The Lowdown on the Lawsuits with HousingWire’s James Kleimann

Welcome to the Top of Mind podcast from Altos Research. This is the show where we talk to real estate industry insiders and experts about the trend shaping the market today. Enjoy the show.

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Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. For three years now, we've been sharing the latest market data Every week in our weekly Altos Research video series with the Top of Mind podcast, we are looking to add context to the discussion about what's happening in the housing market from leaders in the industry. Each week, Altos research tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data. And we make it available to you before you see it in the traditional channels. People desperately need to know what's happening in the housing market right now. The market was frozen solid and then this spring it was surprisingly strong. Then this fall, it slowed way down again with higher mortgage rates. So if you need to communicate about what's happening in this crazy housing market to your clients, go to altos research.com and book a free consult with our team.

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We will review your local markets together and how you can use market data in your business. Alright, let's get to this show. I've got a really interesting guest today. It's a fascinating time in the real estate industry. We are going to be talking today about the recent lawsuits against the real estate industry for commissions. They are antitrust lawsuits and a big one has come in and the industry lost. So we are going to talk about the implications of that and the implications of it for not just the industry, but also for consumers, potential implications for consumers, American home buyers and sellers, as well as implications for the market itself. And my guest today is James Kliman. James is the managing editor of HousingWire. He's one of my colleagues. He's been writing extensively on this topic and he was actually in the courtroom during much of the landmark Siter Burnett trial and is really one of the foremost experts in the country of what's going on here.

(02:29)
So I wanted to have the special episode of the Top of Mind podcast to not only review the decision and the case, but also the potential impacts on the housing market. So James, welcome. Thanks for joining. Yeah, thanks for having me, Mike. So let's start James, with the substance of the lawsuit and the verdict. So we've been covering it a ton at Housing Wire and you've been writing about it and I know you've done things on stage and talking about it in podcasts, but the top of audience is maybe an Altos audience, so maybe hasn't heard much about what we're talking about yet. So let's start with the basics. What happened?

So yeah, just a very good breakdown. So in 2019, a lawsuit is filed in the state of Missouri and a pretty prominent lawyer in the state has won of a lot of big antitrust cases, files a lawsuit naming the National Association of Realtors Anywhere Real Estate, formerly known as Realogy and Keller Williams and Berkshire Hathaway Home Services. And Max, what he's essentially arguing on behalf of 500,000 potential class members in the state of Missouri who sold a home between, I believe it's spring of 2015 and fall of 2019, is that if they were selling a home and they used a real estate agent who because of a national association, a realtor law rule, rather paid a BUYER'SS agent, in effect, they have been injured because they're paying for the services of an adversarial party. And those services should have been paid for by the buyer agent that the NAR and Keller Williams and Max and anywhere and et cetera, et cetera, have all gotten together and have effectively conspired to inflate or stabilize commissions since 1996.

(04:35)
And to prove their argument, they look at the actual rates of commissions, they look at communications between real estate executives and other members of their company that are, if not humbly, suggesting that agents argue in favor of a 6% split or a 5% split or whatever the number is, that they are at least strongly intimating that this is the number that they should get. And of course, as we know real estate brokerages, their businesses are built on real estate agents closing deals, getting commissions, and then they take, depending on the market, five, 10%, 15%, 20, 25%, whatever that split ends up being. And that is how they make money. That is how they stay in business. And so yeah, the trial in Kansas City, Missouri went on for about two and a half, three weeks. And while I was there, I really fully expected the industry to prevail.

(05:35)
I thought that the argument made by the plaintiff that there is a clearcut, very obvious conspiracy here was not very compelling. And in the end, the industry lost and they lost big. It was only a two and a half hour jury deliberation. And when you look at the potential damages, the plaintiffs are going to potentially win 5.6 billion in damages. And this is only on behalf of 500,000 homeowners in this state of Missouri. So it's a really significant case. And as soon as it ended, the same lawyer in the case, Michael CatchMark filed another one called the Gibson case, and it could be twice the size of this case, much bigger.

