The reformers: Douglas R. Miller

Real estate rabble-rousers are pushing industry toward change

Douglas R. Miller is the executive director of CAARE (Consumer Advocates in American Real Estate), the only nonprofit public charity dedicated to consumerism with real estate brokers.

Did you have causes when you were younger? What were they?

Not really. I’ve always been an entrepreneur for as far back as I can recall. But I have always had a strong sense of justice and have felt a duty to my community to make it a better place for everyone.

If you have one cause for changing the real estate industry, what is it?

Hold brokerage firms to the same fiduciary standards as other professions. Large brokerages have so perverted the meaning of being a fiduciary that most would be more accurately labeled “predatory fiduciaries.”

You seem compelled to change the industry, why?

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I feel a duty because I know a lot about it and understand more than most about what is wrong with it. Most of the so-called experts I’ve read or met often are doing someone else’s bidding or have gotten so wrapped up in their importance that they feel their opinion is more persuasive than well-researched facts.

The industry has become so inundated with misinformation and bought-out legislators and regulators that it often does seem hopeless."

I’ve held real estate licenses in three states; run a title company for 15 years; studied real estate in law school; am certified as a real property law specialist through my bar association; practiced broker liability litigation on behalf of consumers; worked on numerous class-action lawsuits involving real estate fiduciary duty; spoke before Congress and other governmental groups on the corruption; and have seen and done more in this industry from the consumer perspective than anyone I’ve ever met. I have the tools to decipher the mess this industry has become. I am one of the few people with this knowledge who is willing to communicate it — most others are in business and keep quiet for fear of boycotts to their businesses.

What practices upset you the most?

I know of no other industry with so much wrong with it. Here are some examples:

Dual agency. It is illegal in every other profession for a reason (and those other professions are trained in conflict management). Dual agency is one of the most complex conflicts of interest possible, and only a tiny fraction of agents understand it. Those who do don’t practice dual agency.

Designated agency (“legalized fraud”). This is dual agency misdisclosed as a form of exclusive representation. It is a fictional legal relationship that is logically impossible. In designated agency, the broker is a dual agent (with all the limitations) and the licensees under his supervision are exclusive agents. How can an agent who obtains their agency relationship through their broker possess more duties than the broker? No one has looked at how this relationship interferes with the brokers’ duty of supervision, provides brokers with access to otherwise unavailable private negotiating data, and how brokers use this information to increase the incidence of double fee transactions.

Low entry standards to licensing. In Minnesota, you don’t even need a high school education. The “Masses of Asses” philosophy embraced by the large firms serves them well, but is a complete disservice to consumers and agents.

Pocket listings. So you’re going to test market the property to see if it’s priced right and get feedback? And the fact that your broker gets a double fee has no impact on the “advice” you are giving to your client? Let’s be honest, brokers want the pocket listing to sell during this “trial period” because they will collect a double fee. However, it is not a trial period at all; it’s a race to get any offer in the door from an in-house agent. Instead of a trial, it puts the seller in the distressful situation of choosing between an offer lacking the benefit of full market penetration or refusing the offer and putting it on the MLS. Most sellers will just accept the offer. If it were even possible to disclose all the conflicts and ramifications of this horrible practice, your clients wouldn’t agree to it. This is illegal on so many levels.

Procuring cause forfeits buyers’ right to representation. Procuring cause commission disputes are extremely harmful to homebuyers. Listing brokers should provide buyers with a written warning that any further work with the buyers will result in the broker claiming the entire fee and refusing to share the commission, which will likely cause the buyer to forfeit their right to hire their own agent.

Bonuses paid by listing broker to buyer broker. In every other profession it is called a bribe. It is secret, it’s being offered to an adverse fiduciary and has the potential to influence the advice provided to clients — it’s a bribe. Google “commercial bribery.”

Commission structure. The antiquated commission structure in place throughout the country and perpetuated by MLSs prevents buyers from negotiating their fee with buyer brokers. The amount being offered to buyer agents through the MLS is a hidden field, and agents often tell buyers that they work for free. Buyers rarely understand that their buyer broker’s fee is negotiable. In a fiduciary contract, that is unconscionable.

Copyrights on client data. Data obtained while acting in a fiduciary capacity should not be copyrighted. Using those copyrights to keep listings out of listing portals or to require preferential treatment in how listing brokers are portrayed is a breach of fiduciary duty.

Open houses. Also known as “Let’s displace the seller so that we can have a free marketing platform to meet new clients.” Open houses rarely sell houses. They are an exploitation of the fiduciary relationship and subject the seller to unnecessary risks.

Affiliated business arrangements (AfBAs). Fiduciaries owe their clients the duty to avoid conflicts of interests, not create them. They also have a duty to engage in due diligence when recommending services to a client. And you can’t “advise” your client to use your affiliated firms. To do so, you have to remove your fiduciary hat and put on your sales hat. You can’t legally determine that your in-house firm is best for your client.

National RESPA speakers who omit fiduciary law from their talks. The most well-known RESPA speakers speak about AfBAs and referral arrangements in a vacuum. They “forget” that their audience is comprised of fiduciaries. RESPA is a minimum standard: “The bureau may not determine that any state law is inconsistent with any provision of this chapter if the bureau determines that such law gives greater protection to the consumer.” RESPA disclosure requirements do not compare to the disclosure and informed consent standards in state fiduciary law. Brokers love to sponsor these speakers because they drive business to their AfBAs.

