Get Real Estate Podcast
Get Real Estate Podcast
Department of Justice to Uphold NAR Settlement, the Future Legal Landscape, and the Value REALTORS® Provide with Katie Johnson, Esq.
In this episode, Maryland REALTORS®' CEO, Chuck Kasky, Esq., provides historical context regarding past real estate practices, explores the future legal landscape of the industry, and examines a few potential unintended consequences that may ultimately affect consumers.
He is joined by the National Association of REALTORS®' General Counsel and Chief Member Experience Officer, Katie Johnson, Esq., who provides direct insight into the recent cases involving the Department of Justice and explains what REALTORS® can continue to do to maximize their value while providing services for their clients.
Katie joined NAR in 2007 and was appointed as General Counsel in 2014. As General Counsel, she is responsible for assuring that the programs, policies, and activities of NAR are in compliance with the law. She also is responsible for defending the association against legal challenges and initiating litigation to protect and preserve association assets and policies. As NAR’s Chief Member Experience Officer, she leads initiatives to enhance member engagement and satisfaction through delivery of trusted knowledge, resources and experiences that elevate member success and professionalism.
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In this episode, we are going to first take a step back looking at the real estate profession from a somewhat historical perspective, then dive into today's legal landscape, and finally discuss where we might find ourselves three to five years from now. We all know that real estate is one of the most competitive businesses there is. At the same time, we've designed local broker marketplaces, which create the largest opportunity for connections between real estate agents with properties to sell and those with clients looking to buy. This is the essence of cooperation and it is not inconsistent with competition. By leveling the playing field, smaller brokerages can compete with larger ones. Here are a couple facts I find interesting, but I have a sad life, so don't go by me<laugh>. We have over 2000 brokers in Maryland. Of the over 31,000 realtors, almost 60% are affiliated with the largest 20 firms. The member printout we produce each year consists of 66 pages with roughly 35 lines per page. 48 of those pages are brokers with five or fewer agents, 48 of 66 pages, 22 pages of brokers with just one meaning it's just the broker, a one person shop, 22 pages of the 66. Those brokers have only one licensee affiliated with them because of lower barriers to entry and enabled by local broker marketplaces, smaller players and new market entrance can advance technology, consumer service, and other innovations. This has also encouraged the introduction of many different business models. Hello, I'm Chuck Caskey, Maryland Realtors, c e o, and you are listening to Get Real Estate, the Maryland Realtors Podcast. Joining me for this episode is Katie Johnson, general counsel and Chief member Experience Officer for the National Association of Realtors. As the daughter of two realtors, Katie takes great pride in her role at NA r as general counsel. She is a roles, I should say,<laugh> as general counsel, she is responsible for assuring that program's, policies and activities of NA R are in compliance with the law. She's also responsible for defending the association against legal challenges and initiating litigation to protect and preserve association assets and policies. Katie and I have known each other going on 20 years. Katie, by the way,<laugh> as Na R'S Chief Member Experience Officer. She leads initiatives to enhance member engagement and satisfaction through delivery of relevant resources and experience for stakeholders. Katie lives in Chicago with her husband and three children. Katie, welcome to the podcast.
Speaker 2:Hello. Thank you, Chuck. It's good to be here.
Speaker 1:Yeah, it's great to see you again. I think we start at the beginning, as I mentioned in the opening before we get to the specific legal landscape that I also mentioned, give us a little history of, of the industry, broadly speaking. We have our own in Maryland, but, but broadly speaking, we followed the same similar trends. What's the root of root causes, I guess, of the current legal landscape?
Speaker 2:Right. Well, so in terms of the litigation that we have been defending for the last four years, nearly, I think we can aptly say the root goes back to the transition from sub-agency to buyer representation. Those of you who have been in the business a long time, as you mentioned, check, I'm the daughter of two realtors. So I lived in the world of sub-agency, which was pre 1990s, where the, all the, all the brokers, all the agents worked for the seller and those representing buyers or finding buyers had allegiance to the seller and thus were paid by the listing broker to be their sub-agent. Well, in the nineties, consumer advocates, realtor associations, realtors and state legislators and, and regulators agreed that buyers needed their own representation and buyers needed fiduciaries. They needed agents who were going to represent their best interests with regards to confidentiality and, and negotiating. And so thus was born in the 1990s, the concept of buyer agency. And that has brought, uh, brought great benefit to buyers. Um, and when that came into practice, the compensation of specifically through broker cooperatives, which we call MLSs, that model, stayed the same, uh, for good reason and the lawsuits are really challenging. Why did that model stay the same for compensation when the agency changed?
