Aug. 17: Real estate commission changes: don't give legal advice; dual licensing opportunities; FTC addresses fake reviews
Let’s end the week with something non-mortgage, but of great interest to many in the lending biz. Like sands through an hourglass… College football begins with "Zero Week" on Saturday, Aug. 24. Yes, that soon. There are seven games currently scheduled for that opening week in college football, with one in Ireland! The college football season begins in full force the following week. (The NFL season kicks off on Thursday, Sept. 5.) The dissolution of the Pac-12 conference has sent Stanford to the ACC, Washington to the Big Ten, and so on. What is the carbon footprint of it all? Some of these college football teams have awful travel schedules. Of every power conference team’s season from 1993 to 2024, five of the top eight highest-mileage seasons will be this year, with UCLA (now in the Big Ten) set to travel 19,618 miles this season, California (in the ACC) traveling 19,226 miles, Stanford traveling 14,021 miles, Southern California 13,951 miles, and Washington 13,725 miles. Hawai’i? The MWC is a “non-power” conference but those 18–22-year-olds will travel 29,777 miles this season. Yikes. Let’s see, jet fuel costs… and these planes consume fuel at a rate of…
People will still want to buy and sell homes
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The sun will come up tomorrow. Should lenders provide more help to real estate agents than they did for us during the development of the CFPB, TRID, the new 1003, and LO comp changes? Perhaps. But lenders should not provide legal advice to any real estate agents!
What’s the chatter? You can start with a Wall Street Journal article that that gives an unbiased opinion of the changes ahead.
Ed Groshans with Compass Point Research and Trading wrote, “The National Association of REALTORS (NAR) settlement is scheduled to go into effect on Saturday, August 17. Listing brokers will be prohibited from listing offers of compensation on multiple listing services (MLSs). We estimate 95 percent of MLSs have opted-in to the NAR settlement. In addition, buyer brokers will be required to have homebuyers sign representation agreements which should address the buyer broker’s compensation. As we wrote and has been reported, many brokerages and brokers are implementing policies that prohibit listing brokers from offering compensation to buyer brokers. The model for buyer broker compensation will evolve due to these changes. We estimate buyer-broker commissions could decline to 1.0-1.5% from its current average of 2.55%, according to Redfin. A 1000WATT survey found that 40 percent of consumers think 2.5 percent is too much compensation for a buyer broker.”
Arrivva sent out this marketing piece to its clients, “Here's what you need to know about buyer-broker agreements. What's new: All buyers now need to sign a contract with their buyer's agent. What we do: We've been using these agreements since 2017 for transparency. Our fee: We charge a fixed rate of $9,750 for our buyer-broker services. Industry trend: Many other agencies are charging about 2.5% of the sale price.
“Changes in Fee Disclosure. What's new: Buyer's agent fees won't be shown on websites like MLS, Redfin, or Zillow anymore. What it means: We'll discuss our fees directly with you, ensuring full transparency. How we communicate: We share our fee information on our website and in direct communications with you.
“That's it! These are the main things you need to know about the recent changes in the home buying process.”
Is dual licensing in your future?
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Yes, starting today, August 17, new rules will overhaul how Realtors get paid, potentially reducing real estate commissions by 25-50 percent. This change is expected to pave the way for new business models and could drive many full-service Realtors to leave the industry (CNN).
Friday’s podcast featured an interview with Luca Dahlhausen, Founder & CEO of Realfinity, on dual-licensing. Luca also had some useful information in writing on the subject. (Borrowers should also check out this site.)
“Rob, there are a few resources that your readers might find helpful about dual-licensing. They should check out the company HTV (Home Technology Ventures), a Wall Street Journal article that that gives an unbiased opinion of the changes ahead, and a blog post that we posted this week about the changes in real estate and our interpretation of them.
“At Realfinity, our mission is straightforward: we aim to become the leading platform enabling real estate agents to offer mortgages to their clients both at the point of sale and post-closing. We know that many of your readers and listeners are traditional lenders or brokers, but we are actively hiring experienced loan officers to serve as account representatives, helping to build a network of dual-licensed real estate agents.
“The NAR settlement will likely lead to buyers either paying agents out of their own pockets or agents being compensated by the seller through concessions or other special agreements. This situation naturally prompts buyers to reassess the commission they are paying in relation to the services they receive. Moreover, the role of the real estate agent has evolved very little, even though certain aspects of residential real estate transactions have drastically changed over the past few decades. For example, the advent of platforms like Zillow has democratized data, shifting the value that real estate agents bring to the table.
“I believe paradigm shifts, such as the commission lawsuits leading to the NAR settlement, can serve as catalysts for real estate agents to evolve their value proposition. One promising area for this evolution is mortgage services. Additionally, real estate agents have become more tech-savvy. AI and technological advancements have streamlined and digitized the mortgage process, creating opportunities for agents to integrate these services into their offerings.
“Of course, experienced loan officers will be interested in licensing and regulatory oversight. State regulatory agencies oversee the licensing and conduct of MLOs and enforce regulations aimed at protecting consumers, promoting fair business practices, and upholding industry standards. This doesn’t change for dual-licensed real estate agents.
“Obviously using a centralized tech-enabled platform like Realfinity allows for enforcement of these regulations in a very centralized fashion: an agent cannot issue pricing quotes or start loan applications in states in which he is not licensed.
