REINCheck

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You're listening to REINCheck with Andrea Rice, Contracts and Industry Specialist at REIN, where you get the latest member news and information delivered straight from the source, REIN MLS.

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Andrea Rice
Hello and welcome to REINCheck. I'm your host, Andrea Rice. And today we're checking in with REIN leadership for a recap of what is going on in the real estate industry and what REIN has done and continues to do to stay relevant in an ever changing real estate climate. Attorney Steve Story provides an industry overview. Board members John McAchran and Cavelle Mollineaux touch on recent updates to REIN’s rules. And attorney Brandon Allred is joined with SMAC member Tanya Monroe to talk about form changes coming February 12, 2024.

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Andrea Rice
So let's start by taking a listen in on a recent industry overview by Steve Story.

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Steve Story
My name is Steve Story and I'm a partner with Kauffman & Canoles. The reason I'm here is that Real Estate Information Network, Inc., REIN, which I have advised for the last 25 years or so, has asked me to come and give you some comments dealing with recent legal developments in the real estate industry, how they're impacting REIN and potentially impacting your brokerages and what REIN’s doing about them moving forward.

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Steve Story
So let me start with background in terms of the lawsuits that are basically pervading your industry at this point. A number of lawsuits were filed as early as 2018, 2019, basically alleging that real estate brokers, along with the National Association of Realtors and sometimes MLS, sometimes local or state boards of realtors, have engaged in an antitrust conspiracy in violation of Section one of the Sherman Act, commonly known as the antitrust laws, and that that conspiracy was to engage in per se price fixing in terms of the way real estate commissions were paid, particularly to buyer brokers.

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Steve Story
The allegation is that this scheme, which is the word the plaintiffs use, had been set up by the National Association of Realtors, along with other coconspirators in various markets, and that it entailed the listing agent setting the entire commission for the real estate transaction. And as part of that, having a unilateral offer of compensation that required the listing broker to agree to pay a portion of the overall commission to the selling brokerage firm.

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Steve Story
The allegations are that this caused buyer brokers to be overcompensated, and it came out of the sellers payments that they would otherwise have received. This conspiracy was allegedly adopt, the first suit said at the National Association of Realtors level with substantial involvement from other brokerage firms. Those are the allegations. The first of those cases went to trial in late last year, October, and resulted in a substantial roughly $1.875 billion verdict, and that is billion with a B. Under the antitrust laws, those verdicts are trebled.

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Steve Story
So it's roughly a $5 billion verdict that was entered against the National Association of Realtors. And a number of large real estate brokerage firms. So basically, the jury who decided the case found that there was a per se violation of the antitrust laws that was embodied in the unilateral offer of compensation that is in effect in most multiple listing services rules across the country as of the time these suits were brought and as of today. As a result of that verdict, and obviously the plaintiffs were very successful, there have been a series of follow on suits.

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Steve Story
Some had been filed before the verdict, most of them filed after the suit. So there's approximately 20 suits alleging that the unilateral offer of compensation and some associated rules are per se violations of the antitrust laws. Some are in particular states, some purport to be nationwide. All of them are class actions, and the bulk of those suits are continuing to head forward.

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Steve Story
There's only been one verdict in the Burnett/Sitzer suit, and that was the one for the 1.875 billion that's been trebled to roughly $5 billion. So the industry is in some turmoil. This has been a long standing practice. The unilateral offer of compensation rule has been in effect for a number of years, and it is pervasive and widespread throughout the real estate community nationally.

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Steve Story
So the question is, what's going on with that? From my perspective, as best I can tell, and I've been advising the REIN Board of Directors for the better part of the last 25 years. I don't think there's any conspiracy to fix commission rates. I think commission rates under the Rules of REIN are and always have been negotiable between the listing firm and the seller, between the buyer and the buyer broker to the extent there is one.

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Steve Story
And for the seller in terms of what the seller offers through the listing agent to a buyer broker. So it's part of REIN’s DNA to comply fully with the antitrust laws.

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Andrea Rice
You can go to REINMLS.com to hear Steve's full overview of how REIN is keeping pace with today's changing real estate climate. Also recently, board members Jon McAchran and Cavelle Mollineaux sat down for an episode of REINCheck to discuss updates to REIN’s rules and regulation. Let's take a listen to some highlights from that conversation.

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Andrea Rice
The next thing we want to talk about is the changes to the offer compensation.

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Andrea Rice
Can you tell us a little bit about the change there and what the Board was thinking?

