Dishin' Dirt on Ending Broker-to-Broker Compensation: A Necessary Change

In this episode of Dishin' Dirt, I discuss two critical issues in the real estate industry: the urgent need to eliminate broker-to-broker compensation and the alarming rise of the Green Mirage scam targeting homeowners. I address the legal risks associated with broker compensation and advocate for a more transparent commission structure that prioritizes client interests. Additionally, we discuss the Green Mirage scam which involves fraudsters impersonating mortgage lenders to steal money from unsuspecting homeowners. 

Takeaways

• Broker-to-broker compensation is a legal risk that needs to end.
• The Green Mirage scam is targeting homeowners nationwide.
• Real estate agents must prioritize client fiduciary responsibilities.
• Transparency in commission structures benefits both agents and clients.
• Fear of steering is driving up housing costs.
• Scammers are using sophisticated tactics to defraud homeowners.
• Educating clients about scams is crucial for their protection.
• The real estate industry must adapt to avoid lawsuits.
• NAR should take a proactive stance on broker compensation issues.
• Agents should focus on negotiating commissions directly with clients.

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Gary

* Gary serves on the South Carolina Real Estate Commission as a Commissioner. The opinions expressed herein are his opinions and are not necessarily the opinions of the SC Real Estate Commission. This podcast is not to be considered legal advice. Please consult an attorney in your area.    

Transcript

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This is Dish and Dirt with Gary Pickering, South Carolina's only podcast dedicated to the real estate agent craft. And now the host of Dish and Dirt, Gary Pickering. And Greens, and welcome back, everyone, to another episode of Dish and Dirt. I'm your often opinionated but rarely wrong host, Gary Pickering, coming to you from the beautiful downtown Columbia, South Carolina offices of Blair, Cato, Picker, and Cash Line, this, the last week of January 2025. Big show on hand for you today. Got two topics we're going to go over. First, we're going to talk about broker-to-broker compensation and how it needs to die in 2025. It's a lawsuit waiting to happen. It's a festering wound on the industry, and we need to be done with it. We're going to talk about that and why it needs to go away. We're also going to talk about the green mirage. This is a brand new scam, a scheme that's going around where they're coming after your former clients, trying to get them to change where they are sending their mortgage payments. And this is resulting in people losing their houses and losing thousands and thousands of dollars. So big topics we need to talk about there. Before we get to that, don't forget we do have a few of our t-shirts left. I'm wearing one if you're watching me on YouTube. I'm wearing our addition dirt t-shirt right over here. You can see it right over there. I'm looking at the wrong place. On the back, it has often opinionated rarely wrong. So love for you to have one of these t-shirts. If you would like one of these t-shirts, all you need to do is to email me at Gary at BlairKato.com. Tell me your size and where you would like to pick up the shirt, and we'll have it delivered to one of our eight offices for you. Also, don't forget to like us, share us, and subscribe and tell all the other real estate agents you know all about Dish and Dirt so we can continue to grow this on all our platforms so we can keep bringing you this updated information. So let's talk about broker-to-broker compensation. I've said it all year long, guys. This is not over. The threat is not over. In fact, I think the threat is perhaps even heightening at this very moment. Lawyers are not going to sit around and watch Michael Ketchmark, that jackass, make$500 million in attorney fees and just walk away and say, oh, well, I missed my opportunity. There's no reason for me to try to find another lawsuit against the NAR or real estate agents as general. It is a big threat. There's a big threat still out there, and everybody knows the big threats out there. I think there's two big areas we have to look at in terms of threats in 2025. And we've talked about both of these ad nauseum. First is clear cooperation. I'm not going to talk about clear cooperation today, but I will let you know that over the next couple of weeks, I do have James Dwiggins, who is the CEO of Next Home Realty, and I also have Leo Perea coming from EXP coming and join us again. We're going to sit down with both of these gentlemen individually and talk to them about clear cooperation, why it's important to the industry, why it's important to fair housing, why NAR cannot walk away from the clear cooperation policy. So we're going to bring those guys to you here in just the next couple of weeks. But the other issue that I think is really festering out there is the broker-to-broker compensation. And