My blog last month talked about the recent lawsuits around the country, against several national brokerage firms, as well as NAR. As those lawsuits are settled, or adjudicated by judge and jury, it has become abundantly clear that our way of doing business will soon be a thing of the past.

 While many parts of our daily role working with buyers, sellers, landlords and tenants will stay in place, one major area (and the core basis of many of the suits) will see a 180-degree shift. This primarily deals with how the listing broker and the buyer agent are compensated in a transaction.

The suits had one common thread: price-fixing. While the prosecuting attorneys had no proof of collusion or joint efforts to affix prices between companies, brokers, agents and even Associations of Realtors, including local, state and national, they did make a convincing arguments that the parties were fixing prices based on the messages delivered in marketing and promotion.

Case in point. May an individual broker decide that his agents will charge X%, nothing more, nothing less? Yes, since that is a brokerage operational rule. But the cases pointed to a brokerage with 800 agents, all independent contractors, and thus, what right does the broker have in determining what the IC’s charge? It does raise an interesting question.

As the plaintiff’s attorneys did, if you randomly ask 100 people on the street, “how much do real estate agents get paid”, most will have an answer, based on a number of factors. Mostly, based on what we tell sellers and sometimes buyers the basis for what we charge. Many sellers claimed, when interviewed, that the agent justified what they were charging based on “that’s what everyone else charges…” That alone spells price fixing.

But here is the common situation that gets us all in trouble. An agent is doing several types of marketing to gain listings and uses the tag line “we charge less”.

Then they expand on that concepts, and claim “we charge less than any other broker out there…” You have seen and heard the ads.

First, how does a competing broker know what I charge? They assume, but do not know. But their statements perpetuate the concept of fixing prices.

As Realtors, we see it one way, but the average rank-and-file consumer who is receptive to marketing ads to sell their house would reach the conclusion that “everyone else charges one rate, yet this one broker charges less”. If all the other brokers charge the same, then clearly, in the mind and eyes of the judges and jury, that is price fixing.

So, what is the 180-degree shift? We have already seen the changes in the month since my recent blog. Many Associations of Realtors and ARMLS type entities around the country have changed their guidelines to get away from a minimum or reasonable offers of co-broke compensation, and now allow a broker to offer $0 to the co-broke agent. And many agents have stated, just in the previous few weeks, that all of a sudden, a lot of listings now offer $0 compensation.

The push is to eliminate any offer of co-broke compensation. It is already here. Thus, if you have the buyer, and my listing shows $0 compensation, how and from whom are you paid?

This will push us, kicking and screaming, into using the Buyer Broker form, negotiating with your buyer to pay you (just like when you negotiate your listing compensation with the seller).

This requires many agents in AZ to embrace the use of a form that they have resisted using for decades, for whatever there reason was.

Think about this; most buyers have no concept of how much you will be paid, and who is paying it. We have always negotiated with sellers for our listing compensation, but we almost never have negotiated compensation with a buyer.

On this website calander, you will now find classes on the Buyer/Broker Agreement. Most are done by this author, yet we have a few instructors teaching the same classes around the valley and state.

If you are one of the agents who have rejected the buyer broker form, now is the time to learn it, embrace it and begin using it. Done properly with the conviction of your worth, you should be able to sell it. Sure, some buyers will balk and bolt, yet that is win for you. Let them go waste another broker’s time.

As more of us start using the form, there will be far less chance for a buyer to say “no other agent has asked me to sign it…”.

This is a slow yet sudden movement that will change the way we do business. NAR just imposed a $45 assessment fee on their dues, to start building a war chest to pay any settlements, which are all under appeal. But NAR and probably no brokerage has $1.6 Billion in their checking account to pay a judgement or settlement. We are all in this together.

Stay tuned...

With recent happenings regarding several suits against NAR, two previous suits recently settled and then the jury verdict against NAR, HomeServices of America, and Keller Williams Realty, it is becoming clear that drastic headwinds will be pushing the industry in a different direction.

The two settled suits which involved a few larger and national brokerages, that also included NAR, making the claim that the defendants conspired to keep their fees higher and limited choices for the clients.

