What Does the NAR Settlement REALLY Mean for Agents? Leo Pareja Breaks It Down

I'm grateful to be here. I just got off a plane last night. I spoke at Inman and I had some very choice words for a lot of leaders in the room. So I'll tell you what I shared with them. And as soon as I hang up with you, I'm jumping in the car and I'm going to do this with Tom Ferry. I'm going to keep talking until everyone listens because this is super important and it's meaningful to the way that you feed your family. So I'm ready. I'm ready to jump in as soon as you guys unleash me here.

I do and I don't. Thank you. And I don't know how much time people have, so I'll talk until you guys kick me out. But again, like I said, I'm going to jump from here and then right after Tom Ferry, I gotta come back and do an earnings call because it's earnings day. So let's just jump right into it. So the very first thing I want to point out is that I actually completely disagree with the settlement and the lawsuit. I think the plaintiff's attorneys are a bunch of ambulance chasers who saw a big paycheck and they don't actually care about the consumer. So I said that. I just want that to be abundantly clear. I'm not sure that that actually helps the consumer. When the news broke, it was March 15th, it was a Friday, and I was trying to process it. I started getting emails and texts and workplace checks from a lot of you and it was real fear about how I'm going to feed my family and how am I going to do this. And this is the analogy that I've given everybody. I feel like I turned 16 years old, got a driver's license, started driving on the highways and went exactly the posted speed limits, and all of a sudden a group of outsiders told us that we're a bunch of criminals and we have to abide by these new rules. And that is... I don't know who just took control of the screen, but that was not me.

So, but this is life. And one of the things I've learned is life is 10% what happens and 90% how you react to it. So that weekend on March 16th and 17th, Glenn and I and our general counsel were trying to figure out what to do, what to say. And as you remember, a lot of companies didn't say a thing because they were scared of how that would affect their negotiations and their process with their litigation. And Glenn said, you need to do what is best for our people and talk to them directly. So say whatever you have to say and we'll take whatever risk we have to take. That Monday I went live and we had 53,000 concurrent viewers, which by the way doesn't confuse me that I'm special or think I have all the answers. I think it just proves how collectively we are all starving for information. So this hit us out of left field in a way because we're being told to do business differently than we've been doing it. And so it's important that you guys understand I am one of... this is how I've always fed my family. This is how I started every business I've ever been in. And the amount of misinformation and noise we're hearing is fear, because people are genuinely feeling vulnerable that they won't be able to provide for their family. So I actually have a lot of empathy and why I'm willing to talk to anybody and everybody in our company, outside of our company. The really cool part yesterday is I was leaving and I had a bunch of people stop me in the hallway and say, we're actually going to follow suit. We're going to educate. Thank you for... So again, hang in there. This is unprecedented. And what I say to people is none of us know how this is going to go. It's never happened before. And as an industry that cooperates, because we are cooperating with our competitors all the time, and it's probably the only industry I know that does that, because I truly believe both buyers and sellers need representation to hold their hand through this process. So the only reason we actually wrote forms is because of the lack of leadership we've witnessed across our industry. We are 17, 18 days out from this change and half the states we operate in have not given us new forms. A portion, or the vast majority of the ones that have, are extremely confusing and problematic and are doing exactly what we were accused of by the plaintiff's attorneys. Commission sharing at its core is the argument for the plaintiffs. So now I'm going to screen share because I actually have the NAR settlement agreement FAQs up. Can you guys see that?