Alright, so you said a couple of things in there there a couple of threads to pull on here. So one is that it was on behalf of the home sellers. And one of the things that I hadn't followed the actual ins and outs of the case, but in some ways it didn't surprise me that the industry lost. If you put a bunch of jurors on, if anybody's ever sold a house, they think, wow, that was expensive and what did my agent do? It doesn't surprise me that people that a jury would say, yes, I want spend less money, I should have spent less money. That doesn't surprise me at all. But it's interesting that you said by sitting in the case and watching the presentation, that it didn't feel compelling to you. Tell me about that. Why didn't it feel compelling? So

I slightly disagree with you on some of those points. If we were to ask even eight people that we work with, Mike, how many of you have sold a home and did you think that your agent did a really good job and is worth the 3% or even the 6%? Maybe not all of them would agree, but I think a good chunk of them would be and in agreement, and if you look at the research survey after survey study after study, it's the same problem in American politics. It's not my congressman who's the problem, it's every other congressman. Everybody likes their agent. Not everybody, but the vast majority of people think that they got good service. What they resent is this idea that they have also paid for other services that maybe shouldn't have been paid for coming out of their wallet. And so I think that's part of the rub here.

(08:17)
The other issue that I slightly have with those arguments is in the vast majority, vast, vast, vast majority of these cases, these supposed injured sellers are buying immediately after they sell that home. And then would ergo be benefiting from the same practice that they have supposedly been injured by. And in a lot of cases they would probably be, I guess not making money, but they would be coming out ahead if you were to actually look at the dollars and cents involved in closing costs. So those are the two main reasons that the jury, again, in my humble journalistic opinion, maybe were swayed by their own experiences or their own perspectives on how real estate agents and brokerages serve the market and really what they think it should be, not what it's

That's fascinating. The example of it's not my agent, it's everybody else. It's a phenomenon that I actually write about frequently. It's like Derek Thompson at the Atlantic called it, I think his phrase is like everything sucks except for me. We do it in the economy, we do it in our schools. So like, oh, the school systems are broken. I love my school's great, but we assume when we survey about schools, all the schools are broken. And I hadn't realized that about realtors, but it's really fascinating and it makes total sense to me that broad consumer opinion would fall that way.

And also I think, Mike, it's worth noting that I don't know the age jurors, I don't know their backstories or anything like that, but there is a decent likelihood that some of them transacted in 2020 or 2021 and maybe even they sold a home or bought a home. And when there is extreme demand, when interest rates are near zero, I think that's where you started to get into a lot of questions about how hard are some of these agents working for? That money is 6%. If you sell a home for a million dollars and you pay $60,000 in commissions and it sells in two days, I think that's where some people start looking at it and saying, hold on. It's like, what, 500 an hour? In some cases or more. Maybe this is a system that needs some variation, even if the practice itself, your agent is great, they did everything they should have done. Is the system that has been established that you did agree to, that you knowingly agreed to, is it fair based on the amount of work that happens based on the market conditions?

And you could certainly understand, you understand that view. And it's a common view in Silicon Valley has been for 25 years about for tech people going like, how hard is it to sell a house? I'm going to build a tech company that eliminates realtors because it's not that hard and I'm going to just do it. And so that's been a 25 year refrain in real estate technology companies starting with Zip Realty in the nineties and Redfin was started 20 years ago and all of those things along the way,

And we'll get to Redfin I'm sure. Yeah, but look, the thing is, if you also even look at the Silicon Valley area and you look at the number of transactions that don't have cell side realtors, it's very small. We're talking less than 15%. So even though the tech bro is eating Soylent and dreaming about a future in which the robots do a lot of that work, they're still hiring agents, they're still paying full price on those commissions too. In San Francisco, you're not getting discounts.

That's exactly right. And it's been my observation over time that there are discount options out there. Companies like Redfin and what I've observed over the years in this industry is that all of those discounters, they go out to market with a discount strategy. And what they rapidly find is that their customers are demanding full service, full price offerings and they have to offer. So as soon as they Redfin launches, the next thing they do is launch a full price service because that's what their customers want. It's been fascinating to me, and it's, I think probably goes back to that everything sucks except for me model, which is like, oh yeah, there should be discounters, but actually I need to want to have, want to have a full service offering. So that's where we are. So the lawsuits happened, they lost big and it was a 1.8 billion, but damages are treble. So it is five and a half billion,

5.6 billion,

And that's just Missouri. And it is just one lawsuit in Missouri. And now there's all kinds of follow-ons. The same guy did another one in other states. There's other parts of the industry being sued. So these were mostly brokers and NAR, the national organization were the MLSs involved in this one?

