In Which I Explain Things to Anthony Lamacchia (And Others)
Ain't nothing personal; it's strictly business
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Over the last couple of days, a minor kerfuffle broke out on Twitter. I posted news on something I heard happened, after having confirmed with multiple people who were in the room, which then led to odd responses, which now leads to this dispatch.
At the MLS Policy Committee meeting in the just-concluded NAR Midyear meetings, Anthony Lamacchia — who denies being a spokesperson for NAR, despite being a NAR Committee chair, appearing in a debate against Michael Ketchmark, and speaking up for NAR on local news shows — started talking about how he trains his agents on dealing with sellers who don’t want to offer compensation to buyer agents. One does wonder how a random broker who is not a spokesperson for NAR manages to get on that panel at that meeting… so you decide whether he is one of the “local surrogates” that Kevin Sears, NAR President, talks about.
Apparently the room filled with MLS executives, who know a thing or two about antitrust, got very uncomfortable very quickly. A couple literally announced to the whole room that they were leaving, and did so. (Many people trained by antitrust attorneys are advised to immediately leave any meeting where anticompetitive behaviors are discussed or advocated, while announcing their protest, to avoid future liability from having been at the meeting — something relevant for the “conspiracy” element of an antitrust lawsuit.)
One of my sources described what Lamacchia was saying as “a masterclass on steering” and further said (confirmed by other sources) that Charlie Lee, associate counsel of NAR, was nearly sprinting to the stage from the back of the room to intervene. After the panel, Lamacchia was hustled out of the room surrounded by NAR handlers so that no one could ask him questions.
That’s an amusing little event that happened. It would not be reason to write a full dispatch, so I put it on Twitter.
It turns out, some of the folks on Twitter are quite a bit confused as to why what Lamacchia said was problematic. That includes Mr. Lamacchia himself, who has consistently stated that I don’t know what steering is, don’t know what fiduciary duty is and so forth, mixed in with ad hominem attacks.
Shrug, I don’t know the man and don’t care, but I do care about getting concepts and ideas right. Ain’t nothing personal; to be personal, I’d have to care about the person of Anthony Lamacchia. I don’t.
It’s strictly business to try to educate you, the reader. I thought I might take this opportunity to illuminate two important concepts: steering and fiduciary duty. I would like to explain why I think what Lamacchia (probably) said on stage was problematic, and perhaps dip into my understanding of fiduciary duty, which comes not from REALTOR-world but from the legal world.
The goal is to have you all clearly understand what the DOJ, FTC, plaintiff lawyers, judges and the rest of the world see as “steering” so you know what to avoid. And possibly to understand what fiduciary duty actually means everywhere other than REALTOR-world.
Steering 101
I do not know what Lamacchia (and others) think steering is or is not. What I do know is what lawyers, judges, the DOJ, the FTC and others in the real world think steering is and is not.
From the court opinion certifying the class in Moehrl v. NAR:
Plaintiffs also note that Elhauge’s expert opinions regarding steering incentives in the residential real estate industry have been echoed by the Department of Justice and the Federal Trade Commission. Finally, Plaintiffs highlight evidence showing that Corporate Defendants themselves train brokers to wield the risk of steering against those sellers who seek to pay lower rates of commission. Consistent with that training, Plaintiffs have proffered evidence that tends to show that brokers affiliated with Corporate Defendants’ brands do, in fact, tell sellers that reducing commissions below the standard rates for their market could result in buyer-brokers avoiding their homes.
That’s a judge. For what lawyers think, refer to the Complaint in every case filed to date.
Here’s the DOJ’s view on what steering is, taken from the Statement of Interest in the Nosalek v. NAR case:
As long as sellers can make buyer-broker commission offers, they will continue to offer “customary” commissions out of fear that buyer brokers will direct buyers away from listings with lower commissions—a well-documented phenomenon known as steering.
Back in 2015, I wrote about a live on-stage listing presentation at a Ferry coaching event done by a top SoCal agent named Randy Ora. I talked about what he said — which is all true) — a number of times. Here’s the relevant part:
“This is the kiss of death.”
