How Things Will Go After August

Rank speculation on how the industry will adapt to the new regime

I have been asked over and over via email, messages, on live webinars and such how I think brokers, agents, and MLSs will implement in the Age of Chaos that dawns on August 17th. Except some markets will do so on August 1st.

Let me start by saying I don’t know. Nobody really knows. We are talking about 180 degree change in how hundreds of thousands of REALTORS have conducted business for decades. REALTORS are not the corporate press covering for their chosen ones; they can’t switch on a dime like that.

Nonetheless, we can make some guesses based on what we know, and then apply logic and reason to speculate on how things will play out.

I will leave this open to the public since none of this required significant research, and it is of importance to huge numbers of people in the industry. I also need to point out that local and state laws and regulations are different and have very different impact on how things will go. So if you’re in one of those areas (e.g., Colorado, where all forms are state government forms), then adjust as you see fit.

Let’s speculate together, shall we?

Short Term (6-12 months)

In the short term, it is reasonable to expect total chaos.

There are so many topics, I can’t cover them all. But let’s touch on the most important:

• Buyer agency agreement/Forms

• Buyer agent compensation

• The role of the MLS

Broadly speaking, what NAR thinks will happen is something like this:

• Buyer agent does a “buyer presentation” just like listing agents do listing presentations.

• Buyer signs a form buyer agency agreement from the Association or the MLS putting themselves on the hook for paying the buyer agent.

• That agreement states agent compensation, spells out duties and responsibilities, etc. in a manner that is very pro-agent and rather anti-buyer in terms of legal rights. This is already something that Consumer Federation of America, its legal scholar, and regulators have pointed out.

• The buyer agent will learn what compensation is offered by the seller/ listing agent by way of concessions or off-MLS compensation arrangements, and then work with the buyer to make offers on properties where adequate concessions are offered so she can get paid.

• The MLS can communicate such offers of concession — very, very different from offers of compensation they assure you — to buyer agents.

• In the purchase contract, the seller makes concessions to the buyer, who then directs all or part of that money to go to the buyer agent at closing.

That may be the case. But if so, I think that will be the case for only the first few months.

What I think will really happen is more like this:

• Buyer agent uses a consumer-friendly form from eXp (or someone else who is not a REALTOR Association and has no committees) because brokers will not risk using a form with any possibility of them getting dragged into a conspiracy claim. A broker would be supremely foolish to allow one of its agents to use a form created by a committee of competitors after what happened in Sitzer.

• A consumer-friendly form will have some clause or some option for the buyer not to be on the hook for paying the buyer agent. Colorado forms have this, so it would be simple to copy and paste that.

  • I think this approach would be more and more popular as buyer agents experience buyer resistance to getting on the hook for thousands of dollars to someone they just met and have not formed a trusted relationship.

  • Most buyers will elect not to be on the hook for compensation.

• Buyer agents will learn what compensation is offered in multiple ways:

  • Off-MLS compensation will be offered by a significant number of listing brokers:

    

  • In the latest email from NAR signed by Katie Johnson, it’s chief legal officer, we have this:
    
    Offers of compensation are prohibited on MLSs. Offers of compensation will continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals.
    
    Seems to me like a clear statement from NAR, who presumably talks to the plaintiff lawyers and the DOJ, that off-MLS compensation offers are A-OK.

  • Tools will emerge that aggregate these offers of compensation, making it simple for buyer agents to find out what compensation is offered on listings.

  • Off-MLS compensation will start out popular, then start to fade quickly, because competition between listing agents will force the issue. Asking for 5% total commission vs. asking for 2.5% total commission with possible concessions down the line are two different things to the seller. This was one of Ed Zorn’s big points on a recent Industry Relations podcast.

• The MLS will have no information on amount of concessions offered by the seller, so the buyer agent will contact the listing agent to find out. (See the decision by CRMLS to remove % and $ fields, and the decision by other MLSs to just have a checkbox saying the seller is willing to consider concessions.)

• Some buyer agents will then engage in steering, because they are being told to do so by idiot brokers or coaches.

• What’s more, some listing agents will engage in commercial bribery.

  • This is a nuanced topic which I may cover in depth in the future. But fundamentally, some listing agents will basically say to the buyer agent, “If you want to get paid, get your buyer to pay more for the house.” The higher sale price means more commission, a point that will not be lost on many an agent.

  • Many listing agents will think they are just doing their fiduciary duty for their seller clients because they won’t know where the line is between representation and commercial bribery. It’s not a thick black line, but a thin gray one, which makes it all that much more difficult to navigate.