It's live. I'm on their link. This is the most important paragraph for you guys to understand. Broker-to-broker commission sharing, as we know, is dead on the MLS. In all its detail, it eliminates and prohibits broker-to-broker compensation. It eliminates the fields for any and all subscribers. It requires all MLSs to delete the fields. It requires MLSs not to create, facilitate, support any non-MLS mechanism to provide this. It prohibits the use of MLS data and data feeds directly or indirectly to establish or maintain platforms that would support it off the MLS. To reinforce that, MLS must not, must not, must not enable. Very specific language. Requires compensation disclosures to sellers. Requires MLS participants working with a buyer to enter into a written agreement to tour property prior to writing a contract. That is the most important paragraph. Where we've seen a bunch of backlash and people saying, hey, this is contradictory. It is contradictory. So let's scroll down to paragraph 32. What should listing brokers advise their clients about a prohibition of offer of compensation? Listing brokers should inform their clients that offers of compensation will no longer be an option on the MLS. This change will not prevent offers of cooperative compensation off the MLS and it will not prevent sellers from offering buyer concessions on an MLS. Concessions to a buyer closing and compensation would continue to be negotiable and should always be negotiated between the agents and the buyers and the consumers. This is the crux of why a lot of competitors and talking heads have said, well, why would you go so far to prohibit broker-to-broker compensation if it's allowable under paragraph 32? NAR has one set of rules, MLSs have another set of rules, and then we have the commentary from the DOJ. So about a month or two ago, California Association of Realtors was putting out broker-to-broker compensation and the DOJ filed a cease and desist and said, don't do that. We don't like the language. It's unclear. So coming up to a couple weeks before this is all about to happen, with the lack of forms and then the forms we've seen come out that are so confusing, we said we are just going to take a stand as a business. We have the right as a company to make a business decision to say we are not going to do broker-to-broker at all. Now, that doesn't mean we're not going to work with buyer agents. That doesn't mean the seller can't offer compensation direct seller to buyer broker. Follow along. The crux of the litigation from the plaintiff's attorneys is commission sharing. What I promise everyone watching this, what I promise you is that after August 17th, there is a crop of current and new attorneys watching what we do. And the last thing anybody wants to do is be exposed to a new class of plaintiffs called buyers. This feels like semantics and just words and details, but it matters. We are no longer going to broker-to-broker. But if your seller wants to advertise off MLS following your MLS rules, that's perfectly allowed. Our position is if it's allowed within your local market and you're following the MLS rules, it's perfectly okay. Just we've shared all of our docs. We put out... did everybody get an email from me yesterday? Please check your inbox. We're giving you the paperwork in order to do it. Now, very important stuff to unpack. The reason I'm obsessed with talking about this and making sure you have all the paperwork is the enforceability. If you guys would go back to March and May and anytime I've talked about this, as soon as this stuff happened, my very first question is, okay, how does this all work? Who's going to police it? At NAR Midyear, when they had the NAR with like 800 people in this, the 800-person meeting where the whole thing they rolled out and said the MLSs are going to police this. What that means to you, this is going to turn into a revenue-creating opportunity for MLSs. Yes, we've already gotten notifications of the first MLSs. Any mention, and again, there's like 600 of them in this country, so your MLS could vary, but the largest MLS in the country sent out an email last week saying that any infraction of any reference or attempt to reference buyer broker-to-broker compensation on the MLS will be an immediate $2,500 fine with no warning and your listing will be deleted out of the MLS. We've had other MLSs tell us it's going to be a $5,000 fine to the agents and $7,500 fine to the broker. We've had other MLSs say three strikes and you're kicked out of that MLS. Guys, I don't want to be in the fines business. I don't want to be in your business. I am a platform that empowers you to build whatever size dream you want and I'm here to create less friction in your life. But this was not possible if we just held our breath and stuck our heads in the sand like we're seeing a lot of other people do. I don't want to be any more in your business than I need to be. I just want to protect you. I don't want to create another instance where you can be sued, where we can be sued, or more tactically and operationally, is be fined out of existence. These MLSs, there are the two pieces. There is going to be an audit requirement on us that we have a buyer broker in order to pay you. One MLS told us and said if we don't have the right form in our file as the broker, we are to return the commission to the seller. So we're not doing this for fun. We're doing this to protect your business. We want to empower you guys and I want to educate every single person. When I was in the hallway, the amount of broker owners who came up to me and said, hey, thank you for saying it out loud. And I said, can you please just say it on the internet? It's getting kind of lonely out here, right? We need to prepare ourselves for what's coming. We didn't choose any of this, but we can't pretend it's not happening. So the MLS rules are what I'm most worried about right now. There's going to be... there's two sides of it. You have to have a signed buyer broker representation agreement in order to be compensated and it needs to be prior to the offer being written and the property being shown. That's what the rules say. Again, I'm not opining on how I feel about it because I honestly don't think the buyer broker should be stuck in someone's face prior to seeing a property for the first time. But here we are. The second thing is broker-to-broker is no longer being permissible by our company. But that does not mean... I fully expect you guys to work with buyer agents. I fully expect you to cooperate or work with