Speaker 1:Yeah. In Maryland, that change happened overnight, January 1st, 1999,<laugh>. So we weren't quite ahead of the curve, but we weren't actually behind it either. And so about seven or eight years ago eliminated what we used to call this thing called presumed buyer agency, which was buyer agency with no written agreement. And then about seven or eight years ago, the Maryland's agency law was, was amended to require a written brokerage agreement in every case. And so hope our members are aware of that and getting that buyer agency agreement signed before they show the first house. Mm-hmm.<affirmative>, because otherwise they're back in sub-agency. And you know, we don't, we don't want that. We want buyers to have that representation which they richly deserve. So that's just a little bit of to catch up. Yeah. So we're all on the same page. Yeah. So you mentioned the legal landscape and the lawsuits. Can you give us an update first with the doj? What happened most recently with that? I just read where they're in, they wanna submit amicus briefs in some of the other cases, so it gets a little convoluted, but take us through first the DOJ and I talk a little bit about our relationship with the DOJ and Sure. And where they're, they seem to be going off the reservation a little bit and then run us very quickly through the cases that we are still kind of in the middle of.
Speaker 2:Sure. Happy to do that. I, so thank you for asking me to start with the good news. The recent news of last week was a decision in our litigation regarding the doj. So what, what was that all about? In March of 2019, the DOJ sent us a very comprehensive civil investigative demand. It was called CIDs. That is the government's ability to investigate any business that they have reason to believe they wanna learn more about potential anti-competitive activity. It was comprehensive looking into all of our policies and practices, and we responded to the c I d. We eventually were able to negotiate a settlement with the Dano justice, which we announced in November, 2020. So our Maryland realtors listening, I'm sure we call the big announcement that we settled an investigation. And what was the deal? The deal was we agreed to enter into a consent decree if they agreed to close their investigation into all the matters listed in the C I D. And so we signed the consent decree, they signed the closing letter, and we had a deal. And the consent decree required some rule changes, which we talked about widely and eventually passed many of'em. But the DOJ didn't, didn't follow through with their deal. And when the administration changed in 2021, the new administration decided they didn't like the deal that the old administration agreed to and they wanted to get out of it. And they wanted to continue investigating N na r That had never happened in the history of Department of Justice investigating, doing, uh, resolving civil antitrust claims. And so we challenged them and we said, that's not right. We had a deal, we had a contract, we had an agreement. Yeah, you are a party to that agreement. You must abide by it. So we asked the court to enjoin them from further investigating us because we already had a deal that closed the investigation. And after a year and a half of considering it, the court issued its opinion last week saying That's right. There was a deal. The, there was a contract, the government said the case is closed and AR said that they would take these actions if the government agreed to close the case, they lived up to their bargain and their their deal. So the government must too. So the decision effectively thwarted the government's ability to further investigate us on the matters covered in the C I I D and really just for business in general solidified that parties dealing with the government should be able to rely on contracts that the government makes with them. So it was, it was a great win.
Speaker 1:So that was Federal district court, right? Yes. So are there any indications about whether the do o j claim plans to appeal that decision? Cause they can, of course,
Speaker 2:They, they can appeal and know, we, we have not heard yet whether they will, I believe they have about 60 days to decide whether or not they will appeal. And if they do we'll, we'll continue to defend it because we think the district court absolutely got it right in his opinion where he said, this is actually common sense. There's a contract, there's a meeting of the mines, you cannot unilaterally withdraw. And so we'll, we'll continue to defend if they appeal. So the other cases were instituted or instigated at the same time as the Department of Justice's c i D. So March, 2019 was quite a busy month. It resulted in two different class action lawsuits purported to be a class of sellers claiming that they have been damaged through their representation by a realtor. They say that using a realtor who participates in multiple listing service has harmed them because it has led to them paying artificially fixed and inflated commissions to their realtor. They allege specifically that the N na R rule, the participation rule, whereby participants in a cooperative offer compensation in any amount to buyer representatives. You know, listing brokers offer compensation in any amount to buyer representatives. The plaintiffs allege that that rule in that practice has led to high commissions paid because it props up the use of buyer representatives. These cases allege that buyer representatives don't do anything anymore because the internet is there and that buyers can just buy their home on the internet without the help of a professional. They allege that this rule and practice is artificially propping up the use of buyer representatives. They allege that if buyers had to pay directly out of pocket and directly for their buyer representation, they either wouldn't use them or they would negotiate a much lower rate because again, they allege that they get very little value out of using the realtor and they allege that other countries don't have this same system. And so therefore our system must be anti-competitive. So those cases are wrong on the facts, wrong on the law, I'm wrong on the economics. And we've been defending them for three years and nearly four years. And this fall will go to trial in the first of those two big cases.
