Attorney Lays Out How Real Estate Can Survive The Commission Suits

Key Takeaways:

– Inman is hosting several upcoming real estate events including Connect Miami, Luxury Connect, and Inman Connect Las Vegas.
– Attorney Ed Zorn spoke at Inman Connect New York about potential settlements in commission lawsuits in the real estate industry.
– Zorn proposed mandating buyer representation agreements and eliminating the compensation field in the multiple listing service (MLS).
– He also suggested adding an optional seller concession field in the MLS and creating a fund to pay for commission suit settlements.
– Zorn believes that settlements in commission lawsuits will likely involve both money and industry rule changes.

inman:

Mark your calendars for the ultimate real estate experiences with Inman’s upcoming events! Dive into the future at Connect Miami, immerse in luxury at Luxury Connect, and converge with industry leaders at Inman Connect Las Vegas. Discover more and join the industry’s best at inman.com/events.

The bevy of commission lawsuits out there are most likely to end in settlements and those deals will have to include both money and industry rule changes — and the money’s the easy part.

That’s according to attorney Ed Zorn, who spoke at Inman Connect New York this week in a session called “Anticipating MLS Evolution: The Pathways to Potential Settlements.”

During his talk, Zorn proposed mandating buyer representation agreements, eliminating the multiple listing service’s compensation field, adopting an optional seller concession field that the nation’s largest MLS is deploying this week, and paying for commission suit settlements by creating a fund and depositing between $100 and $200 from each transaction side nationwide into it for the next four years.

In offering these suggestions, Zorn offered a possible way forward for an industry mired in ever-proliferating antitrust lawsuits seeking hundreds of billions of dollars in damages and from which it seems no real estate entity is safe, including brokerages, franchisors, Realtor associations and multiple listing services.

Zorn is vice president and general counsel of California Regional MLS (CRMLS), the nation’s largest MLS and one that is facing its own commission suit as of last week, though he prefaced his remarks by saying that his “ridiculous opinions” are his and not those of CRMLS.

Mandatory buyer rep agreements

The two pillars of the MLS are cooperation and compensation and the latter is under attack from the U.S. Department of Justice (DOJ) and “super aggressive plaintiff lawyers,” according to Zorn.

“They don’t want listing agents and sellers sitting in the living room picking how much money is going to be paid to the buyer’s agent,” Zorn said.

What they want is for that to be decided by buyers directly with the buyer’s broker, he added.

“I don’t think that’s all difficult to build from a rule and policies perspective,” Zorn said.

He suggested that MLSs should mandate that subscribers use buyer representation agreements, pointing out that many agents don’t use them because their competitors — other agents — don’t have to.

“Why don’t we as an industry mandate it?” Zorn said, adding that it’s entirely within the industry’s power to do so.

Get rid of the compensation field in the MLS

The rule at issue in the commission cases, known as the Participation Rule or the Cooperative Compensation Rule, requires that listing brokers make a unilateral offer of compensation to buyer brokers in order to submit a listing to an MLS.

Zorn maintained that MLSs “can survive perfectly fine without compensation.”

For instance, Zorn, who is also president of real estate investment firm ZEC Investments and held a broker license for many years until it expired in 2022, pointed out that in commercial real estate, compensation is simple: He and his buyers sign a buyer representation agreement before he starts showing them properties and then when they make an offer on a property, there’s a provision in the contract that says the seller will pay his compensation at closing and that the amount is a negotiable term between the buyer and the seller.

“It’s done thousands of times a year,” Zorn said. “It’s not new. I think that’s a future that we can embrace in the residential world and deliver to these plaintiffs, the DOJ, and consumer advocates what they want. Why do we fight it?”

Add an optional concession field, like CRMLS

If the industry removes the compensation field from the MLS, Zorn said he would like to see an optional field added in which the seller would be able to offer incentives directly to the buyer.

“What the plaintiffs and consumer advocates hate is the incentive to the buyer’s agent,” Zorn said. “Why are we incentivizing a buyer’s agent? The buyer agent has a buyer that they’re supposed to be representing. They should require zero incentive.”

CRMLS is rolling out a “concession-to-list price” field this week, according to Zorn.

“It is not required. It’s a free form text field” that any listing agent can fill out,” Zorn said.

Inman has reached out to CRMLS to ask whether CRMLS is keeping its compensation field and will update this story if and when we receive a response.

