As the founding broker of Ohio Broker Direct, I had the opportunity to discuss the shifting realities of the real estate industry in an insightful interview with NPR. During this conversation, we discussed the significant shifts occurring in the modern real estate industry, particularly focusing on the impact of technological advancements and changes in brokerage models. We explored the complexities of real estate commissions and the role of buyer agents in today’s market, as well as the complexities of real estate commissions, the ongoing legal battles, and the increasing calls for ethical practices within the industry. This transcript captures our comprehensive discussion, offering a deep dive into the challenges and opportunities that these changes present to buyers, sellers, and real estate professionals alike. I hope it provides valuable insights and sparks further conversation on the future of our industry.
The Interview
Adrian (NPR): Can I just ask you to introduce yourself, like who you are and what you do?
Joan: Sure. My name is Joan Elflein. I’m the real estate broker owner of Ohio Broker Direct. I started out in the real estate industry in 1983. After 40 years, although I’d like to say I’ve seen it all, every time you turn around something comes up that you haven’t seen before. And now, of course, it’s all about the conglomerate of lawsuits. If it’s not the DOJ, it’s the class action lawsuits regarding commissions and numerous structural changes within the MLS and the economy. The economy, of course, is the huge guiding factor right here.
Adrian: And we do want to talk about the lawsuit and get your take on that, but just to sort of make sure we have the basic terminology right, how should we describe you? Are you like a realtor or a real estate agent?
Joan: Well, I guess I am all of it. I am a real estate broker. So you have real estate brokers, for example, they own Coldwell Banker or Berkshire Hathaway or what have you, or they oversee everybody in a brokerage for lack of better terms. And then you have agents who work for the brokers, but they’re all independent contractors. So I’m the broker-owner of Ohio Broker Direct and I am also a Realtor.
Adrian: Okay, but Realtor is not [the correct term]?
Joan: Okay, If you are a Realtor, you have joined the National Association of Realtors. I know they do not like it to be referred to this way, but at the end of the day, it’s like joining a union.
Adrian: Okay. And they don’t like people who are not in their association using the term Realtor to describe themselves?
Joan: They cannot. No. Realtor is exclusive to members of the National Association of Realtors. Otherwise, you’re a real estate professional, a real estate agent, a real estate broker. You are not required by any state to be a member of the National Association of Realtors, but if you wish to have the Realtor designation, you get to shell out the money to become a member.
Adrian: Okay, yeah. I guess it’s like, you know, Velcro doesn’t want companies calling their hook and loop things Velcro.
Joan: Exactly.
Adrian: Okay. So you’re a real estate broker, Realtor, the whole nine yards. Could you, just in a very short nutshell, describe what you do?
Joan: I have been in this business a long time, however in 2005, the state of Ohio introduced what’s called a waiver of duties, which allows sellers and buyers to waive certain duties, which really opened up the limited service industry. And that is my primary focus. So I will charge a seller a flat fee to list their properties in the MLS, which has the potential to save them thousands of dollars because if we procure the buyer, there’s no buyer agent commission to anybody. So if you’re looking at a million dollar sale, you can save $60,000, less our flat fee. And then, if a buyer agent brings a buyer, they’re paying whatever they choose to offer as compensation to the buyer agent. We don’t dictate that fee. Some offer zero. Some offer what you often see, which is 3%. A lot of them offer flat dollar amounts or varying percentages, but it puts them in the driver’s seat as to what services they want to retain us for and what they wish to pay to a buyer brokerage rather than being required to pay 6-7% to a listing brokerage. And no matter what–because if you list with a full service brokerage–they have what’s called an exclusive right to sell agreement, meaning if they procure the buyer, they get the entirety of the commission. And if a buyer agent brings the buyer, they get whatever the agreed upon split is. There’s no opportunity for the seller to sell the property on their own without an agent involved if they find their own buyer.
Adrian: You use the terms full service and limited service, what’s the difference there?
Joan: A full service broker will list the property, facilitate all aspects of marketing, and open the doors. Meaning, you’re scheduling for the showings, you’re arranging, you’re taking the buyers through if there’s not a buyer agent involved, or quite frankly, you’re just putting it on showing time and letting them schedule it on your behalf. You’re charging a full service commission for that. With us, we’re limited service. So the seller, in order to save money, is responsible for scheduling their own showings. And if there’s an unrepresented buyer, they’re going to let the buyer into the property. That opportunity enables them to save a substantial amount of money. I’ve closed well over a billion dollars with this limited service program, so I’ve had sellers save anywhere from, you know, $80,000 on a commission to just $500 on a commission. At the end of the day, depending on the price point of the property, a buck is a buck.