Speaker 1:What, what are you seeing in response? What kind of questions are you getting? The m l s world is obviously Abu those people who who get news releases out of the ML s conferences and things like that are kind of all over the place. What kind of questions are you getting as AAR's general counsel and how are you kind of explaining where we are and a little bit about where we might be going?
Speaker 2:Sure. I'm getting all kinds of questions,<laugh>. Um, so let's start from the realtors. Our members, they're, they're asking, what's this all about and what's my risk and what can I do to avoid that risk? And those are all excellent questions. I just talked to you about two of the seller cases. There's also a buyer case pending and I'll just note it briefly cuz it relates to potential risk. But the buyer case is the same allegations as the seller cases and the same issues, the same practice, the same rules being challenged in that case. But they allege that buyers are harmed because they don't directly pay for real estate commissions, but they pay for home prices. And they allege that the home prices are inflated because the seller raises the price they're willing to accept for the home in order to pay these inflated commissions. They're, they're alleging not under fed federal antitrust law cuz we got that dismissed, but under 25 different state laws, they say under these state laws, we buyers have been damaged through our representation by a realtor who belongs to a multiple listing service. First of all, the good news for everybody except the five defendants in those cases, is that our members, by and large are not being targeted in these cases right now. N a r Realogy, Remax, Keller Williams, and Berkshire Hathaway Home Services, the major corporate organizations are defending these challenges on behalf of the industry. So we are taking the, the brunt, the laboring ore, unfortunately, the cost and expense of defending these claims. And we, especially N na r I'll only speak for N nar, I can't speak for the other defendants, but N na r is, um, is driven to avoid creating liability for any of our members. And so what we need to do is we need to prove that the practice and the rule is not only lawful, but that it has always and continues to serve the best interest of consumers. And so then by, by prevailing in those cases, we will help eliminate the risk of exposure to our members. That is certain, but what else can they do to help us win or to help them avoid liability? There's actually a lot they can do and it is very simple, but it is very important. And I actually implore our Maryland realtors and everyone to do it. And that is first and foremost, articulate your value proposition. Get better no matter how good you are, no matter how excellent you explain to your clientele or your network, what services you provide, how much you charge for those services, and why that serves their best interest. No matter how good you are at that, do a little better. Raise your game just a little bit to make sure that every consumer you're interacting with is crystal clear on the value that you provide to the transaction and to them specifically having a successful transaction. We have a lot of tools and I don't know if there's gonna be time to talk about it or not, but we have a lot of materials that can help you do that. But get started today doing that. What else can you do? Have very clear, concise agreements with your consumers that explain this. Right. So I think I can give a little props to Maryland Realtors for updating their agreements recently to make it clearer and easier to use and easier to understand. That is what we all need to do. We need to make sure that the consumers are super well informed about how they'll, what services they'll receive and what they will pay or how won't pay, or how their service providers will be paid. Make sure that they understand that so clearly in what you say, but also in agreement that they sign cuz that agreement that they sign is just a win-win for for educating them, for ensuring that you as a professional get paid for your professional services delivered and for showing a jury that the the person alleging to be damaged Right. Had full consent and, and understanding of the arrangement.