we're going to talk about that today. I think it needs to die in 2025. It probably needed to die a long time ago. This is the heel that I will die on this year, protecting clear cooperation and trying to end broker-broker compensation. And quite frankly, I think if the NAR, the National Association of Realtors, wants to do something to protect its agents in 2025 and move the ball forward, being proactive instead of reactive, it would be getting rid of broker-to-broker compensation. And while they're at it, they might as well go ahead and get rid of dual agency at the same time. Both of these are tremendously bad for client fiduciary responsibilities. So let's talk about it. Right now we have a couple of people in the industry who are really leading the charge, and they've been leading the charge for over a year. As I mentioned, Leo Perea is coming on our show. He's been leading the charge on this. EXP has taken the forefront of this argument and was one of the very first brokerages in the country to no longer do broker-to-broker compensation. But we're also talking about T360 President Jack Miller and California Regional Multiple Listing Service General Counsel Ed Zorn. And I'm trying to get Ed to come on the show. Leo's friends with him and said he would try to hook us up. So I'm hoping we can get him on to talk more about the legal aspects of the broker-to-broker comp and why it needs to go away. Earlier this month, Ed Zorn was at Emmin Connect. It was being held in New York. And he was sharing the stage with a lady named Jessica Editson, E-D-G-E-R-T-O-N. She's from the leading real estate companies of the world. And they called the broker-to-broker compensation model the next legal storm. And they are imploring agents all over to stop and avoid future litigations, stop falling back into these old practices and sharing commissions. They say this is going to be where the next legal storm is going to come from. As Zorn says, there's absolutely no reason to share a commission. There's no need to make an offer of compensation from a listing broker to a buyer's broker. We just need to let it go. Let's stop these lawsuits right now. Zorn is a thousand percent correct. I have yet to have one single agent tell me why broker to broker is necessary. It is not necessary. Commissions could be handled a much easier, more transparent, safe way between the parties where you're out of it. We're going to talk about some of this as we go through today, about what the reasoning is and why we need to get rid of it. Not a valid reason that I can see that we need to keep broker to broker. And all keeping broker to broker is going to do is going to result in more lawsuits. So let's talk a little bit about the broker-to-broker compensation model. This is where the listing agent shares a portion of the commission they receive from their seller with the buyer's agents. And what has happened is the DOJ and Ketchmark and all the lawyers out there have brought up the concerns about potential, and that's a keyword here, potential antitrust violations. And they say it results mainly from steering behavior, where agents might prioritize listings that have higher commissions, that lacks a transparency for the sellers who don't truly understand how they're getting paid, who they're paying, and then why their properties are being looked at or not being looked at. And so if you think about this, the fact that the MLS used to have a field where you could sort properties by the amount of commission that you were being paid, kind of plays into exactly what catch market NAR is saying. It's absolutely mind-blowing that MLS ever did such a thing that lets you, you are absolutely allowed to sort how much you were going to make on a property and then make your search query based on that. So you're only showing properties to your client which you are getting paid the most. So it kind of plays right into the argument. Many have argued that this practice should be stopped because we need to be promoting a more consumer-centric real estate market where the sellers and the buyers have the greatest control over how much commission is being paid to which party and who's paying it. Miller says that he believes there's either minimal steering or probably even no steering. But it doesn't really matter because it's not the steering that's the problem. It's the fear of steering. Remember, I said that potential word was the key word in all this. That's where we're looking at. It's the threat of steering which the DOJ and these lawyers have in these lawsuits. That's why these prices are keep propped up. That's what their argument is. The prices are more expensive for houses because of the threat of steering that is causing this issue. Zorn says it's not steering, it's the fear of steering. This whole idea of compensation is quite simple, quite frankly, but we have made it so difficult since the Sitzaburnett case came out. How we can try to get around the rules. Anytime you start with something with how can I get around, it's