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In turmoil, it can help to look at how we got where we are and what might be coming next.
In that spirit, Inman interviewed Doug Miller and Wendy Gilch, the executive and deputy directors, respectively, of the nonprofit Consumer Advocates in American Real Estate. CAARE recently warned the real estate industry about three “misleading” talking points they say some Realtors are perpetuating, even after the rule changes under the National Association of Realtors’ proposed settlement went into effect on Aug. 17:
- Sellers must offer money to buyer brokers (off the MLS) or buyer agents won’t show their houses.
- Buyer agents won’t show houses to buyers unless there is an offer of compensation from listing brokers because they are not going to show houses unless they get paid.
- They’ve created a checkbox to continue steering, but blame it on being a fiduciary to the buyer.
Inman spoke with Miller, who is also an attorney and a licensed real estate broker, and Gilch about the case that started an avalanche of antitrust commission lawsuits against NAR, known as Moehrl, what fiduciary duty to buyers and sellers looks like from their perspective, why they say buyers won’t have to pay out of pocket, and why they’re urging brokers to clean up their act to avoid future litigation.
This interview has been edited for length and clarity.
Inman: You guys sent this [release] before August 17. You mentioned the three talking points that were being spread. Are you seeing that actually happening post- the 17th?
Wendy Gilch: The skipping homes one, yes. I just got an email from another advocate, from a small broker who another broker was pressuring to tell them how much they’re offering the buy side. She said, ‘We’re open to it. Put it in your offer.’ They couldn’t handle that and actually were pressuring her more, saying she had to tell them.
Then it went further. The actual broker of this place told her the same thing. That not only does she have to tell them what the sellers are offering, but she has to enter into a broker agreement with them before they show the home, which doesn’t need to happen.
Then she went one step further to talk to their state association, and they pretty much told her, the only thing that’s changed is that you have to call each other now to discuss commission splits. She said, ‘I don’t think that’s correct.’ And this person told her she’s wrong and [the person] didn’t want to hear anything about steering, because ‘it doesn’t happen.’ That’s coming from the top of a state association.
It was a pretty big tell that this is a very big issue of people not understanding what they should be doing. [People] almost offended if the listing agent doesn’t tell them what’s being offered. Their essential point is how do they know what they should write their [buyer] broker contract for? ‘Because what if you’re paying more than what I told my buyer?’ Just sleazy and not a fiduciary to anyone at that point.
This is a small broker, and she’s going up against [a big Keller Williams branch]. A lot of those smaller brokers are probably the ones that are trying to do their best to follow the right rules. Obviously eXp has made some pretty good movements towards a better industry, but we haven’t seen that with other ones. Some of them seem to have the opposite direction.
What are some big brokers that you see are going in the opposite direction?
Gilch: From my understanding, Compass has no interest in decoupling anything, from their trainings and how they have scripts encouraging why the seller should offer buyer broker compensation.
A Compass training script provided by CAARE
[Asked why Compass is training its agents to use such a script, Compass spokesperson Devin Daly Huerta told Inman, “The document you shared is a summary of quote(s) provided by agents. Hence the ‘Heard from Compass Agents Nationwide’ sub headline. As you know, there are regional nuances and much of our core trainings have been at the local level.”]
Doug Miller: I had an interesting conversation with an Edina Realty agent today in Minnesota, [Edina’s] part of HomeServices. They’re offering 2.7 percent as blanket compensation to all buyer brokers. I asked him, ‘Well, what if we reject that 2.7 percent and do this as a seller concession? Will that 2.7 percent go back to you or will it go back to the seller?’ And he says, ‘No, that’ll go back to me. So don’t do it that way.’ That creates a problem.
I saw that Benjamin Brown at Cohen Milstein did an interview [and] they asked him, ‘How did you become involved in the [Moehrl] case?’ And he said, ‘Well, an attorney and a consumer advocate named Doug Miller approached me,’ and that’s how the Moehrl suit came about. I don’t think that’s very well known.
Miller: I sort of keep a low profile. I worked on the case throughout the entire case. I was key in a lot of the decision-making work and a lot of the processes involved in this case. I don’t really dwell on the limelight, but right now, I really want to get a lot of information out there, because there’s a lot of misinformation out there about this settlement and what it should do for consumers and Realtors.
I just don’t like the attention, so I prefer to work on these cases and try to do consumer work. [Lead plaintiffs’ counsel] Michael Ketchmark, he loves the attention, and he’s very good. He’s very outspoken and does a nice job with his talking points, and so I prefer to have the light shine on him.
What prompted you to start this in the first place?
Miller: For decades, I have had clients complaining about this commission structure and that it seemed unfair for a seller to have to pay this. Realtors would go to them and say, ‘The reason my fees are so high is because I have to share my commission with a buyer’s agent.’ And the question would be, ‘Why? Why do I have to pay a buyer agent to negotiate against me?’ And they were told, ‘That’s the way it’s done.’
But unfortunately, the impact of paying a buyer broker creates a lot of conflicts. No. 1, you’re paying somebody else’s fiduciary to procure a ready, willing and able buyer for the seller. That’s a duty to the seller. You shouldn’t be having duties to the seller if you’re a buyer agent. So it’s an automatic conflict of interest.