Speaker 1:Yeah, that, that is a really important point. And, and actually you educated me a little bit before we started the episode that Marilyn is in somewhat of a minority of states in terms of number one requiring before you may provide brokerage services to a buyer, you must have a written agreement in under Maryland law, otherwise you are a seller's agent. And so we have not only the requirement that buyers enter into this agreement with that representative, but that the compensation is explained in that agreement. And when we wrote that buyer agency agreement, you oh, long time ago,<laugh>, um, actually I go back to the nineties when the statute was written, that's where it really comes from. Back in the early or mid, mid nineties took effect. 1999 buyer agency became the default in Maryland. Now we were required to have a written agreement, but even in the original statute it said very specifically that buyers must be notified about how much compensation is going to be paid. I don't like the passive voice usually, but in this case it actually works. The compensation to be paid to the buyer representative and whether some or all of that compensation will be paid by another party, i e the listing broker and our re our buyer representation agreement specifies that in exactly that relatively plain English. And so it does behoove our buyer agents to explain that because it's not that hard a concept. I do earn a living doing this and I get paid through the offer of compensation cooperation and compensation by the listing broker. Explain that paragraph and it, it helps the buyer to understand what that relationship really is.
Speaker 2:Absolutely. And so, yes, kudos to Maryland again for being one of the dozen states that have codified this responsibility to educate consumers, buyers at the outset with these buyer representation agreements and kudos for including the requirement that you set forth the compensation that the buyer would, would be expected to pay or how the buyer representative is going to be compensated. That is a model for others to follow. And I know that other states across the country are considering enacting similar legislation to also get this consumer experience codified. And I think that's wonderful. And in addition to explaining how it works at, you know, explain the why Yeah. Why does it work in the buyer's, why that buyer's like, oh, okay, well you get paid this way cuz you're part of a cooperative, it's a business to business arrangement. Okay. That that's great. And because you're part of this cooperative, you get access to the, the most accurate detailed inventory in the, okay, that's great. That's why I wanna use you. I wanna, I wanna go through, but really what, why is it in my best interest? And it is because it, it creates this accessibility. If the it through this cooperative, I'm getting paid as your buyer representative from the listing broker whom is a competitor but is also part of this cooperative nature, then you have more liquidity, you have more assets, you have more ability to buy because your money is going into a down payment. Your money is making you a more desirable, you know, to the, to your lender. You have the ability to use those funds for the asset and not for this service. And that is a win-win, especially when it comes to first time home buyers and to low income home buyers.
Speaker 1:Yeah. Talk a little bit more about that because, and, and you know, we have this saying, be careful what you wish for<laugh>. Right? It's
Speaker 2:A good saying. We all
Speaker 1:Have it<laugh> cause you might get it right. And there is a, there is a paragraph in there about the impediment, uh, to home ownership. If, if buyers were required to pay brokers out of pocket, what are some of the impediments? Because it's, there's also a saying called sounds good if you say it fast. And all that means is of course you gotta, you gotta dig deeper sometimes to appreciate the real impact of something that you are hoping for. So, and especially about the inability to finance that. And so that's, uh, that's right on, on the website. So plug the website. Yeah. And, and hopefully our members will go there and then talk a little bit about either intended or unintended consequences if these lawsuits are successful.
Speaker 2:Sure. So the websites are competition.realtor, go to competition.realtor for a plethora of information. Yes. Talking points, messaging, infographics, articles, become your community expert. We are your advocate like Na r Maryland realtors, your local associations. We exist to make private property ownership accessible, available and desirable to consumers and the ability to help consumers transact real estate available to professionals. And so we are your advocate and I'm asking you to be your own advocate as well. Do, like I said, put yourself in the consumer's shoes in every instance. Imagine you are the consumer with no knowledge of how real estate transactions work. We know that it's the most infrequent and the most expensive transaction that most people will ever have in their lives. And so, starting from ground zero, what do you need to tell them to make them understand your role and your value and how they will be best served? We've got a lot of that information on this website competition.realtor, you, I'm sure realtors are successful. You have your own talking points. Brush'em off, use'em again. Put'em in social media. Write an article in your local newspaper. Do what you can to get that message out. Also, the commission specifically. Yeah. If you explain the how you explain the why and they're still like, Hmm, tell me more. Turn, you know, refer them to real estate commission facts.com. Real estate commission facts.com is a very simple one pager website that really explains the why, the how and the FAQs around local broker cooperation and the compensation that it fosters. So those are the resources. And again, I often say you can help us win in the court of public opinion, but it is very true. And that is where everyone can play a, a role in these outcomes. The outcomes of this litigation, it won't even matter if we win or lose. If our 1.5 million realtors are doing their job in the court of public opinion and are doing their true, accurate and faithful representation about the, the services they provide and the, the value that consumers get for it, we're all gonna win at at the end. It almost doesn't even matter the the legal outcomes. But you asked me to touch on briefly, what about the legal outcomes? Well, I feel very optimistic about the, the facts, the evidence, the law we should prevail and we, meaning realtors should prevail consumers. The, the rule in the practice is lawful. It's been in place for decades. It's been reviewed and analyzed by regulators and lawmakers and judges in various contexts throughout the many, many decades that it's been in existence. I'm confident that it's, it's good for consumers and that it's lawful. So eventually the outcome should be in our favor, but I say eventually because it takes a long time to resolve. Yeah,
Speaker 1:That's actually what I was gonna ask about timeframe. Yeah.