Adrian: So that sounds like nice work if you can get it.
Joan: This is the direction the industry is going to go. Back in the 80s, we did not have the internet the way we do now. They finally came out with the MLS books–once a week you gave those to your clients–and you, the agent, were in the driver’s seat. You had complete control of the market. Now you have the internet and everybody can search the internet for a property. Many buyers are quite convinced they can represent their own best interests better than some of the buyer agents. Some buyers would just prefer to retain an attorney to negotiate on their behalf. And again, if you look at, for example, a million dollar property, a buyer agent wants 3%–that’s $30,000. An attorney is not going to charge you $30,000 to negotiate a contract on your behalf. Why are you paying that buyer agent $30,000 to open a door and to negotiate a contract when–although they may have an exceptional skill set on negotiations–obviously they’re not a licensed attorney, which is held to a higher level of accountability than even a real estate agent.
And here’s the big side that I think we should discuss: if a seller is selling a property that they have not owned for two years–if you own a property for two years, you have the benefit of making a profit and not necessarily paying capital gains on that profit unless it exceeds a certain amount. But if you have owned it for less than two years, you’re going to pay capital gains on that profit. And you also have to look at the fact that the price point is higher because you are building in a commission for a buyer agent. There’s always a way to find a way to write that off–work on your net to sell, mark it down, deal with the IRS, be honest, play fair. But if you look at the buy side, the buyer who pays a million dollars for a piece of property that has built in $30,000 as commission for buyer representation, at the course of 7.5%, that $30,000 becomes $45,000 over the course of 30 years when they’ve paid off the property. That’s a lot of money to pay for buyer representation. Even on a hundred-thousand-dollar deal, if they’re asking 3%–that’s $3,000–that becomes $4,500. That’s also a lot of money.
Adrian: I think this is important to maybe unpack a little bit because I have gone through this process and I even have trouble explaining it a little bit. So for people who have never bought a home, can you just explain this split commission system that is so common and that is sort of at the center of this crop of legal cases? How does this commission system work?
Joan: For decades, the buyer agent was actually a sub agent of the listing broker. There was no “buyer agency.” In the nineties, when they came out with buyer agency, where you actually became a buyer agent representing the buyer with buyer agency disclosures, the buyer agents were instructed in their teachings, in their brokerage manuals, hardcore to push for 3%, and they told their buyers that they were working for free. There’s no such thing as free. They weren’t working for free, they were being paid based upon a percentage of the sales price. So yes, on the settlement statement, that came out of the seller’s proceeds. But at the end of the day, the buyer was paying a higher price for the property in order to accommodate the seller paying the buyer broker out of their sale proceeds.
Adrian: Oh, so this is interesting. Are you saying like historically before buyer agents were sort of seen as this very common thing..?
Joan: They were sub agents, meaning they were actually representing the seller. The buyer didn’t have true representation.
Adrian: So that seems like a conflict of interest.
Joan: Well, that’s why they came out with a buyer agency in the 90s. They did not correct the issue with regards to compensation at that time. They came out with buyer agents who will represent the buyers. Buyer agents told the buyers they were working for free, when in fact they were being paid out of the sale proceeds off the seller’s side, which, you know, required an increase in price to accommodate it.
Adrian: Yeah, and that doesn’t seem to solve the conflict of interest.
Joan: That doesn’t solve the conflict of interest. But another problem that we’re going to run into with this is, let’s assume for some reason that the NAR and everybody loses, what’s going to happen to “buyer agency?” How are buyer agents going to get paid? Is it just going to be semantics with regards to new documentation saying the seller’s been paying this amount, whatever the seller agrees to? Okay, that’s fine, you’ve still got it built into the price. You’ve still got buyers paying interest on that over the course of the life of the loan.
On the flip side, what happens if a buyer does not have representation and they need or want that representation due to lack of skill set?
Then you have the “haves” and you have the “have nots.” Your buyer of a million dollar property is going to be much more likely to have the financial means with which to retain buyer representation on their purchase. Whereas a first time home buyer who is just eking out enough money to get by may not have the money for such representation. And they’re at risk because they lack the knowledge and the skill set and, quite frankly, might get burned financially. So there’s a lot of different ways to consider how this could all play out, and we really don’t quite know the answer to that yet. The one thing I would say we do need to throw in there is the fact that there is legal counsel, and legal counsel does not charge the same amount of money that these buyer agents are charging to write a contract. How much should a buyer agent be paid to open a door?