Not in the Sits or Burnett case. The MLSs have only recently been started to get named in what we call the copycat lawsuits, which are effectively arguing most of the same tenants of the prior lawsuits that have been, if not successful, at least further along in the court system. And I think what we're starting to find now is you always start where you think as an antitrust lawyer, you can prove that there is a conspiracy among entities that are big enough to actually enforce it, and there needs to be clear cut damages and that's how you win. And most likely this 5.6 number that we're talking about is probably going to get settled to something way below that. And in some cases we're talking almost like pretend money. There's not a single brokerage or the NAR if you put them all together, that would even be able to fight some of the judgments that are, we're talking bigger than tobacco rulings in prior antitrust cases.

(14:35)
But getting back to the question, Mike, so what we're starting to see now is all of the other players that were not named to the first lawsuit, the first two lawsuits. So we're now seeing different brokerages that are getting named to the other lawsuits. We're now seeing brokers, managing brokers that are getting named to lawsuits. We're seeing local MLS associations that are getting named to these lawsuits because the central premise of the winning argument in Ci Burnett is that there is a horizontal conspiracy that all of these various entities have conspired through various means to in effect inflate commissions. And so you can't have that conspiracy unless you have the buy-in of the managing broker of the MLS of the NAR. So all of these parties will be named at some point in time. I think the vast majority of brokerages in America will be named to one of these lawsuits at some point in time.

(15:43)
The way a copycat lawsuit works is you don't want it to get rolled into another, you don't want it to get automatically dismissed because generally speaking, the judicial system in America frowns upon copycat cases, but they do have to at least entertain if there are different claims, if there are different defendants, if there are different merits to some of those claims. So if you're naming different brokerages, if you're naming different types of real estate personnel individually, not even just going after the NAR, then you have a better chance of that case standing and then you have a better case in terms of making it through the court system. And then of course you have a better likelihood of getting some kind of a settlement. And when we look at this, it's all about the settlements. I mean, some of the lawyers who are suing now in some of these copycat lawsuits are literal ambulance chasers.

(16:38)
We're talking about personal injury lawyers who have never litigated an antitrust case who probably haven't litigated a real estate case and now they're suddenly going after some random broker in South Carolina. It's pretty clear to me that they're looking for a quick buck and a quick settlement and look like that's their prerogative. This is our legal system. They can absolutely do that. But I think what it does mean is it opens the door to a lot of other litigation and eventually pretty much everyone's going to be named until there's a precedent or larger scope decision that has been created. Okay.

So those are some legal implications that we've been talking about. Let's talk about the market implications and a couple of questions in there. Is Max settled early before this decision came out? Are they protected

Now? So theoretically, max and anywhere are protected. They've already changed their practices and policies as a result of the settlements that they made with Michael CatchMark that also apply to another case out of Illinois called The Moral Case. That should be kicking sometime in 2024. They may not be protected though. And here's a really simple reason why. The Department of Justice has been highly interested in these cases and they have already kind of gotten in on a different related commission case at a Boston called the no select case. And they've already kind of put their thumb on the scale and said, Hey, we don't like this settlement. And the judge said, okay, let's hang on. Let's have the DOJ basically get in the middle of this, and they're very likely to do the same. And the sits or Burnett case if they don't feel that it properly addresses some of the issues that the DOJ believes should be addressed, namely a change to some of the N practices.

(18:39)
I think. So the whole case really hinges on what's called the NAR of participation, the clear cooperation rule, and that rule is the foundational element for the MLSs to exist. And that rule basically says, look, if you're an agent, you are a realtor and you have any kind of marketing on any sort of listing, you need to list it in the MLS in 24 hours, and you also need to be making an offer compensation to the buyer agent. And that's what is at the heart of every single one of these cases. The DOJ absolutely is interested in changing some of those policies. Maybe it'll be as simple as there's, you can put a zero in the line instead of it being a dollar or a cent or whatever. But the DOJ is absolutely looking to affect policy change and the best way to do it, probably from their perspective, is to fight it through the Burnett case

Through the same case. That's fascinating. I didn't realize the DOJ was getting involved there. That seems scarier