First, Anywhere Real Estate, formerly known as Realogy Holdings Corp., settled for $83.5 million in a case filed by plaintiffs regarding real estate commissions along with the allegation of price fixing. That suit also included NAR, yet NAR did not settle their side of the suit, as Anywhere did.

Soon thereafter, REMAX (as one of the defendants) settled and agreed to pay $55 million to resolve all claims against the company and offered several business practice concessions as part of the settlement. One of the concessions was to stop requiring that licensees and brokers obtain membership in NAR. That alone will have far-reaching implications.

In the case that went to trial, The National Association of REALTORS® and two co-defendants were found liable Tuesday November 7, 2023, in which the plaintiffs challenged MLS rules and the real estate compensation model. The eight-person jury also found liable, HomeServices of America and Keller Williams Realty, which were named in the lawsuit. The jury award of $1.7 BILLION is under appeal by the defendants.

And, once these flood gates opened, others are now playing follow the leader. A suit against NAR in South Carolina is arguing that the defendants artificially inflated home prices while not being transparent on who pays the commission.

OK, on the street today, what does this mean? Clearly, many of these verdicts will be appealed, which will drag on for years. But the common thread is the commission structure between the listing agent offering compensation to a buyer’s agent, and how the buyer agent explains to the buyer (if at all) how that structure works.

The Arizona Realtors Buyer Broker Exclusive Employment Agreement is largely ignored in Arizona, as brokers and agents are concerned that most buyers would not sign it, thus costing them business. Another concern of brokers is that their agents are not trained on how to “sell” the Buyer Broker agreement to buyers.

That being said, we could rapidly see the offer of co-broke compensation disappear. Some listing agents are already offering $25 or less. The initial reaction might be that the listing agent is doing a dis-service to the seller, as many agents will sadly ignore that listing (at their peril) even though it might be the best property for their buyer. So, the commission gets in the way of the buyer getting the best property at the best price.

If, however, the buyer signed a Buyer Broker Agreement with their agent, the buyer would be obligated to pay that agent a commission based on the commission noted in the Agreement. In many parts of the country buyers understand the concept, realizing they might be able to get a property at a lower price, due to the fact the seller now only has to pay the listing agent, with no co-broke. That saves the seller money, which could be built into the pricing of the property.

The time has come for Arizona brokers and agents to embrace the Buyer Broker Agreement, as the ability to get paid might hang in the balance. And realize that the Buyer/Broker Agreement is just like a listing agreement, the ER, Exclusive Right to Sell. Both are bi-lateral employment contracts, and they function the same way. Sadly, while every broker requires an Exclusive Listing agreement in order to work with a seller, they have rejected and often fear the Exclusive Buyer Agreement, for many reasons.

We have begun to offer classes on the Buyer Broker Agreement, since in the near future, that might be the only way a buyer’s agent gets paid.

Last point, stay tuned and pay attention. Listen to your broker. Access the local, state, and national Realtor websites. Follow the real estate news services, such as Inman News and others. Be prepared. While we might have significant lead time before anything becomes either mandatory or a standard of care, there is no value in waiting to the last minute. Learn the Buyer/Broker Agreement.

As the industry changes, now on almost a daily basis, so have the processes that brokers and agents follow. With all the social media, and websites that provide owners with quick pricing, and where the owner can review their property as well as others. Any owner, at any time, might be curious as to the value of their property, as well as pricing on surrounding properties. And that often occurs while the property is listed with an agent.

Yet that is causing a new trend that hurts a listing agent, and often the seller.

Case in point. A listing agent has a listing for $765,000. That listing started 7 weeks ago and has 4+ months to run.

While listed, the seller, again, just curious, goes online to any of the websites that provide pricing, and they see that their house might be worth a few dollars more than the current listing shows. After a minute or two, the seller remembers the conversation with the listing agent, who clearly told the seller that pricing should be flexible and should be adjusted when the market dictates that.

Then, within a few days, the seller receives a communication from an agent regarding their property. Turns out, when the seller priced their home on the website, that was turned into a lead that the website sells to agents. So far, there is nothing wrong here.

However, before that agent reached out to the seller, did they follow the REALTORs Code of Ethics, Article 16, Standard of Practice 16-9? That SOP says the following:

REALTORS®, prior to entering into a representation agreement, have an affirmative obligation to make reasonable efforts to determine whether the prospect is subject to a current, valid exclusive agreement to provide the same type of real estate service. (Amended 1/04)

Thus, if that agent contacts the seller based on the referral from the website, they are still obligated to 16-9, and failing that, they would be in violation.