Adrian: Well, it sounds like you’re saying somebody could just hire a lawyer for cheaper?
Joan: Well, the attorney cannot open the door because they’re not a licensed agent. The listing agent can open the door. The buyer agent can open the door. The attorney cannot open the door. However, the attorney can facilitate all aspects of contract negotiations and escrow for significantly less than what buyer agents are charging as commissions for opening doors and writing a contract.
Adrian: So, it’s interesting–it sounds like you’re saying that with the current system of split commissions, there’s a conflict of interest here that you’re not comfortable with.
Joan: It’s not so much a conflict of interest as it is a lack of disclosure. If there was full disclosure, you could remove the conflict of interest out of the equation. So, if there is a listing agent that lists a property for 6% and they negotiate with their seller that if they procure the buyer, they’ll do it for only 5%, at the end of the day, that listing agent is still representing the best interest of the seller, not the buyer, but getting 5 percent because they’re getting both sides of the equation at a negotiated reduced fee. But if you look at a buyer agent that is representing the buyer, they are 100 percent in for that buyer. The listing agent is 100 percent in for the seller. So there’s a lot of gray area in there that is played.
I’m all about full disclosure. I do not charge a listing fee with part of that listing fee designated as the formal buyer agent commission per se. My sellers sign a separate document and they choose. And this is what’s really important. They choose what they wish to offer–if they want to offer a flat dollar amount, if they want to offer a percentage, if they don’t want to offer anything and they just want to ride the wave, wait it out, and sit and fish for an unrepresented buyer. Lots and lots of my listings sell without buyer agents involved because buyers call me directly, I send them directly to the seller, and everybody saves money. There’s more room for negotiation and price without any commissions involved. It’s kind of a win-win. And a lot of these buyers will simply retain an attorney to represent them at a significantly reduced fee.
Adrian: If it doesn’t need to work that way, why does it?
Joan: It’s all about the money. Back in 2005 when the ability to do limited service came out, the National Association of Realtors blackballed us. MLSs were not wanting to allow our listings to roll to all the different sites. Real estate brokers were not wanting our listings to roll onto their sites. The Department of Justice sued the National Association of Realtors, and I believe it was in 2007, they came to a settlement which eliminated a lot of the [funny business] and the NAR started playing nice in the sandbox. Now it’s very, very common to deal with limited service brokers such as myself, but they really tried to fight it and they fought it hard. One of the biggest issues that a lot of people are not aware of–the DOJ of course is now aware of it, as are a lot of the attorneys regarding these class action suits–is the National Association of Realtors–and I don’t know if collusion is the appropriate term–but with full knowledge of multiple listing services, the Board of Realtors created a system where a buyer agent could set up a buyer for a search. Let’s say the buyer wants a three bedroom, two and a half bath home, approximately $200,000, and there are a dozen properties that are perfect matches for this particular buyer. But the buyer agent chose to set them up on a search that did not send them any information on any properties that were not offering 3% commission or more because it was all about the money to them. That was a fiduciary failure to their buyer. The Ohio Division of Real Estate would pounce on them upon learning this, but the fact is it was commonplace. Of course, that is all gone, the MLS has been cleaned up, and they do not allow that type of search capability anymore, but it took lawsuits to get rid of it.
Adrian: So, if that kind of [funny business], as you refer to it, has been cleaned up, it seems like what remains is still..?
Joan: What remains is greed. Big box brokers make money off of their agents. The more money their agents make, the more money they make. And they want 6%. It’s all about the money. It’s not about the fact that they could do a $3,000 flat fee across the board, whether it’s a $100,000 property or a $5,000,000 property. It’s all about the money. They want more and more and more. Buyer agents want to be compensated for their services and their concern is, how are they going to get paid if the seller is not paying for it and the buyer doesn’t have the money? So these are all the bugs that have to be worked out.
Adrian: Okay, so to sum up here, if I’m understanding it correctly, one of the reasons that Realtors arguably benefit from the current system is that there’s this requirement from the National Association of Realtors that if you’re going to list on this multiple listing service, this database that is so essential for marketing properties for sale, then you have to agree that you’re going to do a split commission.