Ignorance of fiduciary law. Most Realtors are fiduciaries, yet, few understand what it means to be a fiduciary. Google it.

Marketing service agreements. Bribery in almost every example. Regulatory agencies are finally coming after these. If you have one, lose it and the firm that persuaded you to enter into it.

Arbitration clauses. Most arbitration clauses require clients to use an arbitrator under contract with the broker or their association. Steering a client to an arbitration firm that routinely works for your firm or your association is likely to result in favorable decisions to you and is one of the worst disservices you can bestow upon your client. Advising a client to agree to arbitration is also the unauthorized practice of law (and it’s bad advice).

Why do they bug you so much?

The foundation of our society is based upon fiduciary law. There is no way that any of us can become experts in every field for which we need services. Some services require such immense and complex knowledge and expertise that we are at the mercy of those whom we trust to advise us. The law recognizes that gigantic vulnerability and when an expert offers to become someone’s fiduciary, it means that they are pledging to represent their client’s best interests above all others, especially their own. The law imposes the highest standard of care on fiduciaries. The most serious violation of this venerable legal relationship is when we violate the fiduciary duty of loyalty by putting our interests ahead of our clients. Large brokerages have made big business out of perverting this relationship into one of the worst bait and switches that serve to exploit that relationship for unfair gains. In many cases, exploitation of the fiduciary relationship is considered criminal conduct. The fact that this problem is more pervasive and misunderstood in residential real estate than any other profession is the reason for our concern.

Where do you think solutions to problems you see come from?

The Consumer Financial Protection Bureau, class-action lawsuits and education. Education is the key. Education of class-action lawyers on the viability of fiduciary causes of action. Education of other nonprofits that educate consumers as to the existence and avoidance of these problems. Education of Realtors about the impossible conflicts that come with large brokerages and how they can create a market niche by moving to smaller firms and providing fiduciary services at the same level as other professions. Most of all, education of consumers by providing them with tools that saves them money and helps them avoid conflicts of interest.

Will the market take care of bad actors? The government? The industry itself?

The market and lack of government “interference” appears to propel the bad actors to the top. All you have to do is look at large brokerage firms and how they have used their position as “fiduciaries” to steer clients into arbitration (often with clauses prohibiting class actions); claim rights on clients’ intellectual property; keep listings off Zillow, Trulia and even realtor.com; and their unimpeded use of pocket listings, AfBAs and other problems, and you will see that the solution needs to come from somewhere else. Consumers trust their Realtors, and if that trust is misplaced on a mammoth scale, it is going to take a lot to change it.

Do you ever feel your efforts are for naught?

We are a small nonprofit charity and the only dedicated to consumerism in this giant industry. We cover everything from brokerage to title insurance, and there is no one else. We have come across other nonprofits in the lending area, but many of them have on their boards executives from the worst malefactors in the industry. Pit that against the largest lobby group in the United States (not counting the U.S. Chamber of Commerce) that has bought out legislators and regulators in most states and you can see the futility of the fight.

Large brokerages have taken over their Realtor associations and used the money from associations to rewrite laws (often in ways that hurt the small to midsize brokers), infiltrate the legislature and regulatory offices and provide “talking points” to their agents that perpetuate the problems. The industry has become so inundated with misinformation and bought-out legislators and regulators that it often does seem hopeless.

What motivates you to persevere?

We have helped thousands of consumers and although they are still far from reaching critical mass, they appear to be on their way. We have also aligned ourselves with Realtors and other industry participants who do engage in honest and ethical practices. Consumer and real estate attorneys praise our work and that helps, too.

If you had a magic wand, how would you use it to change the real estate industry?

  • Prohibit dual and designated agency.
  • Prohibit listing brokers from paying buyer brokers.
  • Require buyers to negotiate and pay their own brokers.
  • Encourage lending rules that allow for buyer broker fees to be rolled into the financing.
  • Make MLS public.
  • Eliminate MLS requirement to offer compensation to other brokers.
  • Eliminate requirement to be a Realtor to access MLS.
  • Require MLS to allow offers of compensation from sellers directly to buyers
  • Increase education and licensing standards. Minimum should be college degree in the field.
  • Make commission rebates legal in every state.
  • Prohibit AfBAs.
  • Require agents to engage in due diligence before recommending a firm of any kind.
  • Prohibit agents from recommending any firm for which they or their broker have a financial interest.
  • Get AfBAs out of listing and buyer rep contracts.
  • Prohibit brokers from abusing their supervisory privileges to induce agents to steer more business to their AfBAs, and “train” agents on dual and designated agency and arbitration.
  • Eliminate the broker/agent hierarchy. It has been so thoroughly abused as to be worthless.
  • Prohibit pocket listings.
  • Prohibit buyer broker bonuses.
  • Make title firms completely independent of influence of real estate professionals. They are important decision-makers and need to be free to “kill a deal” without referral consequences if the circumstances require it.

Who in the industry inspires you?

Prentiss Cox, Steve Brobeck, Jon Cardella (NeighborCity), Ralph Nader.

Inman News is profiling reformers and rabble-rousers who have a bone to pick with the real estate industry and are advocates for change. Want to be part of this series? Drop us a line at press@inman.com and tell us about your cause.