Everybody. The thing is, right now we're in kind of a holding pattern. So we are waiting for the judge in the c Burnett case to issue what is called injunctive relief. So he's going to determine what are the damages, should they be upheld and troubled very likely to be the case, but he is also going to determine what happens to this rule because the jury found that they have used this NAR rule as a vehicle to commit this conspiracy to injure all of these home sellers. And so that rule can't be good law. That rule has to change. So the judge has great, he could do any number of things to this rule, he could completely change it and say the compensation that we know it today where a buyer broker is compensated by a seller broker and then both agents get paid, that could be totally gone. And in every case, a buyer needs to come up with their own compensation for their own agent or brokerage, or he could say, we're going to change the rule so that you can put a zero and the practice of a seller's broker compensating a buyer's broker will remain, or there could be, they could cut the baby in two. I mean, there are a lot of different ways it could be done, and that's really what's holding everything up because we don't know what practically speaking will actually change.

Got it. Which is, I think, I guess the big, the overhanging question for the industry is do we suddenly lose half the commission revenue? The agents lose half the commission revenue that they've been getting. Does that seem like in the universe of possibility to you that suddenly we move into a world like the UK where there's no buyer's agents?

I don't think that's going to happen. I do think that in some transactions where buyers are already hard up for cash and don't have the leverage or they don't have the ability, you can't finance this sort of thing in a mortgage. So I think in some cases they would say, look, I'm an FHA buyer. I'm only putting 3% down. You think I'm going to be paying for an agent out of pocket if the practice of compensating the buyer agent goes away? Probably not. Right? In some cases, you're going to see, I would say maximum 10 to 15% of cases, there just wouldn't be a buyer agent. Maybe there would be dual agency depending on the state, maybe there would be some sort of tech operation that comes in. Maybe real estate lawyers fill that void and say, Hey, all you need is some paperwork help.

(22:41)
And we can provide that for a flat fee. There are all kinds of different forms that could take the place of, but I think the vast majority of people are still going to use a buyer agent, especially when you get to middle class, upper middle class, upper class buyers because they're so comfortable. They don't do a lot of these transactions unless they're investors. And at the end of the day, I think you'll still find there's a compelling argument that a seller will end up paying for that buyer agent themselves. Yeah, I mean definitely in some transactions I think you just won't see a buyer rep, but I think in the vast majority of cases, you're going to see that the practice of clear cooperation and the standard commission model that has existed for more than a hundred years, which vastly predates any of these n rules and policies and et cetera, et cetera. I think the vast majority of home sellers and home buyers will still look at it and say, you know what? We're putting it on the MLS, we have an agent, we're going to go through another professional representative, and it's going to be a smoother, cleaner process, and the seller agent will just factor that into the price which we're going to get on mortgage on anyway. Right.

That's fascinating. Okay, so this is really where we want to get to the meat of this conversation is what happens in the market. And I've speculated that one possibility. You're by the way, much more sanguine about the options of what might happen that I have been, but I've speculated that I can imagine a world where suddenly that cost of the buyer's agent gets shifted to the buyer and it adds cost to our buyers maybe in the thousands of dollars, even if it's paid hourly work or whatever, that could then make it add to our affordability challenge in this country. That's one potential option. As you're talking though, I have another thought and I can imagine because now it's specified by the seller, we list the house and yes, we're going to pay the buyer's agent. And I could imagine a world where if I'm selling and I know that it's a high demand market, and maybe it's like a high demand market, and it's investor buyers, especially the big institutional investor buyers, I might say, I'm not paying a buyer commission on it, and therefore we're in that world where it actually shifts power to the bigger players, the big institutional money, because they're the ones who can go in with their own representation or they have their own process that actually, so I can imagine a scenario that shifts power out of the hands of the individual and institutional buyers.

(25:49)
A, does that sound at all reasonable? And B, do you have other scenarios?

I think that's possible in some situations. Yeah, absolutely. I mean, certainly if you're an institutional investor, you are not going to be incentivized to be bringing your own buyer agent to the table, right? There's no reason. In fact, you in a lot of cases, probably don't even want the seller to be using an agent, right? Because you're also just creating an extra 3% on top of what you'll end up paying. So maybe you approach home sellers directly. We also see in some markets, I think it's a pretty small market right now, but Opendoor has its own listings platform where basically they do both, and there's no agent on either side of it. If somebody wants to use an agent that'll come out of their pocket and they can do it, but they want to make a very fluid easy, I mean, there are other problems with the scalability of a business like Opendoor, but certainly I would consider them kind of a quasi institutional buyer.