listing agents. But the difference is the mechanism. The mechanism that we all grew up with is dead. And that's the part I need to unpack for you guys. The unilateral offer of compensation, which was the promise that you would be paid a fee for bringing a buyer, that was actually the stickiest part of the MLS function. If it was advertised X and it was listed for Y, you would be paid that percentage at settlement. And if there was a problem, you took them to arbitration with the MLS. Correct? Raise your hand. You guys all probably experienced that at some point. That mechanism is dead because that field is deleted. So going forward, you got to make sure that the contract reflects the consideration, whether it is seller concession to the buyer to compensate your agreement or it's seller-directed commission to the buyer brokerage company. But each contract now has to have this part of the contract. It has to be part of the contract. And again, I go back to MLS rules. I just showed you the ambiguity of the actual rules themselves. People are saying, well, I could do it off MLS. Well, please understand the definition. The MLSs are saying it has to be two clicks removed. What does that mean? It can't be a shortcut from this to that because then you'll still be fined, right? What you guys need to understand is you must now have a buyer broker signed. So this is the sentence I've been saying till I get blue in the face: treat your buyers like you treat your sellers. Every buyer consultation should look and feel exactly like a listing presentation. You should be sitting down with a consumer, assuming it is competitive, that you are going to be competing with other agents presenting their value proposition. You should have a very detailed presentation that identifies your value proposition, what you are doing, and for what fee, with an expiration date. And I say put on your hats and like a listing agent, imagine going to a listing presentation and pretend we were just going to say, hey, when the offer comes in, I'll find out what I'm willing to get paid, or like let's just do this for as long as it takes, or maybe we get tired of each other, right? That's not how we treat sellers because the MLS won't let us. The rules on listings are part of the MLS rules. You have to have a signed agreement with adequate showing times and the compensation being shared. It was all those specific details. And this is the world we're in now. So you... and also guys, this is being covered by the major media. I'm talking to Time later today. I spoke to the Associated Press, CNBC. I'm talking to CNN on Monday. Like there is a ton of interest from consumers and it is super important that you guys actually understand the details and the nuances. Consumer Federation of America gave us a lot of press for our buyer agreement because of simple and clear and in plain English. We are doing the same thing with our listing agreement. The way it was written, it was written so a lawyer doesn't have to translate it for you. But again, just be aware that there is a lot of attorneys paying attention to our industry and we don't want to create that opportunity again where we create more liability for you guys. So again, we are not... you are no longer collecting X and then sharing it. You are collecting your fee for your services rendered. And at this exact same time, the seller can instruct you to offer compensation to the buyer broker directly. We are just getting out of the middleman business of collecting it and sharing it. Right? Because this is the other thing that's super important for you guys to understand. The buyer agent is no longer allowed to receive any more compensation than what's in their agreement. That's an important rule change. The buyer broker is entitled to what is in their agreement. So in a way, there's a couple ways to think about this. One is you sit with a seller, and by the way, the way I'm advising everyone to script this and to explain this is: prior to August 17th, this is the way the world worked. After August 17th, this is the way the world works. So you educate. This is my fee for the services rendered. A couple of things can happen. Mr. and Mrs. Seller, we can just say, hey, we're willing to offer compensation. And you know the verbiage that has been approved by most MLSs, and again, this is a moving target, so I'll say this today and we could find out that this is no longer allowable next week. But as of right now, you can put in the MLS remarks: seller is willing to entertain any and all requests. Can somebody mute? Put it in the purchase contract. So again, you will see variations of this, but some folks may say, hey, we're willing to entertain concessions. Put it in the contract. And some people will actually probably offer a seller-directed compensation. Again, and even if another company is offering broker-to-broker, you can say, thank you, Mr. Listing Agent, we will put it as part of our contract and we will not be accepting broker-to-broker. Again, sometimes it feels actually silly, the nuances here on the language, but it matters, y'all. We are very focused on making sure that we are protecting you and our company going forward so we don't create additional liability. So a couple more things and then I'll leave it all for Q&A. I don't want to be in this business of writing forms. If other states create forms that we think protect you, we... and by the way, you were able to use your forms. Just get with your broker. And there are parts of the forms I don't want you to use, specifically the broker-to-broker sharing part. But if your state has forms that you want to use and you need us to talk you through that, you can do that. It's always about choice. But that's why we wrote forms that were simple to understand, that we're able to teach across the country because we operate in so many different states. I think somebody asked me to state the language again. Seller is willing to entertain any and all requests. Period. Put it in the purchase contract. Period. Okay, those were my big ones that I wanted to get out. This is about education. This is about education. This is about education. This is about education. And it will be to the consumer, it'll be to other agents, it'll be to... And again, we are in a cooperating industry where we deal with our competitors in a cooperative way. I don't think that changes. I think that's to the benefit of the consumer. I believe, you know, everyone should have representation. But I'll pause right there and I think I'll open it up for some Q&A.

