Bernice Ross

As the industry reels in the wake of the Spitzer-Burnett landmark verdict and National Association of Realtors CEO Bob Goldberg’s decision to retire early, I sat down with James Dwiggins, the founder and CEO of Next Home, where he shared his perspective about what’s ahead, where we go next and the steps the industry needs to take moving forward.

In my August interview with Dwiggins, he correctly predicted what was ahead. The defendants who didn’t settle would lose, there would be treble damages awarded ($5.36 billion) because it was an anti-trust case, and copycat lawsuits would soon follow if the defendants lost.

When the Spitzer-Burnett verdict was announced, plaintiffs’ attorney Michael Ketchmark immediately filed a new class action complaint against Compass, Douglas Elliman, eXp World Holdings, Howard Hanna Real Estate, Redfin, Weichert Realtors and NAR increasing the size of the class to include the rest of the country that was not covered in Spitzer-Burnett and Moerhl complaints.

The first thing I learned: We should all calm down about the size of the damages. The plaintiffs and their attorneys want to get paid. If the defendants go bankrupt, the plaintiffs get nothing.

“It’s very important that everybody understands when you see these big numbers, the plaintiffs’ lawyers are not trying to bankrupt these companies. That is not their intent. They have already signaled and have agreed to settlement amounts that were much lower than most of the pundits have been talking about on these cases,” Dwiggins told me.

Also irrelevant? The defendants’ appeal. Dwiggins believes that NAR and others will appeal this case but can’t afford a multi-year appeal process. Furthermore, to move forward with the appeal, they must post a bond that will cover the damages portion of these cases in order to cover the $1.78 billion judgment.

What Local Associations Can Do

Dwiggins strongly urged state and local associations to take immediate steps to create a clear separation where buyers are no longer compensated through the seller’s agent.

“The second thing that needs to happen is associations need to take a more proactive role in structuring things for the future. So, I want to be clear what the plaintiffs want, what the [Department of Justice] wants, and what the [Federal Trade Commission] wants: a clear separation between who is responsible for who,” he said.

In other words, the buyer’s agent represents the buyer and is paid by the buyer, and the seller’s agent represents the seller and is paid by the seller. What federal regulators don’t want is the seller’s agent collecting commission from the seller that then compensating both the seller’s agent and the buyer’s agent.

Dwiggins pointed out that research by 1000 Watt has shown Americans are willing to pay a full commission when they see the value of doing so.

“Everybody is busy with their careers, kids, and other activities, we want convenience. They’re not going to wake up one day and say we need to sell our house and do it themselves,” he said.

An Upside for Buyers Agents

While it would be hard for the industry to shift to a flat-rate model or an hourly fee model, as many attorneys use, Dwiggins thinks there’s a clear way forward: agents taking more time to explain their services to buyers and sellers and how their contracts are structure, especially if NAR can lobby Fannie Mae and Freddie Mac into changing their rules to allow agent commissions to be financed using the mortgage.

“The buyers are paying three times more than what your house was worth 10 years ago and they don’t have the money to come up front with those commissions to pay their buyer’s agent. So, you need to be prepared to pay the compensation to the buyer’s agent,” he said.

In the post Burnett-Sitzer environment we’re now facing, there is a tremendous upside for those brokers and agents who seize the opportunity, create high-quality buyer presentations, articulate their value propositions and master the art of negotiating their own commissions from either their buyers, with a buyer’s broker agreement, or from the seller. Instead of the seller’s agent negotiating the buyer’s commission for them, Dwiggins says buyers’ agents will get to dictate what they get paid.

“They get to articulate their value in their own terms and dictate whatever fee structure that might actually be. So, I will go on record as telling you right now, I actually think the good agents will see [their] compensation rates go up, not down, because they’re sitting down and clearly articulating their value to a buyer,” he said.

Bernice Ross is a nationally syndicated columnist, author, trainer and speaker on real estate topics. She can be reached at bernice@realestatecoach.com.