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Jon McAchran
Yeah, absolutely. I'm sure everybody's seen the lawsuits and the information out there. The you know, the Board reviewed a lot of different things and information and talked to attorneys and, you know, tried to decide what made the most sense for the members. And when we looked at it, you know, we decided you've always been allowed to put a dollar or a penny in the compensation.

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Jon McAchran
You just had to have something. So now we're changing it to where you can do it a zero. So in some ways it's not a major change. In other ways, maybe it is. But essentially, instead of, you know, being required to put a penny or above, now you can put zero or above, and it's obviously a conversation with your seller.

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Jon McAchran
The seller will decide what makes the most sense based on their situation. And so we do have a bunch of new forms that kind of tie in hand in hand with this that we're shooting to have our first quarter. We've been everybody's we've been working very hard on these forms, kind of tie in to that as well. But this change for the meantime, we just thought it made the most sense to roll it out because like I say, in a lot of ways, it's not a huge change in the sense that you can put a penny in now and now you can put zero in and whatever the seller and the listing agent and listing

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Jon McAchran
brokerage decides is the option there. So the board felt it made the most sense to roll this out as soon as possible due to everything going on. And you know, they have the most transparency with sellers and make sure that sellers and agents all understood their options to go along with those new forms that are going to be rolling out first quarter.

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Jon McAchran
And one of those forms is actually the buyer brokerage agreement.

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Cavelle Mollineaux
The buyer brokers agreement. I could touch on that a little bit. That's always been an important form because, you know, Virginia Realtors, you know, the law recommends that a buyer broker be used when representing a buyer, but typically the buyer broker is something that is individual brokerages would have their a broker set up for a broker for agents to use within the brokerage. With all the changes that's been going on, I think.

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Cavelle Mollineaux
REIN, as a Board, we decided that we will rule out something very strong as an option that can be used as well. So within the forms that will be rolling out sometime within the first quarter here, there is a buyer broker REIN document. I think one thing that most people don't realize is would you say.

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Cavelle Mollineaux
Maybe.

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Cavelle Mollineaux
85, 90% of the forms are optional?

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Jon McAchran
Yes, absolutely. That's a good point. You know, so any of the forms are obviously a brokerage decision, unless they're required by law. So, you know, if you're an agent watching this, I would recommend checking in with your broker. But brokerages can choose to use the buyer broker. As you mentioned, they can build their own just as they can with other forms as well.

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Jon McAchran
I think, like you said, Cavelle, this is a really great option and there's a lot of great forms that agents choose to use from REIN because they're out there and because there's so much hard work from the SMAC committee that's put in to them. But ultimately it's a brokerage decision. If they want to use that form or if they want to create their own.

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Andrea Rice
That full podcast episode available in both audio and video format is currently available on REINMLS.com. So listen to the full podcast episode to hear more about the recent changes to REIN rules, including a look at artificial intelligence and how that is impacting our members and industry. Next, let's see what attorney Brandon Allred and Tanya Monroe had to say about the forms release scheduled for February 12, 2024.

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Andrea Rice
during their recent sit down.

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Brandon Allred
Commissions have been running through the listing firm for an extended period of time now. At present, the seller generally agrees to pay a set amount to a listing firm to the seller's broker, and then the listing firm or the seller's broker turns around and compensates the selling firm or the buyer's broker with a portion of that commission that is being paid by the seller.

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Brandon Allred
That feature of how commissions are paid is one of the key issues at play in the antitrust lawsuits that are surrounding the industry right now. And I know there's another discussion from Steve Story who represents REIN along with me that talks a little bit more about that litigation and some of the issues at play there. If you're interested in that.

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Brandon Allred
But one of the things that we have done in response to the issues raised by that antitrust litigation is trying to decouple the payment of compensation to the buyer's broker or the selling firm from the payment of compensation by the seller to the seller's broker or the listing firm. So we want to eliminate the mechanism where everything's okay, where all payment of compensation runs through the listing firms, and instead have a separate obligation from the seller to compensate their broker, the listing firm, and yet another separate obligation from the buyer to compensate their broker, the selling firm.

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Brandon Allred
Because of that, we can no longer have the obligation to compensate the selling firm coming through the listing agreement, which is sort of the way it works now, because the selling firm isn't a party to the listing agreement, the buyer is not a party to the listing agreement. And that listing agreement is really only a contract between the seller and the selling firm.

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Brandon Allred
So we understand that sellers will likely continue to offer to pay compensation to selling firms to buyers or brokers even after all of these form changes. So certainly they're not obligated to. And that's always a part of the negotiation as between buyer and seller as to what compensation a seller might offer to pay and actually pay to a selling firm.