Yeah. Gotcha. Thank you for that. So Michelle, if you want to moderate and just start... I don't know if you want to do unmuting again. And by the way, I feel like I've been on the phone with a lot of you individually 12 hours a day and I will continue doing that until we get through this. And again, I will promise you that by December we'll all have forgotten this. It'll be new. It'll be the new normal. And I've been getting lots of questions from major media. It's like, well, what's it going to look like? Or what's the new fee going to be? And you know what my answer is? The new fee will be what the new fee is. Great. If a company or a vendor provides a service for too low, they go out of business. If a company or service holds a price higher than the market can bear, you go out of business. That's capitalism. A service provider will provide a service for a fee that's acceptable to a consumer and you find equilibrium. The fee will be what the fee will be. But I truly believe that consumers will choose to be represented by professionals at a disproportionate rate. That's great. Charity, I know you're also co-host on this right now, so thank you. If you can moderate the chat and see if there's anything that needs to float to the top. I'm going to go with the order of hands raised. I think it was a crapshoot between Ed Kaminsky and Anna Powell, so we're going to go with Ed on here first. Go ahead, Ed, you have some questions.

So, good question. And this was an interesting one I was talking through to somebody the other day. I think mechanically this is how it's always worked because if we look at the HUD-1, each side has their fee. So seller and buyer. What we've done the entire time I've been licensed for 23 years is someone would go to a listing appointment and collect X, and you would collect it on behalf of both the buy side and the listing side. If you look at our new listing agreement, it actually says this is what I'm charging you for my listing services, period. Now, if you want to use the buyer... the seller can direct the broker, or you can wait until the buyer broker requests commission concession, whatever you want to put it as in the contract. Credit towards their fees. Again, it will come from the seller on the HUD-1. It will probably behave very similarly to what's happened, but it's... and Ed, this is where some people say this is literally semantics. And my answer is yes. We're just saying you are negotiating your seller fees. Then the seller has the option to either offer one out of the gate, not offer one out of the gate, say it's negotiable, present it with the offer. But Ed, this is the truth going forward. It has to be negotiated into each contract because the unilateral offer of compensation, the mechanism we grew up with, the enforceability apparatus that was built into the MLS is gone. And that's not a Leo thing. That's every MLS in the country. That is paragraph 19 of the FAQs. So I've been working on drafting new listing contracts, looking at this, and I'm just feeling compelled to just put in, let's call it 5% commission as the listing fee. So we have that conversation. At some point, we're likely going to make an offer of compensation to the buyer so they can pay their buyer's broker, and we'll remove it from that 5%. Can I do that? So no. So you would do whatever... per part of that 5%, Ed, what you're going to keep goes in one field. And if you were going to make an offer, if the seller is going to make an offer, you use the form Michelle just showed you and you do it for the buyer side at the time of the listing. Correct?

Exactly. And we could spend the entire time talking about this because this is super important, right, Ed? But this is the distinction. Let's say you offer X. Ed, remember, mechanically the agent is only allowed to collect what is in their buyer representation agreement. So it actually doesn't matter what you're offering. It has to be... and by the way, some of you will probably have a higher number that's being offered, right? How many of you showed a property that had a much lower number than your professional fee may be worth for what the services you provide? And now you can actually include it in the contract and have it be part of the negotiation and it gets you out of the middleman. Well, I've got the mic. The offer to be paid when the buyer is unrepresented, is this coming up a lot? Where buyers are going to come in and not want representation? So we put it in there because it's part of the conversation with the settlement. I fully expect that there are consumers watching all the media that we're all watching saying, hey, I chose not to be...

No. And by the way, Ed, you belong to CRMLS. Read the email they sent you last Friday. They will fine you $2,500 and zap your listing out of the MLS and they're using AI to do it. There is no warning, it'll be automatic. And I say we like buyer agents, guys, like again, this is where the internet gets it. You know, you've seen all the memes that the real estate accounts are creating. This will be a very expensive joke for some of you. Got it? Okay, all right.