Then, it goes further. That agent sweet-talks the seller and convinces the seller to cancel their listing and list with them. The listing agent receives a communication from the seller that they are cancelling the listing, which usually totally surprises the listing agent.

What’s next? Some FAQ’s

The seller may not unilaterally cancel a listing agreement. The listing agreement is an employment agreement, which binds both parties, the seller, and the broker. Thus, any cancelation of that agreement must be bilaterally agreed between the parties, meaning the broker could demand compensation in exchange for cancelling the listing. That of course depends on if the listing agent wrote any language into the listing agreement allowing a one-party cancellation, meaning the seller may cancel at any time, or with X days’ notice.

This is a business decision, and sadly, many brokers and the agents do not want to fight with the seller and burn a bridge. That agent deserves to get paid, yet that too, is a business decision.

The new listing agent would clearly be in violation of SOP 16-9, unless the agent visited the property and talked to the seller only after the seller specifically reached out and asked the agent to come over and talk to them. In this case, the seller innocently input their address for pricing on a 3rd party website and did not specifically ask that specific agent and/or brokerage to contact them.

With the broker’s approval, the current listing agent could file an ethics claim against the new agent, for failing to honor the current listing on the property.

The Code of Ethics also tells us not to solicit another broker’s listing, found in Article 16, SOP 16-4, which states:

REALTORS® shall not solicit a listing which is currently listed exclusively with another broker. However, if the listing broker, when asked by the REALTOR®, refuses to disclose the expiration date and nature of such listing, i.e., an exclusive right to sell, an exclusive agency, open listing, or other form of contractual agreement between the listing broker and the client, the REALTOR® may contact the owner to secure such information and may discuss the terms upon which the REALTOR® might take a future listing or, alternatively, may take a listing to become effective upon expiration of any existing exclusive listing.

One way to avoid going to war is the current broker reach out to the new wannabe broker, and have that agent back off, tell the seller that they are better off staying with their current agent, and wait for the listing expire. If the broker digs in their heels and does not agree, then the current agent and broker should file the ethics complaint on both SOP 16-4 and 16-9.

Last thought. Business is tough enough. Let’s all work and play by the same rules and treat each other with respect. And remember, ignorance of the rules and codes is not a good defense.

No, that’s wrong! In fact, deed fraud is running wild and is very prevalent across the country. Here in Arizona, the cases of deed fraud are mounting daily.

So, first question. What is Deed Fraud?

These are cases where criminals pose as the rightful owner of a property, and then attempt to sell the property and gain the proceeds. They are often successful once they gain specific information about the owner, through hacking services on the owner’s email accounts on their devices. Citizens are victims of hacking every day, and real estate agents are the easy targets for the criminals. Once the criminals get access to your devices through hacking, they will see every email, every text (smartphone) stored passwords, downloaded documents (such as a rental application or client information application). Thus, the criminals have access to any and every detail that is contained within those files.

That process alone can be very damaging to the agent as well their clients. Once the criminals are successful in accessing websites, accounts, and information on the parties, they will go to the next step; attempt to sell the property that is often identified in email communications found on a hacked device.

The owner is often totally unaware that the fraud has occurred for months or even years. Imagine waking one morning and learn that you no longer own your house. Or vacant land. Or commercial investment property.


Next Question, what can we do to try and prevent it?

Every county recorder in Arizona has a prevention program. For Maricopa County, here is the link to post your addresses and names that would be found on recorded documents in the county files.

https://recorder.maricopa.gov/MaricopaTitleAlert/Default

By registering, any time anything is done regarding that deed, the county will alert the deeded owner that action is being taken against their property. If the owner takes proper, quick action before title is transferred, the criminal act could be stopped. However, once title transfers, there is very little that can be done, other than making a claim on the title insurance in place on the property.


Lastly, the American Land Title Association has produced a useful tool to explain deed fraud, how it occurs and the actions to take to prevent it.