probably a breach of your fiduciary duty to your client. The rules are there to protect the client. So when we already start talking about how can I get around this rule, what can I do, we already know we're headed in the wrong place. I've also never seen an industry that the leaders of the industry are so afraid of change that they fight the change at every step of the way. I mean, you go back to the internet being this huge change in real estate and how wrong all the big dogs were saying it was going to be the worst thing that ever happened to real estate and how we don't need to have it. It actually turned out to be the best thing that ever happened to real estate. And I've talked about this multiple times here, where actually this rule here might actually be something better for you because I think it will solidify your value to your consumer, and you'll be able to prove that, show what you do for your consumer, and I think you will actually make more money. Um, but some reason in our industry, we just don't want to change, even when a lawsuit and a settlement tells us we need to change. But let's go back to what this whole lawsuit was. Let's go back to catch mark and DOJ. The whole claim here was about antitrust through steering. And what they were saying is there was no valid reason that a listing agent should have any say or any control as to what the buyer's agent made or what the buyer's agent agrees to pay the buyer or what the seller agrees to pay the buyer or the buyer's agent. Why is the listing agent involved at all? That's the whole core of the argument. And so when you get down to this settlement, and the and we've got this new settlement where you can't advertise on the MLS, it really still doesn't get to the heart of the issue. And the heart of the issue is the listing agent should have no control, no say, no nothing to do with, quite frankly, what a buyer's agent is paid by the buyer, or whether or not the seller agrees to pay any portion of that. Why is the listing agent involved? And even though I still think catch mark's a complete asshole, he's not wrong here. I've never understood in this industry, since I've been doing it for 30 years, why the listing agent was setting the commission and saying this is how much you're going to make buyer's agent. It makes no sense. And their core argument actually is correct, in my opinion. And if you look at this, it's just think for yourself, how many times have you just taken what the selling or the listing agent offers? You may have signed a commission agreement for sex with your buyer, but this particular listing agent's only offering two. And so you get two, and that's all you get. And you don't go back to your buyer and ask for that other. I think that changes under the new system because we're now having these discussions up front with our buyer, telling our buyer, my fee to navigate you through this process is 3x. We hope we'll be able to get all that money paid by the seller. We'll ask, we'll see what they do. But if not, you owe me the difference. And I'm having agents that are telling me all over the place, I used to take whatever the listing agent offered and take it on the chin. Now I go back to my client and say, well, they're willing to pay two. You owe me three. Do we want to up our offer, or do you just want to pay me yourself on the closing statement? And it's worked. And so I think this is a better system for you as a buyer's agent, particularly, but I think it's more transparent and more truthful and more honest system that we're doing. You also have to look at how many times did real estate agents call me and say, so-and-so agents only offering one or one and a half, my commission's three or four. This should be against the law. They hit they have to pay me three. It's against the law what they're doing. They're getting six and only giving me one. That should be against the law. That's the very definition of antitrust violation right there. Your phone call is saying that I should be paid this and there should be some law that guarantees me my payment. So you were kind of making the lawsuit for catch mark easier. And that's where we're going here, guys. We're going back to another lawsuit. We've we're simply doing this because the DOJ has claimed that this idea of broker-to-broker compensation is costing sellers more money because it inflates fees. Now, I think that's complete nonsense. Commissions have not come down. Price houses certainly have not come down. But as Miller and Zorn have correctly said, perception kills. And that's where we are. The perception is killing it. So why, again, I beg of you to tell me why are you the least bit involved, invested, or concerned with what your seller's willing to pay the buyer's agent? Why does it even matter what they're saying they're going to pay a buyer's agent right now until we have a contract? It's impossible. I mean, there's nothing in our system that requires or guarantees that payment. Back in the old days when we had the multiple listing