(26:54)
And if anybody could do something like this, I mean, a company like Opendoor doesn't need the resources of an agent, and they do honestly make a lot of the process much smoother. They remove a lot of the friction from the home buying and home selling process. So yeah, I think there is an opportunity. I mean, you still get into a lot of the same problems though, where the average consumer one, the average person just doesn't like a lot of very rapid change and they don't do that many transactions over the lifespan of selling, buying a home. I think there are just a lot of people who would still be too comfortable working with an agent working under the system that they're familiar with, that their parents were familiar with, that their parents parents were familiar with. Maybe this changes in future generations. I don't know any boomers unless they're like real estate pros who would clear-eyed walk into an arrangement like this and say, yep, totally comfortable with some faceless real estate institutional investor slash portal slash iyer that is going to be handling all this and I have no representation.

Yeah, okay. Well, that's fascinating. It's much more optimistic than I've been about the potential implications there. You talked

To too many tech pros, man. I think that's the issue.

Yeah, it could be. That's definitely between my San Francisco bubble and my Twitter feed, man, it's Armageddon out there. But let's talk about the companies that the brokers and the tech companies and things. It was really fascinating to me that in the last couple of weeks since the announcement of the verdict, which was first couple of days of November, that stock prices of those companies tanked, but then they're all back up big. It's like they're much more sensitive to falling interest rates then they are to this decision, even though this decision seems massive and the potential financial risk to those brokers. Seems like no brokers got billions to pay. Brokers don't have any money at all. There could be companies that go out business. And so tell me what we should know about that.

So I mean, if you look at the bureau economics of real estate brokerage, these are very small margin businesses. Even in the best of times, these are not great businesses. This is why you never see the real estate stocks of the compass or the anywhere they're re max or whatever. They're never big splashy stocks, right? Because these are low margin businesses. They're getting a cut of cut from an agent and those agents are 10 99 operators who can piece out tomorrow, and then your whole business goes up in smoke. That's the reality of these companies. And so yeah, when you talk about them not having money, you're absolutely right, Mike, they don't have a lot of protection. And the irony of all of these lawsuits is they didn't even truly go after the money. The money is in the individual agents. The individual agents are collecting 85% of all of these commissions.

(30:13)
It's just you can't name every single individual agent to a lawsuit in a class action so that the real threat for some of the brokerages is bigger than others. So I think there is potentially an opportunity for some of the discount brokers to gain a little bit of traction. The reality is discount brokerages have existed for decades now. They have never been the creme de la creme. The average person is still governed by this fear. And I'll give you a perfect example. I bought a house in Pennsylvania, kind of like a weekend cottagey kind of place. My wife ended up hating it because we're city LICs from New York, and she's like, there's not a single restaurant. There's way too much opioid addiction issues out here. There's way too much, not my scene. I don't want to be here. We're going to sell it. I'm like, honey, we have a 2.6% mortgage.

(31:12)
We can Airbnb it, just chill out. She's like, no, we're selling it. I'm never going back. We're getting rid of it. So I'm like, okay, fine. So I do what a lot of people do, and I think, you know what? I know a lot about real estate. I do this for a living. Maybe I can just get one of those flat fee brokers based out of Florida. They get your listing on the MLS for 500 bucks. You write your own description, you end up taking your own photos, or you hire somebody, you do all the work, you take all the calls, you end up doing all the paperwork. Maybe you hire a real estate lawyer, but instead of paying 6%, maybe you only pay two grand, and that could be a savings of 20,000, $30,000. So I have this thought, and keep in mind I do this for a living. I'm pretty comfortable with real estate and contracts and dense reading. In the end, I end up going with a Keller Williams agent who charged a full 6%. And the reason why is because my wife and I decided, you know what? We're not going to do this very often. I'd rather go with a professional who does this day in and day out than bet on myself.