Here is the link to that tool, which I gathered from The Arizona Realtors website.

https://www.aaronline.com/wp-content/uploads/2023/06/06/ALTA-Seller-Impersonation-Handout.pdf

While no action is 100% effective to stop this criminal activity, any steps you can take, and share with your clients will go a long way to prevent this occurring. Diligence and vigilance is the key, and by simply registering your names and addresses, that goes a long way. While it will not stop the attempt to defraud you, it will provide notice that something wrong is going on so that it can be caught ASAP!

Some might remember the TV show, “The Jetsons”.  It was a futuristic cartoon from the 1960’s that envisioned a not-to-distant future relating to technology, space travel, communications, robotics and interpersonal relationships.

The original show ran just one season from 1962 to 1963, depicting life in 2062. While a lot of what was “suggested” about our future, such as flying cars, robot maids, video calls, smartwatches, food printing and space tourism, many parts were labeled as farcical and whimsical. But are they?

In one episode, George lamented that the robot maid Rosey, an old out-of-date model was upset that she was unable to “think for herself” (also a bit of social commentary of the 1960’s). As George attempted to assist her to do so, he commented (a pop-up balloon over his head) “soon, with new technology Rosie will be able to think for herself…” Yes, he was correct.

Other shows and movies made various predictions, evidenced by flip phones and IPad-like tablets shown in “2001 A Space Odyssey” (1968) as well as in the TV show, “Star Trek” (1966-1969).

One common theme running through all sorts of future predictions is our human interaction with computers. And how computers can complement our lives while frustrating us. But for the longest time, computers were only able to do tasks that were programmed by humans.

Today, we see an explosion of a new technology; AI (Artificial Intelligence) which globally first evidenced itself in a chess match during the 1950’s and 1960’s. AI went through various challenges, mostly computing power sufficient to allow a computer to think on its own.

As we entered the 1980’s, AI grew in prominence, as the fear of the unknown rose. Hollywood was quick to embrace the fear of what AI could become, to take control of our lives.

In 1983, the movie “Wargames” was released, which among other technology issues, was a demonstration of AI capacity, when the WOPR computer started thinking for itself to determine which nuclear war to commence. More movies followed, including the “Terminator” series showing how Skynet began to think for itself to destroy the human race, and the 2001 film “A.I Artificial Intelligence” which again was a futuristic portrayal of the dangers of AI.

AI is here and has numerous applications in our industry. Yet with any new technology there are some long-standing facts:

1. Realtors and licensees will be slow to embrace the technology, mostly out of fear and/or misunderstanding.
    
2. We are being bombarded with articles, blogs, video presentations, live demonstrations, and the actual end-product of AI, in our listings, marketing, contract writing, disclosure language, client communication and more.
    
3. The delicate balance of diving in knowing nothing and muddling through, versus learn and learn before putting a toe in the water. Sometimes, it is just best to dive in and swim.

NAR and AAR have been presenting various articles, webinars, and blogs about AI, as I am doing here. In my 43 years in the industry, I have seen numerous technologies developed making our processes easier. Some have been a shooting star only to flame out, while some staked a foothold in our lives and business practices, such as hand-held tablets (1989) and smartphones (1994). Both of those technological advances brought programs and apps, that are now woven into the fabric of our everyday lives and business practices, many already incorporating AI.

AI will not flame out. It is and will remain an integral part of our lives, personally, socially, politically, medically and in business.

For example, ChatGPT is one AI function that can be incorporated into your personal or business life right now. Need good remarks in your listening? ChatGPT can write that. Need good language for a specific disclosure? AI can do that for you.

It is here, it is not a fad, not a shooting star ready to flame-out. As scary as Hollywood portrays it, and TV shows and media predict it, AI has weaved its way into our lives, mostly for good, yet sadly, for some bad. We need to be able to see the difference.

NAR has a plethora of articles as it impacts our business, specifically this one which is a primer, entry level 101 guideline…

https://www.nar.realtor/magazine/real-estate-news/technology/start-experimenting-with-ai-now

While it is not critical to gain expert status now, it makes sense to begin somewhere. As the above article reflects, be sure to learn the do’s and don’ts up front.

As a school administrator and instructor, I will begin to use AI to refine some of my class outlines, language, and marketing of our real estate school.