That is what we know today. And so that is, I'm going to keep saying it, like whenever you guys say 'Leo said', well, Leo, like somebody said what Leo said in May, I'm like, yeah, what I said in May doesn't apply today anymore, right? We are dealing with real-time information because what Leo said in May is we weren't going to be able to have off-MLS compensation advertisement. A bunch of MLSs have said, hey, we're not enforcing that. Because again, what I said back in March and I said in April and May, I said, yeah, these rules are rules, but what is the penalty? What is the enforceability? That's actually very much a concern, right? I'm licensed or I held broker's licenses in two states. In one state, the penalty for something was a $1,000 fine and the exact same infraction in the other state I was licensed was up to one year in prison. So my question is always like, what are the enforceability on rules and who's going to police them and how do we enforce them?

Yeah, so I think anything that's currently under contract, and again, I will defer to your state brokers and like the ones who have a relationship with me, I will respond. So message me on Workplace and I'll have somebody from the broker team reach out and we can figure that out. As I understand it, everything prior to that date just closes the way it does. We've provided you an agenda to transition active properties. And just so you guys know how real this is, I've gotten messages from the MLSs instructing me and to then like confirm that I've destroyed commission information in our IDX and VOW feeds for listings, right? Because right now our websites are powered by MLS data. They've said I need written receipts and you confirming that this information has been destroyed as of this date. So very serious. We are providing you all the paperwork. And again, like there's much information, many other things. As Tina said, I'd probably rather be working on like revenue and all the other tools I acquire and build for you guys. That is what I like doing most of the time. I never intended to be in the forms business.

I can keep going.

Yeah, so I said this on a live previously. I said NAR provides us MLSs and forms. The second they stopped doing either one or both, I'm open to the conversation. But again, I'm just creating a couple forms and it's a massive headache, right? The purchase and sale agreement in 50 states, it's a whole another beast. There's all kinds of requirements in each state. And again, I've said this before and I'll say it again. I think the way we do real estate in North America, with the perfect set of information that is MLS rules, MLSs provide this platform where we actually have a perfect set of data that says three bedrooms, two bath, and we have a definition, a definition of a bedroom is has a closet, a door, and a window with egress of over 44-inch window sill and 60 feet on the egress, right? There are other countries where you walk in and, you know, they take liberties with all kinds of definitions, right? We have a standardized marketplace that's enforced with rules and that is super, super important. But cooperation and compensation was a big piece of what MLSs did. So again, I think the very honest answer is we shall see, Justin. And that like on that front, are they amending code of ethics to go more hand-in-hand with this new settlement and the new terms? Like, I mean, I'm having conversations like how does, you know, the longstanding idea of procuring cause fit into all of this? Like, I just, I don't know kind of where that stands. A lot of things are going to have to shake.

Yeah, so that was one of the reasons why we got so much praise for our buyer agreement because, you know, there are very confusing buyer agreements. We made ours super clear. So we had some definitions and you guys got to remember, we don't know what we don't know yet. There is so much of this that will now play out and there will be examples in case law and all the stuff that comes with any massive change. And it's very prudent to make sure that we listen, we pay attention, we update. Like, I am completely okay with saying, hey, that was probably not the best way to do it. Let's amend it, let's improve it. We rolled out the first buyer rep agreement I think in 14 days and I think we're already on version two. I fully expect to have probably version two of the listing agreement in a month once you guys have actually used it, given us feedback.

Absolutely.

So, great question. And it's going to be state-specific because some states have put out really good stuff, like Austin Board of Realtors, but others it's super confusing. And so we went through the super painful process of preparing listing agreements that work in all 50 states. So you don't have to use your state, you can use purely our forms if you prefer to use yours. That actually have, you know, we've worked with and explained how we want you to use your local forms. You can do that as well. We've always been about choice and empowering you guys to do what is best for your business.

So purchase and sale contracts will still be executed and then we'll have additional forms to make sure that, you know, we've given you language for the purchase contract. Like for example, 'seller is going to credit eXp Realty X dollars or percentages' with the exact language we've put out, but to the effect of saying, you know, there's a seller credit payable to eXp Realty to cover this fee, again per the purchaser's request. And that's how we're doing it, right?

Yeah, no, this applies to residential real estate. So rentals, no. Again, all compensation offers on the MLS disappear. Paragraph 19 of the FAQs of NAR is where we model this and it's really, really, really clear. And again, going back to what I said, it's where the penalties of enforceability that are going to come that we're mostly paying attention to.

Thank you, Dan. That was a good one. Yeah, that's a great one. As far as we understand, that has nothing to do with because it's commission sharing on this transaction. Outside referral, as far as we know, still okay. If we hear anything else, we will tell you guys.