(32:27)
And so I still think that the average professional agent who does a couple million a year in volume is going to be absolutely fine. In fact, they're probably going to end up better off if these verdicts end up. And here's the reason this is going to kill the Aunt Betty's of the world who do a deal a year, a deal every couple years who represent their nephew on the buy side when he's buying a home, but they're not professional day-to-Day agencies are part-timers who often are not up on the latest market trends, who are not very technologically savvy, who can't serve a buyer as well. If we hired a part-timer to do your job, how well do you think they do it? Probably not very well. If you hired a part-timer who was just like a freelance writer who didn't really know real estate or mortgage to do my job, they wouldn't last a week.

(33:25)
And I'm not saying that the divide for all real estate agents is that great, but a lot of them are very specialized. They know their markets. They know how to do this work. Do they deserve a full 6%? Maybe not, maybe not in every case, but I still think the average person is going to take that over doing a FSBO with some flat fee brokerage based out of Florida. But I do think a lot of those marginal agents, the agents who don't do a lot of business, who aren't real pros, who are just not great, they're going to wash out because a lot of buyers will just say, you know what? There's no reason to work with them. They don't provide enough value. And those are the ones who will wash out until it's going to be the big who get bigger. It's going to be consolidation at the top.

But don't you think that of that 6% half that goes to the buyer's agent, don't you think that in general that buyer's agent cut is at risk here? Most of the buyer's agents are going to be feeling that pressure?

Yeah, I mean, maybe it ends up being that the sell side agents end up getting 3% and the sellers who in cooperative compensation right now, so the way it works is, let's say, Mike, you're going to sell my home and we have a discussion early on in the process, and you're the agent. You say, look, we're going to do 6%. I'm going to take 3%, and I'm also going to compensate the buy side 3% because that will guarantee that they're going to bring qualified buyers, serious buyers to the table. They're not going to waste your time. We're not going to go through a bunch of bullshit. We're going to get this done. And I think that's worthwhile. Maybe I now read the Wall Street Journal. I read the New York Times, I read Housing Lawyer and I check in on this case, and I think, man, we're paying buy-side agents.

(35:18)
3% get out. That's ridiculous. And maybe I'm going to say, you know what? Fine, Mike, you can have the 3%. I'm not paying another 3% to those people. It's not going to happen. And so that is one way that you could see buy-side commissions drop. You could also see some maybe working with a Redfin, which is going to take what a one and a half percent commission, plus they have their own salary, but then you still run into the same problem, which is how do you incentivize the buy side? It takes time for these things to change. Not every agent in America, not every reseller in America on day one is going to say, I'm going to do the radical thing and I'm going to offer a dollar in buy-side comp. It's going to be gradual. I don't think we'll see major changes for years.

(36:10)
But yeah, I mean absolutely this, most real estate brokerages are doing about 50 50 on these deals. So if that ends up being 75 lists and 25 buy, that's really bad for their economics. And you could definitely see more consolidation within the brokerage landscape as well. And we've already seen that. We've seen a lot of the smaller agencies and brokerages saying, you know what? I'm going to hang my license now with a Keller Williams or with a Compass. I can't hang and deal with all of these huge risks, all these dark storm clouds that are overhead. I'm in a much better position as the managing broker of a smaller imprint within say, compass. So I think we'll see a lot more consolidation than brokers.

I could see that as well. We have some, especially if Max or anywhere get away, if they've settled and that somehow protects them from furthers, all of a sudden any agents working for them are protected. I could imagine that'd be really a fascinating trend.

That would be a huge boon for Max in anywhere, because you also have to think that they probably got in on favorable terms because the verdict was still anyone's guess when they settled and anywhere to settle for 84 million max settle for 55 million. You think Michael CatchMark, the plaintiff's attorney, is going to let the others settle for that much or less knowing that he's already got a victory? I think that's unlikely.

I think it's unlikely. Okay. There's a couple of more implications to think about. I was talking with Andy is the Altos CTO, and he's British. He was in the US for a long time and they moved back to the UK to take care of their in-laws, and they're buying a house. They have new baby, they're buying a house. He pointed out today that they, and there's no buy-side agents in the uk, so you don't pay the buy-side agent commission. That's how many countries get away, don't have this problem because on the buy-side, you're just not represented. And so he's buying a house that's got some kind of wobbly wall and he has nobody to go to bat for him. And he's like, what do I do? Do I buy the house? Do I not buy the house? He is stuck right

Now. So he needs to hire a structural engineer. He needs to do all that work himself. And that's one of the challenges that we have because of the MLSs. We have this incredibly efficient system that I think does promote, you want to have representation if you can. The question is who pays for it and how much are they willing to pay? The British system, the Australian system, they're so different from America. One of the fascinating parts about the case, Mike, is that Michael CatchMark, the attorney for the plaintiffs is trying to argue, Hey, if what I effects have argued ends up coming to pass, we're going to be more like Australia. But Australia is so different. They have more of an auction system. They don't have an MLS like we do. A lot of the functions that real estate agents serve today in America, it's done by accountants, it's done by real estate lawyers, it's done by other parties that are not necessarily real estate specific.