No. 2, it eliminates the possibility that the buyer brokerage fee is going to get negotiated with the principal in the transaction, which would be the buyer. Buyers should be able to negotiate the fees of their own agent, but if it’s being preset by the listing agent, who is also a buyer broker half the time, that buyer is never going to have an opportunity to meaningfully negotiate that fee.
It took me a lot of years. I watched a lot of other cases fail before I came up with the correct way to approach this. Yes, there are breaches of fiduciary duty. It works like commercial bribery. Antitrust, which is not an area I specialize in, seemed to make the most sense. When I presented this to Cohen Milstein … they were just amazed that this has been going on and that it’s been going on for this long.
The whole idea here is to make it possible for buyers to negotiate with their own agent. It’s not intended to take money out of buyers’ pockets. It doesn’t do that, not even close. Yet that’s one of the talking points I’m hearing Realtors make all the time: ‘This is going to harm first-time homebuyers. It’s going to harm buyers. They have to come up with money. It’s going to destroy the housing market.’
None of that is true. All it is going to do is lower the amount of commissions being paid. If they’re going to try and make the argument that lowering commissions is somehow going to harm consumers, all power to them, because it doesn’t make any sense.
If you have two buyers, both on a $500,000 house, one is asking for a $5,000 seller credit because they negotiated a $5,000 fee with a buyer broker, and Buyer no. 2 didn’t negotiate it and they’re taking the buyer broker fee offered by the listing broker, 3%. Which offer is going to look better to the seller? It’s going to be the one where the seller credit is $5,000. So it still comes out of the seller’s pocket. It’s just less money coming out of the seller’s pocket.
So what if there’s a first-time homebuyer, they ask for a seller credit. But what if there’s another buyer who’s not a first-time homebuyer, maybe they’re an investor, or maybe they’re a move-up buyer and they don’t ask for the seller credit, maybe they can pay their agent directly in that situation, wouldn’t the first-time homebuyer be at a disadvantage?
They would and it would be the same disadvantage that they would be at under the old system.
Under the old system, the listing broker would share their commission so they wouldn’t have to ask for the credit.
Well, actually they’d be in a better situation in the current system, because they’d be asking for a credit that might be a lot less than what the listing broker commission co-op is.
Gilch: In the old system, if the investor wasn’t asking for the buyer agent commission, it would probably just have ended up with a listing agent anyways to begin with. I don’t think it’s going to be a perfect scenario during these adjustment periods.
Miller: We do have a huge problem with low-cost housing and these investors coming in and buying up properties, but it’s not going to make a difference with this new system because these very well-heeled buyers are going to win in these offer competitions no matter what.
What you’re doing, though, is lowering the total commission costs. That’s the only difference. So instead of the seller having to pay 6 percent, they might pay 3 or 4 [percent]. That doesn’t harm homebuyers.
You mentioned forms committees creating forms with a checkbox to allow agents to skip homes not offering buyer broker compensation.
Gilch: There was a listing agent who said that she uses that checkbox to show her listing clients that if they don’t offer commission, buyers have the option to skip their home. It’s almost like a pressure tool to say, ‘Well, this is why you better do it, because they might just decide to skip you.’
Miller: It fits the definition of collusion, and extortion in a lot of ways. They’re trying to force sellers to offer compensation to buyer brokers. They’re claiming it offers benefits to sellers, but they can’t articulate what those benefits are. You’re basically bribing a buyer agent. You’re overpaying them because those fees are not being negotiated. They’re not being subject to free market forces.
For a buyer agent to tell a buyer that ‘There are going to be homes where they’re not offering buyer broker compensation and I’m not going to get paid on those. It’s going to have to come out of your pocket. Do you want to go see those properties?’ when agents tell buyers things like that, and they are, they are not only lying to them and misleading them in a very substantial way, but they’re committing fraud.
They’re also contributing to this anti-competitive activity that causes these type of problems to persist because any buyer agent knows today that it’s very easy to go to a property where they’re not offering buyer broker compensation. You can ask, ‘Are you willing to entertain offers with a seller credit?’ I guarantee you, most of them are going to say yes.
But they don’t want to do that because it forces them to actually negotiate with their own buyer how much their fee is going to be.
Why wouldn’t they want to do that?
Miller: Because they don’t want to negotiate. They would rather have it set by the listing broker because listing brokers are buyer brokers half the time and they benefit from having these buyer broker fees be artificially inflated.
The firms that we’re going to embrace and promote any way we can are going to be the firms that do it the right way. Sellers should just not offer compensation at all and let the buyers make the first move. It is a terrible negotiating position to offer compensation right off the bat. Just offer nothing.
If the buyer agent is worth 2.7 or 3 percent, that’s great. If that’s the amount they negotiated and they’re worth it, we don’t have a problem with that. That’s a number that was arrived at through free market forces in a negotiation. But they shouldn’t just automatically get that money in a blanket offer of compensation. If that’s being offered like it is for some of these companies, as a blanket offer, it causes buyer agents to want to somehow work the system so that they can keep that money.
