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There’s a train heading for real estate and too many in the industry have decided it’s not coming rather than proactively jumping out of the way.
That’s according to Kendall Bonner, an attorney, real estate broker and team leader at eXp Realty, who spoke at Inman Connect Las Vegas Tuesday in a session called “Life After the Industry’s Megalawsuits” that culminated with boisterous cheers and applause from the audience.
“The reality is the biggest room in the world is the room for improvement,” Bonner told attendees from the event’s main stage.
“I would like to see us get better on our own without being mandated, without being bullied, without being forced. What does the next evolution of our real estate industry, what does it look like?”
Bonner, who’s been a licensed lawyer since 2003, first laid out the lawsuits of which agents and brokers should be aware, then the possible negative impacts if the suits are successful and then proactive steps the industry can take to make itself better, regardless of anyone’s viewpoint on the suits.
She highlighted three lawsuits of which agents and brokers should be aware. Two, known as the bombshell lawsuits, are class actions filed by homesellers against the National Association of Realtors, Keller Williams, Anywhere (formerly, Realogy), RE/MAX and HomeServices of America.
They allege that some NAR rules — including one that requires listing brokers to offer buyer brokers a commission in order to list a property in a Realtor-affiliated multiple listing service (MLS) — violate the Sherman Antitrust Act by inflating seller costs.
One of the suits known as Sitzer/Burnett is scheduled to go to trial on Oct. 16. It covers four MLS markets in Missouri and is asking for reimbursement of $1.3 billion in commissions hundreds of thousands of sellers paid to buyer agents over eight years — plus potential treble damages that could raise that total to around $4 billion.
The other suit known as Moehrl will likely go to trial in the first half of 2024. It covers 20 MLS markets nationwide, and potentially millions of homesellers are asking for reimbursement of an estimated $13.7 billion in damages. If the court awards treble damages that figure could go up to $41.1 billion.
The third suit Bonner referenced is litigation between NAR and the U.S. Department of Justice. The DOJ is currently appealing a lower district court ruling quashing a July 2021 request from the agency for information from NAR on its Clear Cooperation Policy around pocket listings and Participation Rule on commissions, arguing the agency should be allowed to resume its investigation into those policies. NAR is fighting that appeal with support from the U.S. Chamber of Commerce.
“While many people may believe that these lawsuits may not go anywhere, I still think it’s interesting to have the government questioning our industry practices,” Bonner said.
“They’re definitely a different level of impact as it relates to us.”
Bonner stressed that she wasn’t arguing for or against any of the suits. She did point out an argument the plaintiffs in the bombshell suits have made that she said wasn’t true — that sellers are being forced to pay buyers’ agents without the opportunity to negotiate.
She also noted what she said was “perhaps the most compelling fact” about the plaintiffs’ argument: “That it doesn’t matter if you’re a brand new agent, you’re inexperienced or you’re very experienced, we all get paid the same on the buy side. Because we all know that in most cases, in most industries, experience usually has some impact on price and value.”
If the plaintiffs are successful, that would lead to the unbundling of commissions so that the listing broker would no longer pay the buyer broker from what the seller pays the listing broker, according to Bonner.
“If they were to win, the rules of how we get paid would have to be changed and rewritten dramatically,” she said.
She listed 4 fears that arise if commissions are decoupled:
- Affordability challenges for first-time and lower-income buyers and growth of the wealth gap between the wealthy and middle class: “Our concern would be that first-time homebuyers could not afford to pay for an agent to help them buy their home and we know that they need our help,” Bonner said. Veterans and fixed-income owners could also be strapped, she said. “This could have a potentially catastrophic impact on the middle and lower classes,” she added. “Imagine that the middle class had to join the renter pool. Now our lower class could potentially be homeless. Lack of access to homeownership, in my opinion, is the equivalent of a lack of access to wealth.”
- The failure of cooperation and the decline of our MLSs: Bonner said she believes MLSs are far more valuable than just their use for cooperation and compensation in transactions. “But if that were to go away, will listing agents stop utilizing the MLS?” she asked. “Will they stop adding their listings? Imagine if there was no IDX feed. Imagine that real estate websites were all firewalls with limited access to data. Imagine if no one was there to manage, moderate or impact the accuracy of data or the rules around compliance.”