(39:34)
And so the buyer also doesn't have the same, I dunno if I'd say backup. They don't have the same level of representation in a transaction unless they hire out and they can do that. Most people don't have that kind of money, especially with interest rates probably going to remain elevated for a couple years. So yeah, it's tough. The most comparable system to the one that we have is Canada. It's basically governed by the version of the NAR in Canada. They have local m lss, they have agents on both sides with cooperative compensation. Those commissions are more similar to what we have. There's also South Africa, that's another country that has slightly lower commissions, but a more similar system to the us. There are a lot of countries in the world that have lower commission rates, but you don't as a buyer get the same protections. You don't get the same level of services.

(40:34)
You might not get any services. So yeah, you're only paying one to 2% because you can get shit for it. The question is, should it be 6%? Right? And I think there's a lot of room for nuance on that side, on the buy side. Maybe it should be an hourly rate for an agent. Maybe they're paid like a lawyer. Maybe they're paid like an accounting firm. Maybe they're paid, you should pay them like professionals if you're getting professional representation, but you're basically tying it to the cost of the house, not the cost of the labor,

Right? Yeah. And you can understand how that frustrates people. I think one of the Australian comparisons really telling the US in many ways has it, the envy of the world, the system in the US is the envy of the world. In Australia, the listings are all owned by one company. You go to one company online, it's a monopoly market. In my mind, it's even worse. Or if you go to France, you still got to know the guy who's got the listings, right? Because his dad was the broker back then and his dad had the listings, and now he's got the listings. So in many parts of the world, it's a dramatically more frustrating process to buy a home. And one of the things that I've been arguing is that so many of the consumers, the tech bros especially, are like, oh, I did all the work. I found the home. I even filled out the forms. And they have no idea that that exists online. And those forms exist online because the realtors, we've paid the realtors to create this really excellent environment, a really open, transparent, efficient environment with the MLSs and standardized forms and things like that, where we are literally one potential angle is that we're suing those systems out of business. Am I freaking out too much?

Maybe a little bit, yeah. I still think that the practice of cooperative compensation and the MLSs is a good value to the American consumer. We have democratized real estate transactions in America with this system, with this practice, and it predates these NAR laws, these rules, by the way. And so I still think that there are going to be enough people who say, you know what? It's just smart to have well-informed representatives on both sides of the transaction and consumers who have consumer protections. Is it worth 6%? I think that's probably different, but certainly it's a better system. And you want to have MLSs, are we going to have 500 something realtor owned MLSs in the future? I think it's highly unlikely. I think a lot of the MLSs, which really are the ones who enforce all of these rules that are now in question legally, I think that's going to be the next major battle.

(43:43)
When we talk about the landscape of commissions and how agents transact and really where the consumer comes into play. One of the great fears that a lot of agents have, one, they're already super pissed and have been for many years, that the NAR effectively sells their data to Zillow and to realtor and CoStar, et cetera, et cetera, and that they never took advantage of the realtor.com name when they sold it to move. They're still very frustrated and feel like the NAR really let them down. And we just did a big survey a couple days ago asking 300 ish agents and brokers, Hey, what do you think about the NER? Would you be members if it didn't give you MLS access? 75% of people said no, we wouldn't even bother. So there's a lot of antipathy to the NAR. I think the NAR could very well likely end up just being a super PAC and that strong lobbying voice is needed.

(44:45)
But if it's also the defacto policy creator and a huge target of litigation for everything the agents do, that's also a problem. Which also means that you then have the MLSs that are potentially under threat because the MLSs have to follow the NAR rules. They're all realtor owned with the exception of the independence. So maybe that could, in the big fear of the everyday agent that could be disrupted and maybe the MLSs go away and you have a national MLS that is run by Zillow or CoStar or whomever, then you get into real question of like, okay, well, am I as the agent putting in all of my data directly into the feed of Zillow or CoStar, and then are they going to be charging me when I put my own listing up? Like, you're damn right, they're probably going to charge you. Right? This isn't a charity.