service, once you put the fee on the multiple listing service, you were stuck with that fee and you couldn't change it once an offer came in. So you were guaranteed to pay that. But I could go out today and advertise that I am willing to pay 10 times commission. I can do 10x on every buyer that is brought to me. It's irrelevant until we sign the contract. Just because I advertise I'm willing to pay up to 10x doesn't mean I'm paying 10x. It means you'll submit an offer and I will negotiate that, the price, the terms, the commission. None of it's relevant. The advertisement is irrelevant. It does not matter if you are grandfathered into the MLS and only you and the entire world with the only agent who's allowed to advertise, and you're the only person to go in the MLS, and you can put a big old three, a four, or five, or whatever you want up there as a co-commission that you're willing to co-op and pay 5% on the other side or 10%. It doesn't matter because until some type of agreement, whether it's a contract, a Form 120, or some other type of compensation agreement signed, there is no payment. So it does not matter what's in there. The other reason it does not matter what a seller advertises is because a buyer's agent can only get what a buyer's agent agreed to get under the exclusive right to buy agreement. You can't have a seller saying, I'm willing to pay tax. You've got a contract with your buyer that they're going to pay you 2x and go, well, I'm going to take the 10x because they're offering 10x. You can only take 2x. And no, you cannot go in and amend it to capture that extra 8x. The only time you can amend it is if you're providing additional services. And those services have to be reasonable. You can't say, well, I'm also going to help them move in that day, so I'm going to go ahead and get another 8x for commission. None of that is going to work. So the core argument of what they're making is actually makes good sense. But the DOJ is overstating it. I have said this multiple times and I continue to beat this dead horse. There truly is no valid reason when you look at how our system works for broker-to-broker compensation to exist. All compensation needs to be handled. The listing agent gets a commission from the seller. The buyer's agent and the buyer agree to what the buyer's agent will get paid. When they submit an offer, they then ask either for none, some, or all of the commission to be paid by the seller. Not the seller's agent, by the seller. And the seller upon receiving this offer can decide to accept it, reject it, or counter it. So there's no reason for a seller to say, I'm willing to pay two, three, four, five X. Send me your offer. I will look at what you're asking. If you're asking for list price, if I'm asking for a list price of 200 grand and you offer me 100 grand and want me to pay 3x, the answer is probably going to be no. But if my house is 200x and you're offering me 250 and want me to pay 3x, well, the answer is certainly yes. How can I say no until I know what your answer is? It all comes down to two things. The net sheet. The sellers need to live by the net sheet. They need to understand the net sheet. They need to know what they're going to net and not worrying about what the sales price is or what the commission rates are. Look what you're netting. That's the only thing that really matters here. That's truly it. But we got to get back to this mentality. The second thing is that really matters is the seller has to know before they can say no. They don't need to immediately say, I'm not going to do something or I'm not paying commissions. You don't know yet until you know what the offer is. You might not want to pay commissions, but when they offer you an offer that's so ridiculously good that you would, then you're going to go ahead and accept those offers. But the bottom line, guys, if we want to continue to get sued, if we want to continue to have an industry that's under attack, keep demanding your sellers pay you some form of commission that you're also going to share to the buyer side. Stay out of it. Get away from it. I was talking to a good broker friend of mine the other day, and she told me this has been the easiest time of her life ever working with sellers. And I said, why is that? And she goes, I used to have to ask them for 6X. You know how easy it is to ask somebody for 3X when you ask them for 6X? To them, it's half price. I said, Well, what do you do about the buyer side? I tell them, I don't really, it doesn't matter to me what they pay the buyer's side, but at some point, the buyer's agent's probably going to come with an offer and they're either going to ask you to pay none, some, or all of their commission. And at this point, you don't need to tell me whether or not you're willing to pay anything or nothing or some of it because we don't even know what the offer is. When the offer comes in, we'll prepare a net sheet. When the net sheet comes in, we'll look at it. And if you like what they're asking and you net what you