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Brandon Allred
But if a seller is going to pay compensation to a selling firm, we need a mechanism to get the seller into privity of contract with the buyer and with the selling firm to actually pay that compensation. And there are two ways that you can do that now. One of those ways is through the compensation agreement, and then there's also a mechanism in the purchase agreement, and we'll talk about that in just a minute here.

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Brandon Allred
But this compensation agreement was really important for for SMAC because this is a tool that you can use to discuss and agree upon a contribution from the seller or commission payments that are owed to a buyer's broker to a selling firm by the buyer in advance of getting to a ratified purchase agreement. What we heard from SMAC and what we heard from many REIN members is that often these discussions and these negotiations take place prior to getting to a ratified purchase agreement.

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Brandon Allred
So this is a tool to have that conversation upfront. Keep in mind that the compensation or the seller's offer and payment of compensation to a selling firm or buyer's broker is always going to be negotiable until the point that you get to a ratified purchase agreement. So even if you have the parties enter into and sign a compensation agreement before you get to a ratified purchase agreement, it will always be contingent upon getting to that ratified purchase agreement.

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Brandon Allred
And of course, if there's a conflict between the ratified purchase agreement and this compensation agreement, the ratified purchase agreement is always going to govern because that is the definitive expression of the deal as between all of the parties. And I think we actually have the purchase agreement coming up next.

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Brandon Allred
Tanya?

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Tanya Monroe
Yes, so the standard purchases agreement on paragraph 17, we have the broker's fee and there was some edits, as Brandon say, we have to improve the transparency

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Tanya Monroe
and

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Tanya Monroe
also because with the buyer broker agreement, with the addition of having those new forms, we need it to rework the language. And so let's start, Brandon, with the paragraph 17 brokerage fee.

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Brandon Allred
Absolutely. So this follows nicely from our conversation on the compensation agreement, and what's happening here in Section 17 with this first addition is the disclosure of and really the definitive agreement on the seller's obligation to pay a portion of the brokerage fee, if any, to the selling firm who represented the buyer in connection with the transaction. So this Section 17 is going to become an integral part of any contract and any arrangement where the seller has agreed to compensate the selling firm in some form or fashion.

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Brandon Allred
Again, you'll see that there's the option to specify a percentage of the purchase price or a fixed sum. If you have an arrangement where the seller is not compensating the selling firm, the buyer's broker in any form or fashion, then you would simply specify zero in these blanks in Section 17. You will also see that the contract provides that the seller is going to compensate their own broker, the listing firm, through a separate agreement.

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Brandon Allred
And if there is additional compensation owed to the selling firm, the buyer's broker, pursuant to a buyer's brokerage agreement, the buyer is responsible for that additional compensation. Here we only disclose the obligation of the seller to pay a fee, if any, to the selling firm. And this is really the binding obligation that the buyer and the selling firm can rely upon to enforce the sellers obligation, if any, to pay that portion of the commission.

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Brandon Allred
So really, really important here. And going back to the compensation agreement, this may well track the compensation agreement. If you have a compensation agreement in a deal and the conditions are already agreed upon, then those commissions also need to be inserted into Section 17. If you don't have a compensation agreement, then this is the place to specify by the commissions that are being paid by the seller to the selling firm if there are any.

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Brandon Allred
Again, keep in mind that it is completely negotiable between the seller and the buyer until you get to a ratified contract. So if you have one thing specified in the compensation agreement, if you have another thing specified in the purchase agreement, the purchase agreement will always govern as between the two.

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Andrea Rice
So there you have it, some highlights of some of the recent episodes we've been putting together for you. Highlights from an industry overview with Steve Story. Highlights from a sit down with Board Members Jon McAchran and Cavelle Mollineaux about recent rule updates and a little bit of a highlight from attorney Brandon Allred and Tanya Monroe as they discuss the form changes coming February 12th.

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Andrea Rice
Full versions of those presentations are available now on REINMLScom Be sure you just check it out so that you can stay informed. And I want to thank all of you for listening as always, I really appreciate you taking the time to listen and stay informed. If you have any questions, please submit those to askrein@reininc.com and if you missed any of the previous episodes of REINCheck, I do invite you to go to REINMLS.com to take a

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Andrea Rice
listen, and be sure you subscribe so that you can get future episodes delivered directly to you when they are released. Thank you and have a great rest of your day.

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VO
You've been listening to REINCheck with Andrea Rice. Stay in the know from those who know. Delivered straight from the source, REINMLS.