I want to move to the future, but first one little visit back to the past: Why did you go to Cohen Milstein to file the Moehrl case?
Miller: I’ve had experiences with class-action lawyers, where they’ll take the money and run and this law firm is not like that. They’re all about fixing a problem that’s out there. They’re honest, they’re ethical, they’re moral, and they do the right thing. It was proven to me over and over and over again with different cases that they had worked on, that these are fighters.
Why you didn’t just file it yourself?
Miller: Oh my gosh, the resources necessary to file a case like this, the management, are enormous. You’re talking tens of millions of dollars in hours and discovery and all the different work that needs to be done. [It’s] not something that can be done effectively by a solo practitioner like me.
How many staff do you have at CAARE?
Miller: We’re volunteers, and we have a board.
Gilch: In the consumer advocate world, the Stephen Brobecks [of the Consumer Federation of America], we all kind of talk and help each other out. So it is just me and Doug doing the grunge work, but we partner with a lot of different organizations and work with other groups when it comes to getting some projects done and helping each other pull some research and some data. We’re small and mighty.
People are going to hear ‘Here’s the the group behind the Moehrl suit, and they’re now targeting settlement workarounds’ and you’re saying ‘this could send you back to court.’ What are your plans now that you’re warning people? What happens next?
Miller: The group did not file this lawsuit. It was me, personally, that got this thing started, based on my law practice where a lot of clients were coming to me complaining about this. [CAARE] is separate.
As far as what’s next, the last thing I want to see is more litigation. I would love to see things accomplished through competition and not lawsuits, and that’s what we’re trying to do by getting out there and telling people, ‘Here is the right way to do it. Don’t do it this other way because you’re going to get sued.’
But still, a lot of Realtors just want that price-fixed buyer broker commission that isn’t negotiated with their own buyer to persist. Are they going to walk into another lawsuit? Yeah, I’m sure.
But are you going to be behind filing it?
Miller: Oh, I have no idea. These cases have raised the awareness of lawyers all over the country. I get phone calls from lawyers all the time who are interested in these cases. I’m freely giving them any information that they want. If they choose to file a lawsuit, and I’m sure some of them will, that’s their business. I’m not real interested in doing more lawsuits. It’s not something I enjoy doing. It’s stressful. It takes up a lot of time, but there are many, many lawyers the torch has been passed to.
Gilch: I don’t think that anybody knew or thought that the real estate industry could be taken head on like this. So a lot of these things, people just turned a blind eye to. I talked to one of the attorneys on another case, and we just talked about real estate in general, and some of the stuff that we talked about, his jaw was on the floor. He’s like, ‘That would never fly in, like, the lawyer world. I can’t believe that people as fiduciaries get to do that stuff.’
Now I think everybody’s under a microscope in many different ways. I think we’re going to look at a lot of things that maybe weren’t disclosed or should have been disclosed better, that are probably going to be coming in the open and having conversations about.
Miller: If there’s ever a time to put a microscope on yourself and engage in some serious introspection, it’s right now. Brokers should be looking very closely at what it means to be a fiduciary. If you start looking at affiliated business arrangements under the microscope of fiduciary law, it’s going to fail. There’s going to be cases. You take a look at referral fees-
Gilch: Oh God.
Miller: There are so many issues that are going to come under the microscope now. We’re getting a lot of feedback from lawyers all over the country who are very interested in these topics. It’s a really good time to clean up your act.
Gilch: The industry got so comfortable being cooperative and taking care of the other agents on the other side. You have to just stop that mentality, and your only concern should be of the person who hired you and how you best take care of them. Stop being concerned about the other agent on the other side because they need to have that conversation with their person that hired them to be taken care of.
I see a lot of the conversations about people that don’t want to let go about cooperation. There’s still agents that say they don’t care what their seller says, they’re still taking care of the other side. ‘I’m always going to share my commission.’ That mentality has to stop.
A lot of people say they are taking care of their seller when they’re offering commission.
Gilch: But are you? If you’re having them put a blanket compensation out that they maybe didn’t have to pay all that, is that taking care of them? I’m not saying that agents are awful for doing that. That’s what everybody was taught to do. But was that right? If you told your seller, we’re gonna offer 3% to the buy side knowing that there were probably agents that would have taken 2.5 [percent] and your seller paid an extra half percent they maybe didn’t need to? Is that taking care of your seller?
Miller: There’s a difference between being collaborative and collusive. I don’t blame the individual agents at all. They’ve received bad training from brokers.
Is there anything you’d like to add that we haven’t covered?
Gilch: We’re not big, scary people at CAARE. I have a ton of agent and broker friends, but they don’t want to be public about agreeing with something. There’s more people that I think are embracing this change. They just aren’t public about it because it’s not really an expected thing to do. We really just want to change things for the positive and we’re always happy to talk to people and answer questions. You can have different opinions, but still be able to get along and learn from each other.
Miller: We’re not out there trying to be jerks about this. We’re trying to raise awareness about some of the problems, but we do represent consumers and that is where our ultimate loyalty lies. We’ve got to do what’s best for consumers.
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