“You know what? That’s what agents do.”
Steering is a simple common-sense concept.
Buyer agents will choose to show (or promote) those homes where they will make the most money. This is such a simple concept that I’m not sure what the confusion or debate is.
Then using the idea that buyer agents will behave in a way that maximizes their own fee income — rather than what is right for the client buyer — the listing agent convinces the seller to pay a higher commission by way of offering the “standard” cooperating compensation.
I guess you can get super pedantic and claim the listing agent is not engaging in steering, the buyer agents are. The listing agent is merely reacting to the steering, which he takes as a given.
Except that is precisely why NAR, the big franchises, and the brokerages have all been sued by sellers. Because they claimed that the listing agent using the threat of steering by buyer agents convinced them to agree to a far higher commission rate than they would have otherwise.
Now then…
What Lamacchia (Probably) Said on Stage
We are now level set on what steering is. It’s when buyer agents show or promote a home that pays them the most, rather than the home that is best for their client.
The back-half of the steering problem is when the listing agent then uses the threat of steering by buyer agents to convince sellers to pay compensation.
I wasn’t at the Midyear meetings, but I assume that what Lamacchia said on stage largely echoes these past statements he has made:
I just love the look at the faces of other panelists as they realize what he is saying.
Then there is this appearance on local TV in Boston:
“That’s okay, you can do that, but let’s see how many buyers show up to your home.”
What is the difference between what he said and what Randy Ora said?
I believe according to what Lamacchia has said on Twitter, he thinks what he said isn’t steering because it is the buyer who would steer, not the buyer agent. For example:
I would love to know which lawyer Lamacchia consulted before coming up with this novel legal theory. Please provide names, so the rest of us know who not to hire. I guess we’ll wait for Steering Lawsuits Round 2 when Lamacchia Realty has to explain to a judge or jury why it’s so completely different that the buyer supposedly chose not to see a home that wasn’t offering enough compensation to the buyer agent — not to the buyer, but to the buyer agent — because the buyer supposedly decided not to see that home entirely on his own without consulting his agent.
If you think judges are that stupid, all I can say is take your chances.
The more important question to ask your own lawyer before deciding to adopt the Lamacchia Not-Steering Strategy is this:
Given that all of the lawsuits were from sellers against listing brokers claiming they were coerced into paying more because of the listing agent’s threat of steering, what is the likely outcome/impact of the Lamacchia Not-Steering Strategy?
Is it that mysterious that MLS executives, who have been told by their lawyers to immediately announce their objection and to leave any meeting where antitrust violations are being discussed, would walk out of the meeting at the same moment the Lamacchia Not-Steering Strategy is being promoted?
Fiduciary Duty 101
Another complaint… if we can call it that… by our estimable non-spokesperson for NAR is that I don’t know what fiduciary duty is.
It might be true that I don’t know what fiduciary duty means to a REALTOR, but I did have to spend tens of thousands of dollars a year for three years getting a degree from a Top 5 law school, pay thousands of dollars to take a class for the Bar exam and the MPRE (Multi-State Professional Responsibility Exam), and as part of that class, spend hundreds of dollars to purchase the Annotated Model Rules of Professional Conduct, and spend many boring-ass hours learning what fiduciary duty means to lawyers.
You can read some of what I had to learn from this resource from Berkeley Law School. According to that — and every understanding of fiduciary duty by every judge in common law countries — one of the most important obligation of an agent to a principal is the duty of loyalty.
Here is the Restatement (Third) of Agency: “An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship.”
What does that mean? Here’s a list:
Agents may not:
acquire a material benefit from a third party in connection with the agent’s actions as an agent (§8.02);
take a position adverse to the principal, or on behalf of a party adverse to the principal, regarding a matter related to the scope of the agency (§8.03);
while an agent, compete with the principal or assist the principal’s competitors (though an agent may prepare to compete with the principal during this time and compete with the principal, subject to certain restrictions, after the agency is over) (§8.04);
use the principal’s property, or either use or communicate the principal’s confidential information for the benefit of the agent or a third party (§8.05);
engage in “conduct that is likely to damage the principal's enterprise” (§8.10).