Joan: You have to offer something to the buyer brokerage. Now they have released that requirement and announced that–and this is all coming out with all of this very recent litigation that was in September, I couldn’t tell you the date, but I believe it was in September–and what they are stating is the brokers may tell their sellers that they do not have to offer buyer brokerage commission. Now the MLS was originally designed to offer some sort of compensation to get people to sell each other’s listings. In my personal opinion, it’s just gotten a little bit out of hand.
Adrian: Right. So if it’s no longer a requirement that the listing agent has to agree to a split commission, they have to tell the seller…
Joan: They have to tell the seller that they don’t have to, but they also have to disclose to the seller that if the buyer doesn’t have a way to compensate their agent, that they may simply pursue other alternative properties. So let’s say for example, that a buyer agent refuses to show a property that is listed offering 1% to their buyer. There is a regulation that states they are required to provide the buyer the information for that listing brokerage and give them the opportunity to pursue it that way. But even though that requirement is out there, the fact is, many just choose to sweep it under the rug and try to find something else.
Adrian: So by offering a buyer commission, that’s sort of like dangling a carrot. But the rules say don’t pay attention to the carrot, just act like that’s not there. Which seems like it’s kind of an honor system in a way.
Joan: Yeah. It’s going to be interesting to see because I’ve had calls from brokers lately about my system and the way I do it. Because again, I list for a certain price for a flat fee, and then I give my sellers a form to complete, a contract addendum that serves as escrow instructions, where they put in what they choose to offer to a buyer brokerage as compensation. Which is completely different from what your full service brokers do where they incorporate it as part of their listing agreement itself. So their brokerage is actually offering that compensation to the buyer brokerage. I’m not, my seller is directly offering that compensation to the buyer brokerage at time of closing of their own choosing. That’s the way I foresee the industry going. I’ve had brokers call me with regards to all this litigation, asking me about how effective it’s been. Well, I’ve sold over a billion dollars in real estate using this format since 2005 in Ohio and we are not exactly what I would call a high dollar market–we’re certainly not California–so that’s an awful lot of real estate. So I think that’s going to be the wave of the future. At the end of the day, one of my biggest concerns is buyer and buyer representation. If a buyer is not in the position to offer anything and the seller is not offering anything, the lower end buyers are going to be in need of some sort of representation. What’s going to come of that?
And you look at all the different government programs that are available, you know, the government’s offering programs for everything you could possibly imagine. Is there going to be something offered where there’s some sort of grant money or something that can be built in to help a buyer purchase a property? There’s so many possibilities that need to be discussed where they could offer something at virtually 0% interest over the course of five years so they can have that representation, whether it’s an attorney or a buyer agent, they have some sort of representation.
Adrian: It seems like one conclusion that could be drawn is that this kind of split fee arrangement is illegal, and the plaintiffs should get their money back.
Joan: It is perfectly legal if it is fully disclosed. The reason the plaintiffs really have both legs to stand on is the complete lack of disclosure and the complete denial of what they have done. For years, they have said that the buyer agent works for free–that’s not true. They have never worked for free, they’ve always been compensated. How have they been compensated? They’ve been compensated out of the proceeds at closing, which at the end of the day, costs the buyer more money with which to purchase that property. So, yes, it’s a complete misrepresentation. Had they disclosed from day one, “Yes, I’m representing you, it is coming out of the seller proceeds at closing, which means you’re going to pay a higher price for the property than what was in writing,” then that would be perfectly acceptable. Nobody’s going to do that because the buyer’s going to say, “Why do I want to pay that kind of money for you to represent me?”
Adrian: Very last question. How do you like working in the real estate business?
Joan: I love it. Every time I think about retiring, I’d be bored. I absolutely love what I do. I love working with people. It has changed so much over the years. When I first started, the average commission was 7% on residential, 10% on land. You did not have the Multiple Listing Service in the way it is now. You called the various offices and said “Hey, what do you have?” and “Will you co-op with me?” Now everybody uses the MLS system, it is online, everybody can see what’s out there. You have very unique and creative marketing strategies with the internet. I think it’s much better for both buyers and the sellers because they’re gaining much more exposure. We just need to clean up the real estate industry itself–the real estate agents and brokers, and focus more on honesty, integrity, and full disclosure.
Adrian: We need to take care of the [funny business].
Joan: Absolutely. So I think I’ve got another, oh, maybe 10 years or so in me. I’m at 40. Let’s go for 50.
Adrian: Why not?