want to net, then we'll accept the offer. If we don't, we'll counter. And one of the components, besides price and down payment and contingencies, will be commission. And we'll decide then. You will go over the net sheet and you'll be able to decide that. And she said that's been a whole lot easier. And for the life of her, she says, I cannot understand why I spent one minute of my time and energy and most important, credit that I had built up with the seller trying to convince them how much they had to pay the other side. It wasn't even my money, and I'm wasting my credit that I built up with this client trying to convince them to pay more money. What do I care? Let's get the offer in, let's see what they're offering, what we're going to net, and then they can decide. They'll see the offer, then they can decide whether they want to lose the offer or not by not wanting to pay any commissions. The key here is that her clients are not being asked to pay the buyer side up front. She also told me that she had a real estate agent. I need to talk about this for one second, that told her that they would have sold her, shown her house, but she wasn't offering any commission. She goes, Would it pay commission? Well, you weren't offering it. What are you doing? This was a seasoned agent that told her this. An agent's been in this business this is probably as long as I have, because I know the guy, 30 plus years. And he's saying, I won't show your house because you're not offering commission. Her comment was, why would I even say what the commission is? Because it's irrelevant what I say my buyer or seller is willing to pay. It all matters once we'll get a contract, submit an offer and we'll pay it. Guys, on the buyer side, you got to understand this stuff. Whether you've been a brand new agent or you've been doing this for 30 years, you got to understand this and learn it does not matter what is being advertised at all. They can advertise 3% all they want, and you bring an offer, they'll say zero. I'm not paying what you offered, you said you're paying 3%. Not at that offer, I'm not. Give me a better offer, I'll pay 3%. It's completely irrelevant. The key to all of this is nothing needs to be predetermined. Period. Nothing needs to be predetermined. It needs to be negotiated between the buyer and between the seller when the offer of the when the contract offer comes in. That's the bottom line. If we're going to continue to do this all way, we're going to get sued. I'm saying it and saying it and saying it over again. Already we've seen a lot of the industry leaders, La Machia Realty and EXP Realty, have already gone away from broker-to-broker compensation. And I remember when I had Leo on the show back then, he said that everybody was freaking out, saying that EXP doesn't want buyers to get paid. That was not at all true. All he's saying is that his broker on the seller side will not be part of that discussion. That's going to be between the buyer and the seller to negotiate. They'll help their clients negotiate it, but it is not for them to determine who gets paid what. And I think we're starting to see more and more. I've talked all over South Carolina this year. I have been nonstop talking about this settlement. And more and more of these brokerages I'm talking to are telling me the same thing. They want to get out of broker-to-broker compensation. And I think it's good for everybody. We need to get everybody out of it. So what I'm telling you today is if you're a broker, go tell your owner, I don't want to do broker-to-broker compensation anymore. I don't want the potential lawsuit. Let's get out of it. If you're owner of a small company, call me. I'll tell you how to do it. We've got to go in your office policy and we've got to change your office policy saying that we don't do not do compensation with other agents. That's a requirement of the state law. Whatever you're going to do for compensation, you have to put in there in the office policy. So if we're not going to comp other agents, we need to set that forth in your office policy. And that needs to be the policy of the office. No more compensation to the other side. You get comp by the seller, the buyer, the agent gets comp by the buyer, and then the parties can negotiate if anybody's going to pay each other's. All of this needs to be done in a form similar to the 120. You can do it your own form, or it needs to be done in a form 120. It does not need to be part of concessions of a contract that brings all kinds of loan issues in. It needs to be a standalone document. You submit a contract, you submit a Form 120. Parties negotiate both. They fill them out, they sign them, and we're done. That's how it needs to be done. Let's stop this predetermined compensation garbage. Let's stop getting sued. If any AR wants to protect you guys this year, and I certainly think they do. They need to lead the charge on this. They need to lead here. I would love to see SER say, well, in South Carolina, all of our docs are not going to be