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.

Calm Down About 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. “These are just the amounts that were awarded. Now comes the [settlement] negotiation part of that same piece.”

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.

In terms of how the NAR portion of the settlement might be structured, Dwiggins believes that it will be based on membership count.

For example, assume that NAR is responsible for a $2 billion settlement and there are approximately 1.5 million realtors. That would come to $1,333 per member. If the structured payout took place over 10 years, that would be a $133-per-year dues increase.

According to Dwiggins, if you’ve ever worked with an attorney, the amount per member is literally about two hours of a lawyer’s time.

The most important thing that needs to happen is that NAR needs to settle these cases, or the copycat litigations are only going to continue.

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 the DOJ and the FTC 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.

Sellers get another benefit from this, too: fewer people touring a house who aren’t serious buyers.

The verdict in the Spitzer-Burnett case will not be final until Judge Stephen Bough issues his final judgment. Bough could choose to ban the cooperative compensation rule nationally on any MLS.

Whether Bough decides to make this decision or if it results from pressure from the DOJ, FTC or some other source at a later date, Dwiggins believes this is likely to happen.

An Upside for Buyers Agents

Dwiggins pointed out that research from 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. “Studies by 1000 Watt have shown that consumers don’t disagree with what agents are getting paid – we just have to learn how to articulate it more clearly.”

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 [due largely to the doubling of mortgage interest rates] 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. If you are not willing to do so, there’s a chance the deal could fall apart. [In most cases], a seller is going to come up with that amount of money to pay,” 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 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.