- The entrepreneurial spirit in real estate will die: Most agents and brokers are entrepreneurs, not employees, and only get paid if they’re successful. Uncoupling commissions could lead brokerages to change their business models to make agents employees, rather than independent contractors — a model “we all ran from,” Bonner said. “We’d also see a significant reduction in the number of agents, brokerages, MLS participants and state licensees as a result of this change,” she added. “We would also see a significant reduction in revenue across the board as a result of this.”
- Mortgage industry disruption: “Would buyers now have to finance their commissions?” Bonner said. “Would it now become a part of our closing costs? Could the mortgage industry even react fast enough to accommodate this change? And honestly, is it even in the best interest of the customer?”
In turn, Bonner suggested 4 ways the industry can proactively make itself better — regardless of anyone’s viewpoint on the lawsuits.
- Charge what you are worth! Buyer agents are already frustrated by what they perceive as too-low compensation offered by listing brokers, Kendall noted. “Maybe we should stop letting listing agents negotiate our compensation as buyer’s agents,” she said, prompting at least one person in the audience to clap.
- Buyer’s agents should present and sell the value they charge. “The more experience and better skill set that you have, this should be reflected in your compensation,” Bonner said. “That’s normal. We need to hone those skills the way listing agents have to sell their value to a homeowner. We might just have to start selling our vision and our value to our buyers, to the listing agent and perhaps someday maybe even the seller.” She told agents to ask themselves: “When you are charging someone for your services, would you pay that for what you do?”
- Increase the barrier for entry to get a license. “Maybe also we need to raise the bar,” Bonner said, prompting applause from attendees and at least one shout of “Yes!” from the crowd. Bonner noted it takes less time to get a real estate license in Florida (63 hours and a test with a grade of C or better) than it does to get a barber’s license (600 hours) or a cosmetology license (1,200 hours). “Big ticket items require a big-time investment,” she said. She also suggested that the fees associated with becoming an agent should perhaps be increased. “Should we be chasing the customer that pays the least in terms of our MLSs and licensing or should we make it a little bit more expensive just so that you know we are committed?” she added. “We’re expressing through our investment the commitment we have to our industry.”
- Change how we think about and present compensation. “Should we get rid of double-ending?” Bonner questioned. “Maybe we change the definitions of dual agency and transaction brokering. Maybe we attach agency to compensation. Maybe we deliver more options to our buyers and sellers and talk to them about all the alternatives that they could have to how they compensate us. Giving them more options is, in my opinion, never a bad thing.” She said she’s been thinking about whether the commission rate is the floor or the cap on agent compensation. “Maybe instead of capping ourselves, we define for ourselves, because we know what we’re worth because we’re defining it individually by each and every one of us based on our value that we bring, our experience and our skill set,” Bonner said. “Maybe we charge differently based on the price of the home.”
She also listed 5 “solutions” she does not want to see come to pass:
- “We should not mirror broken systems from other countries,” Bonner said. The plaintiffs in the bombshell cases have compared the U.S. commission system to countries, such as the United Kingdom and Australia in their quest to change the system in the U.S.
- “We should not ignore the needs of our first-time homebuyers or lower-income buyers by creating additional barriers to entry and homeownership into wealth,” Bonner said.
- “We should not eliminate options for buyers and sellers by making it illegal for sellers to compensate cooperating brokers,” she said.
- “We should not dismantle our entire MLS,” Bonner said. “I know our system is not perfect. We probably have a little room for improvement there too. But I really do think we have a wonderful amazing marketplace in our MLSs and there’s tons of value there for all of us and the consumer.”
- “We should not ignore this,” Bonner finished. “We should not pretend there’s nothing we can or should do to improve our system.” She acknowledged she “might be ruffling a few feathers” but that maybe it was time for a “long overdue” conversation about industry practices. “So maybe we decide on our own to be better to change and fix what isn’t broken, not because it actually is, but because we want to innovate, protect and improve our industry on our own,” Bonner said, as theme music from the hit show Stranger Things began playing in the background. “I mean, why not? Stranger things have happened.”
Bonner left the stage to appreciative cheers and applause from the crowd.