Lots of people, including me, are scratching their heads; what is going on in the real estate market? Recently I asked more than a dozen people as to their assessment of the current market. These were licensees, lenders, title reps and 2 home warranty reps. Here are their answers.

            “Worst market I have seen in my 23 years”

            “Feels like we are heading for a crash”

            “While it is a tougher market, there is plenty of business to be had”

            “The market has forced me to change my approach, and that has helped”

And a few comments like the above.

So, where are we? Failing? Steady? Or improving?

Remember the saying “one person’s garbage is the next person’s gold”!

All external metrics should point to a better market. But the market is resisting improvement and is settling for a steady market that has signs that are difficult to interpret.

It is mostly a matter of perspective and willingness to embrace and/or make changes.

What worked a few years ago might not work now. Tools that are rapidly changing can have either a wildly positive impact on your business or be a disrupter and keep your attention on the downside.

This author has been in real estate for 43 years, since early 1981. In the early 1980’s, interest rates hovered around 13%-15% for a 30-year mortgage. One would have expected the market to crash as a result, yet it did not. Yes, it retracted for a period, around 4-5 years, until rates fell below 10%.

But we sold a lot of homes during that time, just by recognizing what impact that had, and adjusting our marketing, our interactions with clients, and our promotion of the market. While many agents failed and found other employment, those that stuck around, made some changes, and changed their attitude a bit, had many sales and made good money.

Some of the tools we have now used for 10-15 years might be the albatross around our necks. Technology, advertising, and interactions with different cultures and people are very different today compared to what it looked like even 7 or 8 years ago.

Every market creates challenges. Surviving and thriving in a changing market is not as hard as it seems.

In the early 1980’s, as stated earlier, interests rates were in the mid-teens, but we overcame that challenge.

In the late 1980’s, the market shifted when the S&Ls (Savings & Loans) crashed and fell like dominoes. We all had to deal with the RTC (Resolution Trust Corporation) that gathered all the real estate assets that the failed banks loaned on and had us list and sell them. True, many were commercial properties, but there were plenty of residential properties, as well.

Late 1980’s- early 1990’s, two more fair housing requirements were added, we changed our MLS and lockbox system, we had a new purchase contract, and we started to feel the impact of a lawsuit in Minnesota that had national impact, which changed how we disclose and deliver agency.

A few short years later, the need to disclose material matters resulted in the AAR SPDS and a sprouting industry; inspectors. That added a few extra steps to our process of listing and selling, so we had to adjust for that.

Soon after 9/11, the market retracted significantly, as all acting partners in the industry felt uncertain of the safety of our country and the resulting wars that commenced. Everyone took a step or two back, until the feeling of uncertainty faded.

But, a few years later, in 2008, in what seemed to be a matter of days, the stock market crashed, financial institutions that owned billions in mortgage-backed securities failed, plunging the world economy on the brink of collapse. Home values plummeted, 401k’s evaporated, and the housing crisis created challenges never seen before. And we survived.

As a result, the country fell into a recession, bordering on a 1929-type depression. We overcame that, dealing with defaults, short sales and rampant bankruptcies.

Industry-wide changes notwithstanding, external forces dictate our markets. Jobs reports, inflation, CPI changes, recessions, Fed rate changes, policy changes based on politics all have positive or negative impacts on our markets.

Most recently, March of 2020, when we all realized that a world-wide pandemic was upon us, every industry in the country (and world) suffered, with fellow citizens dying at the rate of tens of thousands a day, businesses closed, and again, we were in a recession.

Summary: The real estate market has always been on a roller coaster, up and down based on a myriad of challenges. Most of those forces we did not create, cause, or change. Change is part of the cycle. Spend enough time in the industry and you will experience this.

Yes, there are external forces, such as interest rates in the 7’s, debt ceiling uncertainty, election season approaching (or is it here already?), a Dow Industrial Average that is clearly on a roller coaster and waiting with bated breath for any Fed announcement.

HOWEVER, during all this and in any cycle, people need housing. That could be a rental, but even a rental today could turn into a sale next year. Shelter is a basic, essential human need, on the Maslow’s Hierarchy of Needs. As the human race increases in population, there will always be an increasing pool of clients in need of living space. And living spaces are rapidly changing, as we experience an affordable housing crisis.