broker to broker anymore. We are going to start pushing our agents and our brokers away from it. If that would happen, everybody will follow suit. Because that's what we're seeing already. We're already seeing people do this. Next home here in Columbia. We're already seeing more and more move away from broker to broker and are going simply direct comp. And that's what's going to happen. The more people that do it, it's going to force the rest of the market to join along. Why can't South Carolina be the leader in this in real estate instead of being the followers? Not really this hard, guys. We're making this compensation thing way too hard, and we're still leaving ourselves exposed to lawsuits. So that's my hill I'm dying on in 2025 as it comes to broker-to-broker comp. Now, let's talk about our second item on the agenda, and it's something that all of you need to be reaching out to your clients to warn them about. And this is from Inman News just last week. There's a massive phone spoof operation that's going on coming out of India. And they are scamming hundreds of thousands of dollars from homeowners. And how they're doing it is they impersonate their mortgage lenders. And they are convincing the mortgage owner, the borrower, they're convincing them to instead of send their normal payment to the mortgage company to send it somewhere else. And these people are called mules in the U.S. They're collecting the money and then it goes back to the scammers. They're calling the scam the green mirage. And the reason they're calling that is that in all 50 states, homeowners have been contacted, they're estimating over 5,000 phone calls a week. The Federal Communications Commission has warned about this. And they're saying that over 400 mortgage companies have been spoofed. And what they're doing is they're getting those phone cards. And when you pick up the phone, it will say Wells Fargo or TD Bank or Gill Mortgage. But it's not. It's a spoof. The number and the telephone is not it. It's actually somebody calling from India, and they are posing as a mortgage lender. In a lot of these cases, these victims have actually reached out to the mortgage company already because they were having trouble making payments, so they were expecting a return phone call. But these scammers have done their research. They know details like the homeowner's name, their address, the current mortgage company, what the original amount of the loan was, and they're enabling these events to happen by socially engineering tactics, convincing people that they're lawyers, convincing people to tell them information like their social security number to making them think that they are in fact true people, that they are truly calling from the lender's office. But what happens is these payments are no longer being made. They are actually going, getting made to these uh fraudsters, and they're doing it by asking them to go uh to Walmart and buy what's called a Walmart green dot money card. Right there should be your big red flag. When somebody's telling you instead of making payments, you need to go buy a gift card or some type of money card and mail us that card or give us the number from the card. That's pretty much a good guarantee that it's a fraud. But so far they have received over 853,000 complaints of these types of imposter scams since 2023. And that has resulted in$2.7 billion in fraudulent losses. Now, the worst thing about this is most of these victims have no idea after they send the money they've been scammed until their actual lender contacts them and puts them in default and even in foreclosure. So not only do they lose the money they have sent, they wind up usually going into foreclosure with their current lender. So this is a huge scam. This would be a great opportunity for you to reach out to all your former clients that you close with in 2022, 23, and 24 and say, hey, there's a scam going on. I just wanted to let you know about it. Be careful. Advise them when anybody calls about the loan, say, I don't take phone calls about my loan, I'll hang up and I will call back. And then you go on to the 1-800 number that you have in your materials or on the internet and you call that number and say somebody was trying to call me. Don't ask for their phone call for you to call them back because you'll call them right back and you'll go straight to their phone. So if somebody calls wanting information or wants to talk about your loan, do not discuss it with them. Say, I'm gonna hang up and I'm gonna call the lender's number I have on my file directly, and who do I need to ask for? And I guarantee you, when you call and ask for, they'll be like, we have no idea what you're talking about. So go ahead and call your clients, warn them so they can be protected. All right, that's the information we have for you this week. We appreciate y'all tuning in once again. I hope you all have a wonderful weekend. Tell everybody about Dish and Dirt. Come back again for another episode. Y'all have a great weekend. Take care.