Zorn said CRMLS has a different concession field that is required to close out a listing and most listing agents put zero in that field. Meanwhile, 39 percent had a concession, such as covering title costs, that didn’t have to do with compensation because of the separate field still in place during the time period CRMLS analyzed.

The new concession field is for communication purposes between the seller and the buyer and not contractual, according to Zorn.

“It will be up to the buyer’s agent and the buyer to include whatever their deal is in the contract of purchase,” he said.

“I would add a standard of practice that says it is unethical to leave a transaction with more money than whatever the written agreement was with” the buyer client so that if a seller offers more, the buyer can keep the difference, he added.

Creating a fund for settlements

In regards to the huge amount of damages awarded and sought in the commission lawsuits — at least hundreds of billions of dollars, if not a trillion, Zorn scoffed at the numbers.

“They mean absolutely nothing,” Zorn, a former trial attorney, said.

“The only thing that matters is how much money can the defendants actually pay to these plaintiffs,” Zorn said.

He expects the class action cases to be resolved with settlements in which the defendants give up around 40 to 50 percent of their cash or cash equivalents — amounts similar to what Anywhere (formerly, Realogy) and RE/MAX would pay under proposed settlements in the bombshell suits known as Sitzer/Burnett and Moehrl.

Zorn proposed that in order to pay for commission suit settlements, the industry, through the title company escrow officers of each home sale, pay into a fund for each transaction side for the next four years.

There were 20 million transactions, or 40 million transaction sides, in the last four years, he said — 5 million home sales annually on average. So assuming the number of sides stays about the same, $100 from each future side would add up to $4 billion, $150 from each add up to $6 billion and $200 from each would add up $8 billion.

“Anyone here who’s a defendant in these lawsuits happy to pay 200 bucks per deal to the future to get this over with?” Zorn said. “$8 billion. The money can take care of itself.”

Zorn ended his talk by saying the MLS community has an opportunity to evolve “in a way to enhance and ensure that cooperation remains the lifeblood of what we are, so we can continue to deliver the greatest gift that the real estate broker, their agents and consumers ever, which is the multiple listing service.”

The audience applauded loudly as he left the stage.

Email Andrea V. Brambila.

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Property Chomp's Take:

Inman, the leading source of real estate news and events, is gearing up for a series of exciting upcoming events that promise to be the ultimate experiences for those in the industry. From Connect Miami to Luxury Connect and Inman Connect Las Vegas, there is something for everyone. These events will bring together industry leaders, provide valuable insights, and offer networking opportunities that can't be missed.

One of the hot topics discussed at Inman Connect New York was the bevy of commission lawsuits that have been plaguing the real estate industry. According to attorney Ed Zorn, settlements are the most likely outcome for these lawsuits, and they will involve both money and industry rule changes. Zorn suggested several ways to move forward and address the issues at hand.

Firstly, Zorn proposed mandating buyer representation agreements. He argued that this would eliminate the need for listing agents and sellers to negotiate compensation for buyer's agents. By making buyer representation agreements mandatory, it levels the playing field and ensures that all agents are operating under the same rules.

Additionally, Zorn suggested getting rid of the compensation field in the multiple listing service (MLS). This rule has been a point of contention in commission cases, and Zorn argued that MLSs can survive without compensation. He pointed to the commercial real estate industry, where compensation is negotiated between the buyer and seller directly.

To address the issue of incentives for buyer's agents, Zorn proposed adding an optional concession field to the MLS. This would allow sellers to offer incentives directly to the buyer, eliminating the need for buyer's agents to be incentivized. California Regional MLS (CRMLS) is already implementing a concession-to-list price field, which allows listing agents to communicate incentives to buyers.

Finally, Zorn proposed creating a fund to pay for commission suit settlements. He suggested that a small amount, between $100 and $200, from each transaction side nationwide be deposited into this fund for the next four years. This would accumulate a significant amount of money to settle the lawsuits and provide a resolution to the ongoing legal battles.

Overall, Zorn's suggestions provide a possible way forward for an industry facing numerous commission lawsuits. By implementing these changes, the industry can address the concerns raised by the U.S. Department of Justice and consumer advocates, while also ensuring fair compensation for all parties involved.

Inman's upcoming events provide a unique opportunity for industry professionals to learn more about these issues and engage in meaningful discussions with industry leaders. To find out more and join the industry's best, visit inman.com/events.

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