Identify what worked a few years ago but seems not to be working now. Assess what you need to do to gather more clients, maybe going back to basics, or embracing a new technology that will improve your prospecting.

Bury your head and resist change, and you most assuredly will struggle.

Open your eyes and embrace change, and your business will soar.

On February 1, AAR published the new Fair Housing Advisory. Of course, with a new form, there are always questions. This author served on the AAR committee that developed the form and saw firsthand the reasons why this form should become a standard of care.  Some facts…

Sadly, REALTORS across the US have taken liberties to promote racism and hatred, on their personal social media and on other media tools, even at live events.

In 2019, Newsday A Long Island NY newspaper published the results of a 3-year, exhaustive, hidden camera expose of Realtors on Long Island showing the bold and repugnant discrimination.

As a result, the State of New York developed a Fair Housing Advisory that is REQUIRED on every real estate interaction with a potential new client. The Governor’s office, with the NY legislature, has created very strict penalties of any agent that does not utilize the form with their clients.

Then, in 2020, the NAR Professional Standards Committee developed a new Standard of Practice in Article 10 of the REALTOR Code of Ethics, SOP 10-5, which clearly says that a REALTOR shall not use hate speech, intimidating speech, slurs and epithets when referring to a protected class under the Federal Fair Housing Laws and the REALTOR Code of Ethics.

But the discrimination has continued across the country. As a result, in some cases, many state governments have created similar forms, while in other states, the state association of REALTORS created the form.

The AAR Risk Management Committee (this author serves on the committee) decided to create a statewide advisory. A workgroup was formed, and we reviewed forms from other states and associations, along with the guidance from HUD. The result was this Advisory, which we feel should significantly reduce discrimination in real estate. Why?

Why and how would it reduce discrimination? If every licensee in the state was obligated to have a frank conversation with every prospect about their rights in real estate, what would be considered discrimination, and where they may file a complaint if they feel they were a victim of discrimination. It should make licensees more mindful of their obligations, and possibly stop them from discriminating.

Here are a few Q&A’s

Where do I obtain the form? It is on Transaction Desk, (or if outside of Phoenix, most likely in your on-line forms programs. Also, AAR has it on their website for all members

Is usage of the form required by AAR or the state? As of this moment, no, it is not. However, many brokers state-wide have indicated that they will require it from each of their licensees, and this author and AAR applaud any broker that takes that position.

To whom should the form be presented? Any person(s) who are potential clients, such as buyers, sellers, landlords and tenants. Any property manager should present the form to their owners.

Our position as REALTORS and licensees should be to provide the best opportunity for everyone to begin and complete a transaction without ever feeling that they were a victim of discrimination. And to inform them that if they were a victim, they have recourse and resources as to how and where they could file a complaint.

Not yet. But at some point, they will be for a number of reasons. First, the US stopped manufacturing R-22 refrigerant Freon in January 2020, and imposed an “import ban”.  Knowing this ban was approaching for almost a decade, companies had begun stockpiling R-22 refrigerant. Thus, it is available and might be for another decade, but will start to face issues with availability.

Second, when the US adopted the “Montreal Protocol” American manufacturers began switching their manufacturing from R-22 units to R410-a, also known by the brand name Puron.

Here we are 11 years later, and there are tens of millions of properties that use a refrigerant of some sort. 

Why does this matter? 5 years ago, a pound of R-22 cost about $14. If your system lost all its refrigerant, and you needed 10 pounds, the cost was $140. Manageable.

Today, delivered and installed by a qualified AC tech, a pound of R-22 is close to $180 retail. That same unit needing 10 pounds, that could cost the seller (or the buyer who now owns) $1800. Big difference. 

As an agent, it is NOT your obligation to determine the age or refrigerant usage of your seller’s system. It is their obligation. But the older the system, there might be more disclosure obligations. Will every property inspector identify the age and the refrigerant of a system? No. Some will, but mostly that is up to the seller.

Let’s assume that your seller had a new system installed in the spring of 2017. Is that R-22, or R-410a?  Odds are it is the newer refrigerant. But not guaranteed.

Simply put, listing agents, it's a great idea to have a conversation with the seller about the system so that both you and the seller would make the proper disclosures.

Run this through your broker if you are not sure.