“Furthermore, I think an important subject to touch on is the HUD’s recission of its previous blanket prohibition on dual employment for all government insured loans. Many lenders used this to prevent dual-licensing wholistically instead of allowing it for non-government loans. In short, this updated guidance by the regulator revised a previous rule specifying which individuals were prohibited from receiving multiple sources of compensation. These are all individuals involved in a real estate transaction where one could argue that they have a direct influence on the mortgage approval process (i.e., appraisers, underwriters, inspectors, engineers). Therefore, the barrier for a real estate agent or broker to serve the dual role of a mortgage loan originator was removed.
“As an example, the Realfinity platform allows DLRs (dual-licensed representatives) to submit loan applications and the associated documents to loan processing, but also draws a clean line between loan origination tasks and processing/ underwriting related tasks, which essentially serves as a second layer of security ensuring that DLRs have no impact at all on the credit decision.
“Originators know that in addition to state-level regulations, the mortgage industry is governed by federal laws such as RESPA and TILA. Both of these laws establish guidelines to ensure transparency, fairness, and consumer protection. RESPA, for instance, is a cornerstone of consumer protection in real estate transactions. It prohibits kickbacks and unearned fees while mandating certain disclosures, which is particularly relevant for real estate agents and brokers.
“Under RESPA, real estate agents and mortgage loan originators (MLOs) are prohibited from receiving compensation for services they have not performed. This provision aims to prevent conflicts of interest and ensure that transactions are conducted with integrity and fairness. To earn a fee for acting as both the real estate agent and the mortgage loan originator, an individual must perform both roles, fulfilling certain tasks (though I won't dive into those details right now).
“I strongly believe that technology can simplify the tracking and preventing of violations of these rules. For example, at Realfinity, loan files or pre-approvals can only be submitted by the dual-licensed representative (DLR) after they have completed specific tasks with the client. This ensures that the necessary tasks are completed before they are compensated. Additionally, regulations such as the Loan Originator Compensation rules under TILA must be followed. This responsibility primarily falls on the corporations sponsoring and employing these dual-licensed agents.
“Offering mortgage services needs to become natural and seamless for the real estate agent, not the workflow they have today. We believe that many of the existing payers have failed to provide that platform that makes it seamless. A real estate agent will never be operating on the same technology stack as a loan officer who is doing loans and obtaining his business via referral sources.
“As an example, with our technology platform agents can add buyers and homeowners, issue indicative mortgage quotes, start pre-approvals and collect/ procure loan applications. All communication in regard to the client or mortgage is also tracked in platform similarly to how Airbnb allows you to communicate with rental tenants. There are many similarities between dual-licensed agents and some very successful loan officers out there, however: They are only as good as the loan processing team/ machine that is backing them (at least when reaching certain volumes).
“We think that, for the consumer, besides a more streamlined process, the reality is that mortgages are becoming increasingly commoditized, and the simple determining factor is price. We are allowing real estate agents to embed mortgages at the point of sale and create a more efficient mortgage, eliminating a lot of the overhead and customer acquisition cost that traditional lenders have. In the current market, it's increasingly clear that the overhead costs associated with traditional lending operations significantly impact the cost of originating a loan. Introducing a new distribution channel offers substantial opportunities for improvement and efficiency.”
Luca’s note went on to discuss the benefits for real estate agents. “The integration of mortgage services offers income diversification, allowing agents to earn from both home purchases and mortgage transactions. By removing additional costs associated with customer acquisition & overhead typically borne by lenders competing for real estate agents or client business, dual-licensed agents can reduce the expenses involved in originating loans. This efficiency enables them to provide more competitive, lower mortgage rates to their clients.
“The ability to offer value via refinances or cash-out opportunities outside of a sale or purchase transaction increases the client touchpoints and thus builds stronger, lasting client relationships. Lastly, offering mortgage services streamlines the process and enhances transaction efficiency, giving buyer agents greater control over the transaction.”
(Luca writes, “If you are a loan officer who is interested in being at the helm of innovation and building a book of dual-licensed real estate agents, we are hiring experienced sales reps who have the potential to build their own roster of real estate agents. Or if you are a real estate agent who is interested in becoming dual-licensed, feel free to reach out to me directly.)
Stay away from posting fake reviews
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The FTC finalized the nature of its crackdown on fake online reviews and will put a maximum civil penalty of up to $51,744 per violation on fake reviews. The goal is to pursue the forces that seek to persuade algorithms to favor products regardless of their actual quality by keying into how reliant these algorithms are on reviews they trust implicitly. The FTC thus bans fake consumer reviews by anyone who didn’t have any actual experience with the product, and also goes so far as to ban incentivized positive or negative reviews.
A bunch of passengers are boarding a plane bound for Los Angeles when the captain and first officer come on board. Each is wearing thick sunglasses and carrying a walking stick, which they use to feel their way through the cabin towards the cockpit, tripping and stumbling as they go. Many passengers are understandably quite nervous, but several awkward laughs are heard as the cockpit door closes. It must be a joke… After all, two blind pilots would never be allowed to fly an airliner.
The plane taxis to the runway and accelerates to take-off speed. It starts to seem as though the plane is taking a little longer than usual to nose up, and some passengers begin to fidget nervously. More seconds tick by and the plane is still zooming along on the ground, and all the passengers are nervous. Finally, the plane nears the end of the runway, and every passenger screams in terror, unable to contain themselves. The plane suddenly jerks upward and clears the runway just in time.
A sigh of relief passes over the whole cabin. A few laughs are heard. It was part of the joke all along!
Meanwhile, in the cockpit, the captain and first officer are setting their course for LA. The first officer turns to the captain and says, "You know Earl, I hate to say this, but one day they aren't gonna scream, and we're not gonna know when to take off."
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