to go. Now, what I am also hearing just over the weekend, since this came out of like, well, I'm just going to be a listing agent now. That's what I'm going to do. Okay, cool. Maybe. But I'm not sure why you didn't always have that as part of your business plan. Most agents have the dichotomy of representing some listings and some buyers. If that's not your jam, if you want to do just one or the other, cool. You've just got to make that your plan and then work your plan for that.

00:48:15 - Mike Mills

Do you think the team situation works out a little bit more now where maybe you have somebody who is. I do primarily work the listings, but then if I have a buyer that comes unrepresented, then I have an agent on my team that signs a separate agreement with the buy. I mean, is there some world where that exists?

00:48:36 - Amy Cearnal

It's how do we follow the money on that, too? Right. So let's say in that situation that your team member is coming and you have an unrepresented buyer that the team member is assisting. Well, there's not a buyer agent commission attached to that unrepresented buyer. And so again, you would really need to address that in the listing agreement so that you've got funding to do that because you may need some leverage on that to do it. I'm not saying no to that, but it's, how does it all go? I think teams are going to have a moment to try to figure this out. It's going to be a little tough. I think you're going to have a lot of heavy headed team leaders that are like, how am I going to continue to make enough business so that my team is fed and that those families that I'm supposed to be helping with are cared for? And it may be a little bit of a trying time while we're figuring this out. But again, just like we said earlier, I don't think this changes a lot in the short term. I think I would let it go a little while. I wouldn't shut down teams right now or do any of that. It's really just figuring out where do we go in the post 2024, 2025 world and those kind of things. And sometimes that may kind of figure itself out over time, too.

00:49:49 - Mike Mills

Well, before we wrap everything up, I do want to, we've chatted about this before, too, but kind of how did we get here kind of a thing. And I want people to understand, and I talk about this a lot on the podcast in different ways, but our industry has been in the, let's call it in the eye of big money for a very long time because real estate is extremely local, because it's always been the case that if you're going to buy or sell a home in your area, you're going to find somebody local that works with you. That local realtor wants to refer you to a local lender who's going to use a local title company. And it's all just kind of right here because that's generally how it works, right? And forever the zillows and the Redfins and the big folks out there have tried to, they've created brokerages, they've created mortgage companies, they've done everything that they can to try to penetrate the market, and they always have a really hard time with it. And these lawsuits come along, and all of a sudden now the future of NAr is in question. We just say that maybe it's here, maybe it's not, but it's very much in question. I think based on some of the stuff I saw in the settlement, that the MLSs that are local are very much in question on if they're going to continue because of what's required or not required, essentially, as far as membership is concerned. And I asked a couple of agents this question not too long ago. I was like, how many people have you actually worked with or talked to after they finished buying or selling a house as a consumer and felt like they got screwed, they paid too much, they did whatever. And for the most part, that's not the case. Very few people walk away. There's always exceptions, but very few people walk away from the transaction angry at their realtor because of what they got paid. I don't feel like that that's been something that's been consistent in the industry. So it's like, where did this even come from? Why did this even come up from a groundswell that they have 100,000 people, or however many it is, which, oh, by the way in this class action suit are going to get like $20 each. The attorneys are the ones that make all the money in this deal. So how did this all come about? And then why is it spread so rapidly? And I look at it and go, okay, well, it's always a question of money and interest and what they've been trying to do. And this is just one step further in big money interest, trying to get deeper into the industry because there's so much money tied to housing and it always has been. And it's such a big industry. I mean, it's what drives our country. For many years, GDP has been a big mover or housing has been a big mover of GDP. So when you stand back and you look, because you've talked to people in different industries and even bigger companies, because you've dealt with the ibuyers of the world and the online directories and whatnot, I look at it and say as realtors and as lenders, we have to understand that to some extent we're kind of under attack. And I mean it not in a battle way, but just in a, they're always coming for you. And even going back to what we used to say about when the market was crazy about, well, if you're going to sell your house, sell it to a family, sell it to a person, don't just sell it to the open doors of the world, not to name names, but it's just what it is. So I look at it and go, this is just one more step to push us a little closer to the edge because it's just one more cut that they get to make on us because again, we all know this is not going to be good for buyers ultimately in the long term. And that concerns me. So you pay attention to all this stuff too, and you see it. What are your thoughts on that?