Speaker 2:Long time we're talking. So our, so we were sued in in March of 2019, right? The first case will go to trial in October of 2023. Mm-hmm.<affirmative>, that's the first case. Yeah. And then either anybody who doesn't like the outcome could appeal and so that makes it even longer. And then there's potentially appealed opportunity to the Supreme Court. So like many years we're looking at. And then the bigger case, so that first case is Missouri and it's contained in Missouri sellers. The bigger case is in Illinois and it covers about 20 different jurisdictions, like huge regions across the country. Mm-hmm.<affirmative>, and that's not gonna go to trial before 2024. And then you have, you know, the appeal, so we're, we're looking at a long time before there's a definitive outcome on these policies and practices, but again, I just can't say enough that you can take action right now to, to limit risk and better serve consumers by educating them on your value on what is this broker cooperative that you belong to and why is it work for their best interest. Whether you're talking to a seller or a buyer, it makes sense for them to work with competitors who co who cooperate and then also use these buyer representation agreements faithfully deliver on the value and the service that they articulate in those agreements. And keeping consumers as your guiding light, your north star, however you wanna say it, we'll always end in a positive outcome for both the professional and the consumers.
Speaker 1:Yeah. I I think a, uh, it's on, it's one of the FAQs in on the website is the fact that when a property is up for sale, if the buyer was responsible and we abandoned this, this model that has worked so well over the decades and decades, how many buyers are gonna get shut out? It's already a challenge. And how many buyers would be shut out because of the fact that lenders are not gonna finance commissions and that it requires an additional cash upfront, which people are already struggling with. So, I mean, that's one of the potentially intended consequences, actually not an unintended, but that's the intended consequence. But the negative impact of that, I think is, is staggering. I don't think we talk about that enough.
Speaker 2:Uh, you're absolutely right. And, and thi something that's a concept that's just totally missed on these plaintiff's attorneys and others challenging the rule or the, this particular practice is that, you know, real estate transacting real estate is such a complex, interconnected industry that, that has so many factors and factions necessary to result, to work necessary to work together to result in one successful transaction. And when you pull at any one part of this fabric, of this quilt, of this network, you, you don't know what is gonna unravel. You don't know exactly how that thread will unravel another part of the transaction. So it's imperative that those responsible for real estate taking, you know, being accounted for 17% of our, our GDP and so many jobs and industries relying on five to 6 million homes being transacted every year. I mean, taking part, a fundamental piece of the fabric could lead to these unintended consequences, as you said, disastrous in some cases if it further widens the home ownership gap based on race or the home ownership gap based on socioeconomic and identifiers, let alone leads to a dramatically decreased number of transactions a year. So there's so much that it takes to create a successful transaction that any change, any significant change to it should be very well thought out and the outcomes should be intensely studied before they just are put into a place.
Speaker 1:Yeah, yeah. And, and first time buyers are already historically low levels in Maryland. And of course the socioeconomic disadvantaged buyers are gonna be further hurt by that. But yeah, so be really careful about that. Katie, thank you so much. That's all the time we have, but we really do appreciate your time. I know you're very, very busy. And to our listeners, thank you for the privilege of your time. This is Get Real Estate, the Maryland Realtors Podcast. I'm Chuck Caskey, Maryland Realtors, c e o. Thanks as always. To our esteemed producer, Joshua Woodson, please subscribe wherever you get your podcasts. Like us, share us, give us five stars if we've earned them. And most importantly, give us feedback, including guests you'd like us to invite or topics to explore. So be kind, stay safe. Douglas Adams in the Salmon of Doubt, hitchhiking the galaxy one last time said the fact that we live at the bottom of a deep gravity, well on the surface of a gas covered planet going around a nuclear fireball 90 million miles away. And think this to be normal is obviously some indication of how skewed our perspective tends to be.