• At closing, the seller will credit the buyer funds to pay the buyer agent, and the buyer will direct escrow to make distributions. However…

  • Conflicts between the buyer and buyer agent are inevitable. Because not all agents are competent or honest or professional. And not all buyers are upstanding ethical people.

  • Top buyer agents who bring a ton of value will get the full contracted (per buyer agent agreement) amount. Unprofessional morons who create more problems than they solve will find their compensation reduced.

  • If there is a No-Hook agreement between the buyer and the buyer agent, it could be a fresh negotiation based on the agent’s performance during the deal.

  • If there is a Hook agreement, where the buyer has put himself on the hook, then we get into this:

    • “You added nothing to that deal and really dropped the ball several times, and went radio silent for two months. So I’m only going to cover your out of pocket expenses.”

    • “Fuck you — we have an agreement that says 2.5%.”

    • “Sue me then, so I can tell the jury about all of your mistakes, your lack of communication, and your unprofessionalism. While we’re at it, here’s a countersuit for malpractice and breach of fiduciary duty.”

  • There will be much gnashing of teeth, but the industry overall will be like, “if you suck at your job, you should make less money.” I don’t see crappy agents getting a lot of sympathy, do you?

  • And in some cases, the buyer will be like, “I know I promised you 2.5% for this, but man… my moving expenses are way more, and my car just blew the transmission… so… uh… how’s $500?” Even honest and professional agents are going to be facing a no-win situation then: sue a client with what that means for reputation and sphere? Or suck it up and let the buyer walk or close the deal at the vastly reduced rate?

  • Interestingly, even off-MLS compensation is not safe. There is no enforcement mechanism for unilateral offers of compensation. Keep in mind that the biggest value proposition of the MLS used to be enforcing these unilateral and binding offers of compensation. The tools and networks for communicating offers of compensation do not and will not have enforcement mechanisms to make sure anyone pays up.

Medium Term: 18 to 36 months

Over time, after experience on the ground with actual consumers, I think we see an evolution to the system.

• Nothing changes with consumer-friendly buyer agency forms, other than it becoming the norm for the buyer not to be on the hook for compensation. The No-Hook variant will win out because agents using that form will take market share from those who want to lockup the consumer up front.

• Off-MLS compensation will largely go away due to competition between agents.

• Now that everybody understands to include compensation within the offer, we arrive closer to where the DOJ wants things to be. Steering will largely disappear, but…

  • Secret “nod and a wink” or “friends and family” deals will proliferate. These deals are ones where the listing agent and buyer agent agree to say great things about each other to their own clients for maximum concessions. As long as the buyer agent is reasonably competent, this will become the norm.

    • Listing agents would do this because they might be on the other side of the buyer agent in a future deal. Real estate has a hundred year culture of cooperation, so the social pressure to do this nod-and-wink will be immense.

  • Larger brokerages will institute intra-firm compensation schemes where agents within the same firm can expect favorable treatment from each other. It will be a huge recruiting advantage, so I expect that to occur.

  • Competent agents will get paid full or close to full, while less competent agents will see their incomes dry up and end up facing a real choice: continue to do real estate, or do Doordash instead?

• Tainting the seemingly happy and peaceful way forward will be the first major lawsuit filed against buyer agents for breach of fiduciary duty, and against listing agents and sellers for commercial bribery.

  • When concession amounts are negotiated pre-contract, and then again during the pre-closing period (inspections and the like), and the concession is paid by the seller and controlled by the listing agent, the conflicts of interest are going to be tough to avoid.

  • Plus, the line between commercial bribery and vigorous representation of client’s interests is a thin grey one. Most agents are not trained enough in the laws of agency to know.

  • Plus, the culture of the industry has been one of cooperation rather than confrontation… so far too many agents (and their brokers) will have crossed the line.

  • I expect that lawsuit to get filed within this 36 month timeframe, but not resolved for many years. Still, the impact will reverberate throughout the industry, scarred by so many lawsuits.

• NAR and the MLS — usually the entities to be involved in such lawsuits — will not be involved for a few reasons.

  • First, and perhaps most important, the lawsuits against brokers and agents will have nothing to do with either NAR or the MLS. They already have rules against breaching fiduciary duty and commercial bribery. So the agents and brokers caught up in that will be on their own.