00:53:28 - Amy Cearnal

Yeah, there are definitely some conspiracy theorists out there that have said, and I think actually when we talked in October, we talked about this too, of that. Hey, it could be that some of the large companies that are trying to take on a national MLS position, of a independent national MLS position, that maybe some of them are behind it. I'm hearing more rumblings in the industry right now of just the frustration with the Department of Justice and saying that, hey, this is the government that's coming in and doing this to us and that they should have just left well enough alone. This isn't price fixing. Some of those, I don't know. It's hard to say. Could it be some of those maybe but you do have this potentially american populace that when they see something that pops up on their screen that says, hey, were you done wrong? Click here and get more money. Ultimately that's the end of the story, right? That's where you're coming from. I can understand it. I just think this does put us in a situation where we're in this industrial revolution for the industry of saying, okay, which Mike and I talked about this a little bit before when I got into the business, which I got in in 97. And so even back in the 90s, which I guess is a long time.

00:54:50 - Mike Mills

Ago now, that's the late 19 hundreds.

00:54:53 - Amy Cearnal

As the kids the other century. Yeah, the last century when I was in real estate, we didn't have lockboxes on the doors. Agents would go from office and pick up the keys and then go and show the property and then bring the keys back to the listing agent. And so we didn't have to fight for feedback and those kind of things on an electronic means because you'd just go and shake hands with them and say, hey, what'd your clients think? Oh great, I'll pass it on to my clients. That was the world for that. We didn't have a Internet that we went on and all the MLS got downloaded with millions of pictures. We went and picked up sections of MLS book and added them to the loosely file in the office and then we flipped through and said, maybe this one will work for the client. And then we showed them that one. It just was such a different world and such a different level of just prowess, that kind of thing. Just like if I were building a car by hand versus a Tahoe rolling off the line in Arlington, that is a different type of product. I could never do a Tahoe by hand like that. And if I did, it would cost so much more. And so we're in that kind of similar situation now where we've got to really think about what's the appropriate price to get paid for the services that we do, with the education level that we are, with the skills that we bring to the table, with the salesmanship that we bring to the table, with the advocacy that we bring to the table. I mean, let's not forget about that. There are a lot of things that are brought to the table in this, but we've also got to get realistic about is it fair for me to come off of being a server somewhere and then walk into a position where I'm making 200, $300,000 a year if I've done the education and if I am that bright? And if I am, yes. But it's not just a given. And so I think that's where the public Cearnal is that, hey, that's what we're getting and that's where we've got to help them understand that is not what you're getting. You are getting true professionals. Let me show you how many classes that I've been to. Let me show you what I do on a daily basis to serve you. There's so much happening behind the scenes that you don't even know about. But we don't tell them about it. And so if we don't tell them about it, they're not going to know about it. So we've got to help tell that story and really be part of the solution here.

00:57:14 - Mike Mills

Yes. If you guys need help on how to do that, talk to lenders. Because we went through this shift, we just did it 15 years ago. So we've experienced having to explain what we do and how we do it and what our cost is and why we're worth it and all that kind of stuff. It's a change, right? Different. It's going to be different. There's going to be a change. If you think it's going to stay the same and everything's status quo. It is not. It will be different. Now, what different looks like nobody knows, right? We can all guess, but we have to kind of let this thing play out. What I do know is that anytime in anything you see change, there's always opportunity there. Always. And you have to know where to look and you have to know how to position yourself. So when the opportunity arises, which it has right now, then you're ready to take advantage of that opportunity. And I think if anything you take away from all of this is it is going to change. And you really need to sit down and be a professional, examine your business and figure out what your value is. And not only that, how to explain that to your customer, because they're the ones that are going to make that decision and then position yourself so you can continue to do this business for the next 20 years. Because you can. People are still going to buy and sell homes. It's not going away. Just how they do it is starting to change. And we're just in the middle of it.

00:58:37 - Amy Cearnal

You're so right. And they are going to need advocates. They're going to need representation. Don't be scared about it. Just know your value and tell them and they can make that choice. And it may be that you've got to talk to five to get one instead of what you were doing before of just throwing your line in and grabbing them. But it's not that. There are not people out there that are ready, willing and able to hire you to come and help them.

00:59:01 - Mike Mills

Yep, absolutely. Well, Amy, thank you so much. I appreciate you hopping on with me short notice doing this because this stuff is coming at us quickly and everybody's got to try to figure out how to adjust and what to do. So thank you for sharing your brain with us for an hour, and I appreciate it. I'm going to keep you on the bat phone just in case we have more developments that happen. I would love for you to come on and share with us again as you get deeper and deeper into law school, you'll have a better idea of some of this stuff. Although again, none of this is legal advice. We are just sitting here having a conversation, everybody. We had a ton of people on listening today, so thank you to everyone that stuck around all the way to the end. I really appreciate this and I'll be back on Thursday with another episode, but we had to get this one in. So everybody have a great week. Keep going. We're going to keep making it money to be had. You just got to keep working.

00:59:52 - Amy Cearnal

Thanks for hosting, Mike.

00:59:54 - Mike Mills

All right, bye.