[Emphasis added. Line breaks and bullet points added for legibility.]
The general idea of the duty of loyalty is that the agent is required to place the interests of the client/principal above his own. If you have a real ethical problem with doing that — as happens in criminal defense cases where you, the lawyer, know for a fact that your client is guilty — you are supposed to quit and withdraw.
Perhaps those who think these restrictions do not apply to REALTORS could explain the situations where it is okay to “acquire a material benefit from a third party” or when it is fine to assist the seller’s competitors (that would be buyers).
But hey, perhaps we can refer to an actual REALTOR source on fiduciary duty. How about William North, the former general counsel of NAR? I wrote an entire post on fiduciary duty according to North here:
The key grafs from North’s writings on the topic?
Dual agency becomes an issue when a real estate broker arranges a sale as an agent for the buyer but then seeks compensation from the seller by inducing the seller to sign a listing agreement or by requesting a commission split from the seller’s agent.
…
To avoid dual agency allegations based upon the source of a real estate broker’s compensation, a broker should do the following:
seek compensation only from his principal, either the buyer or seller, or
seek compensation from the nonprincipal or his agent if and only if the nonprincipal and his agent understand and agree in writing that the payment of compensation will not result in the broker’s becoming the agent of the party paying his compensation. [Emphasis added, italics in original]
That isn’t me, who is not and has never been a REALTOR. That is the former general counsel of NAR and a giant in the world of organized real estate making those statements.
You can read that post and more importantly, William North’s original writing linked therein for more.
What would William North have thought about telling the seller, “Better offer compensation, or else!”? I imagine nothing good… but maybe I’m wrong.
Conclusion & Wrap-up
Let’s end here. I wanted to take advantage of a fun little online scuffle to educate and entertain. The topics of steering and fiduciary duty are actually quite important for our industry to understand.
Steering is not merely the buyer agent refusing to show or promote a home. That’s the front half. The back half, the one that was the successful cause of action in sellers suing their listing brokers, is using the threat of steering to get commissions higher. Since that is what Lamacchia is teaching his agents to do, and is preaching to the industry at large, I think it is important to go point out some truth. Please ask your own attorney whether that strategy is good to pursue.
As for fiduciary duty, I suppose I will merely suggest that you don’t take my word for it, don’t take Lamacchia’s word for it, don’t take any internet commentator’s word for it. I don’t know if I would take NAR’s word for it now given its track record in courts and who NAR invites to present on stage at one of its most important events. Read up for yourself and then ask your own attorney what fiduciary duty does and does not require of you.
Ain’t nothing personal, it’s strictly business.
-rsh
Since the offer of compensation is to removed from MLS, it would be best, I think, to remove it from the Listing Contract as well. With that, the Seller documents the listing agent compensation on the listing agreement and the Buyer documents it on the Buyer's Rep Contract. Now the conversation with the Seller is "we should anticipate that the Buyer will include the compensation for their agent as part of their offer. We will review that aspect of each offer together along with all of the other terms that may apply to each offer." Much more direct and perhaps the point of the lawsuits giving control back to the consumers. If Seller's are required to indicate an amount of compensation or a yes/no flag of some sort, however, I think the "steering" conversation becomes the "driving" conversation alerting the Seller that some Buyer's will "drive right by" if including their agent's compensation in their offer is a required part of their overall plan.
IRL, the advent of Zillow made it easy for buyers to see homes on their own, with or without their agents' blessings. Indeed, many of my clients only wanted my expert assistance once they'd found "the one" (or didn't, as was so often the case). So much for front end steering, at least here in L.A. As far as the "back end steering" that Sitzer purports to solve -- a problem that didn't exist, by the way -- it just takes transparency completely out of the game.