  • Second, even if NAR wanted to get involved on behalf of the REALTOR member, it will be roughly 20% of its current membership size:

    

  • Ergo, NAR won’t have the money to get involved in lawsuits at 20% of its current size, and its Code of Ethics (which have overwhelmingly been adopted into state license law, so …) and various additional rules apply to 20% of the agent population. Why would they get involved?

  • Third, the MLS will also be reduced in member count. The MLS was the enforcement mechanism for cooperative compensation. The MLS today is trying to be the enforcement mechanism for concessions… except it isn’t clear exactly how that would work. In fact, I don’t think it works at all.

    • If the MLS has no role in agent compensation, then its value is reduced to other things, like data — which the current MLS sucks at doing. Don’t believe me? Try calling your local MLS and asking for a non-IDX feed: VOW, BBO, PDAP, etc. See how that goes.

    • Sheer inertia will carry the MLS for the short term, but I don’t see how inertia alone can carry the MLS beyond three years. So in the medium term, I see the MLS much diminished and unable to help in that next wave of lawsuits.

Long Term: 36 months plus

I used to say in consulting work that anything up to 12 months was planning, anything from a year to 3 years out was fiction, and anything past that was science fiction. So we are now entering science fiction territory.

• Over the longer term, buyer agents start migrating to some form of retainer-plus. Hourly rates become more and more commonplace. This development is driven by three things:

  • First, the competent buyer agent will have run into a few incompetent listing agents who will make her compensation a negotiation and threaten her with reducing payment if the buyer agent doesn’t “play ball.” Income certainty will trump upside, and those agents will migrate more and more to some sort of retainer-plus model.

  • Second, these competent agents will have had one or more bad experiences with bad buyers. They don’t need that nonsense, and they know their value, so they will ask for either a retainer plus, hourly rates, or some kind of flat fee for the whole transaction.

  • Third, the lawsuits mentioned above will get resolved one way or another, and brokers and agents will be leery about having the seller be involved with buyer agent compensation. The simple (not easy, but simple) answer there is for the buyer to pay her agent by the hour.

  • Three+ years out, I assume that the mortgage laws and regulations will have been changed to allow for capitalization of buyer agent fees, so the hourly rate or retainer-plus models will work fine.

• The REALTOR Associations will be something of a cross between a Lion’s Club and RPAC — a social club that engages in some real estate policy work. I think the numbers will be somewhere around 10% of the working real estate agent population because that’s about how many respond to Calls for Action.

• The MLS will look unrecognizable from today’s perspective and look a lot more like a DeFi network than what we know as the MLS today.

• On top of all that, 3+ years out, the AI-powered virtual agent will be a real thing that impacts less-experienced and less-competent agents overall. The top professionals will still have enormous value as counselors and advisors, but it will be a real challenge for less-experienced agents. Just like in software coding, law, finance, etc., a major challenge will be for these newer agents to get hired and to get clients in order to develop the experience to become value-add top professionals.

In Summary

The science fiction versions are always more fun to read, because they predict earth-shattering paradigm shifts. I don’t know. Nobody knows. We’re all just fantasizing that many years out.

The more important and relevant parts, I guess, would be the short-term… which lets us speculate a bit about the medium-term.

In the short-term, I see the carefully laid plans of NAR, the plaintiff lawyers who negotiated the settlement, and the DOJ who is watching carefully to go awry. Because human nature. Habits and customs do not change overnight. The summary of what I see happening over the next 12 months is:

• The industry as a whole will attempt to keep the essence of the offer of compensation, either by off-MLS offers of compensation or by converting the current post-transaction Concessions field into the listing Concessions field.

• I see both of those approaches tailing off within 12 months because:

  • Listing agents will realize they can negotiate off-MLS compensation since there is no real enforcement mechanism.

  • Competition between listing agents will lead to greater difficulty convincing the seller to pay 5% when others will only charge 2.5%.

  • Sellers and listing agents will realize any concession, whether in the MLS or not, is negotiable. It will be negotiated throughout the offer and transaction process.

  • The DOJ and the FTC are not fools, and will signal their displeasure at any concessions field that works like the current compensation field.

• More buyer agents will use consumer-friendly forms created by an entity that is not a committee of competitors. Unless that committee is the state real estate commission or some such.

  • They will be using a form that does not require the buyer to pay any compensation, but does set forth the compensation amount as per the settlement. The “No-Hook” clause will become dominant through natural competition and consumer resistance.

• There will be steering by some buyer agents, and commercial bribery by some listing agents. I hope the number will be tiny, but fear that it won’t be.

Let me know what you think is likely to happen. We will revisit this in a few months to see what actually plays out in the marketplace.

-rsh