(45:44)
So I think that is a fear. I think there's a fear that large tech companies could just end up taking over some of the MLSs instead. Right now, that can't happen because they have to be realtor owned. The NAR still does have a big moat around the MLSs, which are the real value here because there's, there's no system in America without the MLSs that is the linchpin of all of this. So it's going to be really fascinating to see what happens to the MLSs as they start getting named to these lawsuits. And they will, we only just saw the first lawsuit come in. They're going to be named in probably a hundred more next year.

Wow. Yeah. That's a big, big topic. Okay, so we're getting close to the time here, but let me ask you one last question, which is, if we think about implications like the MLSs, or in a world where Zillow, we've shut everybody else down and you got to go to Zillow to buy your house or co-star, star, what timeframe are we looking at? Is that a 2024, the things get shut down fast. Do they get shut? Is that a 10 year horizon? What timeframe are we talking here?

Yeah, we're talking, I mean, for that possible scenario, which is an army hidden and relief for a lot of people in the industry. I mean, I would think that would be a decade away, if not more. The NAR, even though they're in a really tough financial position having lost this since Burnett case, and they have to come up with a bond to appeal, and the brokerages don't have a lot of money, they still have enough fight. There are still enough agents, there's still enough, I think, influence from the traditional real estate industry that they would be able to push back on a lot of this. I'm like, look what's happened in New York. So in my hometown in New York, the NAR is not a factor at all. The local organization that maintains the MLS is called ny. It's the real Estate Board of New York. It is a very powerful trade group.

(47:47)
It is kind of commercial focused. I think that's the criticism, but they also have an MLS, they call it the RLS because they have to be different in New York, right? And the thing is, nobody uses it now. It's used in the sense that yes, the agents, the brokers, the managing brokers, they're putting in the listings into the RLS and that RLS is getting fed into other portals. But the consumer probably has never heard of rebny has probably never heard of the RLS, none of the agents, not none, but very few of them have anything to do with the NER. Everything goes through StreetEasy, which is owned by Zillow, and StreetEasy has been pecking at the agents. They've been charging them $8 $10 a day for any rental listing they have. They've been charging brokerages a huge sum of money for their own data. That is a scenario that I think the industry is very wary of.

(48:49)
And you ask the average agent what they think about Zillow, and they'll probably say, I fucking hate Zillow. They'll probably say that, but you know what? A lot of them still use it because that's where all the eyeballs are. That's where the consumer power is. And so I think that you could see Zillow, they even acknowledged it on their own earnings call about a week or two ago, that they would be very well positioned if they wanted to get in on this action to capitalize on this disruption. They are wisely saying, we're not doing it. We still believe in the current model because it would be stupid not to, frankly. So even if they are thinking about it, they're definitely not going to tell you. But I mean, at least a decade away, there's still way too much fight left in the industry. StreetEasy only ended up getting to charge those insane rental fees to the brokers, to the agents after many years of moving the ball slowly into the opposition half. And I don't think anybody wants to see Zillow take over an MLS.

Great. We're going to have to leave it there. Thank you so much, James. You're the managing editor of HousingWire. Other than going to HousingWire for people to read up further on this, is there something specific or should I send 'em to housingwire.com?

Yeah, yeah, just check out housing wire.com. We've written probably, God don't quote me on this, but probably about 120, 130 stories about these commission lawsuits. We've covered every angle from how mortgage loan officers would be affected, how FHA VA buyers would be affected. We've covered how the title industry is reacting to this, how the MLSs are thinking about new ways to protect themselves in the wake of the Sit or Burnett trial. We've talked to probably hundreds of agents and brokers. We're covering it from every single angle, and I'd love to hear from you as well. If you have some thoughts on this. I get all kinds of interesting emails. Some are in hinged if we're frank. So my email isJames@hwmedia.com. I'd love to hear from you. And yeah, hopefully you guys check out our coverage.

James, thank you so much. Really informative. I appreciate your insights and your expertise on the topic.

Cool. Thanks, Mike.

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