Is your brokerage and closing attorney harming your business because of a financial arrangement between the two?
When your brokerage enters into a financial arrangement with a closing attorney, do you really benefit ? The answer is clearly no. Not only are most of these arrangements questionable in their legality, the benefit never makes it way down to you, the agent.
But even worse, these fee sharing arrangements could be costly to your business. When your brokerage pushes you to use a closing attorney based on its' financial arrangement and not based on cost, speed and quality, your client can pay higher fees, receive lower customer service and lose the freedom of choice. All this adds up to an unhappy client who is less likely to refer business to you.
There are even more losers in these transaction. Check out the truth about these arrangements and how they are bad for your client, the cooperating agent and you.
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 jurisdiction for applicable legal advice germane to your issue.
Is your brokerage and closing attorney harming your business because of a financial arrangement between the two?
When your brokerage enters into a financial arrangement with a closing attorney, do you really benefit ? The answer is clearly no. Not only are most of these arrangements questionable in their legality, the benefit never makes it way down to you, the agent.
But even worse, these fee sharing arrangements could be costly to your business. When your brokerage pushes you to use a closing attorney based on its' financial arrangement and not based on cost, speed and quality, your client can pay higher fees, receive lower customer service and lose the freedom of choice. All this adds up to an unhappy client who is less likely to refer business to you.
There are even more losers in these transaction. Check out the truth about these arrangements and how they are bad for your client, the cooperating agent and you.
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 jurisdiction for applicable legal advice germane to your issue.
This is edition dirt with Gary pequin, South Carolina's only podcast dedicated to the real estate agents craft. And Greetings my fellow dirt nerds. Welcome to another episode of edition dirt with Gary victron. On this beautiful end of February weekend we stroll right into the first of March. Today's episode is going to be really good. We're going to talk about how brokerages and lawyers are actually hurting your real estate business. So it's something you absolutely want to listen to. We're also going to talk about what's going on with your continual education, as well as some more information on the requirement to get fingerprinted as you renew your license in 2021. And then of course, you do want to hear Gary's good news only because there is an incredible study out that says this Coronavirus may be going away quicker than anybody else is telling us. But first, if you liked this podcast we ask you to please like us, subscribe to us and share to us. And if you're looking for older episodes of our legal tips, or how to get to this podcast again in the future, go check out our new website Blair Cato calm that's b LAIR ca to and under the resources, you can click the button that says for realtors. And there's tons of realtor resources right there for you. At the top of the page also is a podcast button. So finding this podcast is even easier than it's ever been before. So today's topic is how some brokerages and lawyers are actually hurting your real estate business. Now something has been happening for a while in Greenville that is now slowly creeping into our market in Colombia. And I think it's also been happening a while in Charleston and other markets. And what has happened is large real estate brokerages are starting to feel the squeeze on their very high commission split, as well as the fact that some of them are trying to buy agents from other companies. And so what they're doing now is they're looking to try to offset their costs by selling access to their agents and those agents clients. So here's how this game works. Real estate brokerage solicits a real estate law firm, typically one that has little or no business for that agency, they have that law firm create a title agency with a brokerage, every time that lawyer does a closing for that particular brokerage, they write title insurance through that title agency, so that the title fees or portion of the title fees get shared with the brokerage, in essence, they pay the brokerage for the referral to consumers what they're doing. Now, of course, they'll sign some papers to try to make it look like not a scheme. And they'll also try to put in a little bit of capital or even a large amount of capital to try to make it look real. But the bottom line is the lawyer is doing all the work as they always have done on the real estate closing, the brokerage is providing nothing to the transaction except the client. And that's a very important fact. Now besides the fact that this is nothing more than a scheme to try to skirt respa laws real estate settlement Procedure Act and their prohibition on kickbacks. And the fact that also probably runs afoul of the rules of Professional Conduct rules for lawyers, these games are riddled with issues for you, the agent is also there's issues also for the cooperating agent, and most importantly, for the consumer. Now let's set aside all the legal issues I've just talked about for a second here. And let's look at why this is a raw deal for the consumer, but also you as the listing and selling agent. But first, I think you need to look at why the brokerages and the agencies are doing it. It's clearly it's money. I mean, that's the bottom line driver and all this is the money. But the broker does this because as I've been personally told by a broker of a large agency wants, their large brokerage model simply isn't working anymore financially. And so they're looking to get revenue from other sources. So what better source to look to other than a closing attorney and a lender see if they can try to squeeze some money from our top pockets? Of course, this just cost the consumer more. And I'm gonna discuss why in just a second. The brokers of these companies also push this model for their brokerage. Well, why are the brokers pushing it while the brokers are pushing it because they are compensated based on the conversion rates of these schemes that they've come up with that also probably runs afoul of respa? In my opinion, what the brokerage is going to tell you, however, is that they've hired a slew of attorneys to look at this, and they know it's legal. Now, of course, what they will not tell you is that they really don't know, because the matter has never been tried before the CFPB. And until the CFPB gives a ruling all they're doing is making an educated guess, but they have absolutely no way to guarantee you that that is 100% true. But most importantly, what these brokerage will never do is they will never give you or their partner lawyer. indemnification saying that they're wrong. They'll pay your attorney fees, your court costs and any judgments or damages come out so you're not protected at all. And when you ask these brokerages to put this in writing for you watch the backtrack. It's like a truck backing up you can hear the beeping sound all the way from downtown. Now, you may remember a few years ago when all these lenders had these things called Msh and jmH. That's a joint marketing agreements and the marketing service agreements. And all of them had it to an extent and then one day Bank of America Wells Fargo Fifth Third. bb&t all of them bailed on it and said we're not doing any more of these joint marketing agreements with builders. We're not doing any more of these joint marketing agreements with real estate agents. And you've always wondered, why did they all of a sudden just decide they weren't going to do it? It wasn't like they didn't want business anymore. Well, the reason they did that was at the time the CFP B's director was Richard Cordray. And what Richard Cordray said was, he didn't believe on the face of it. They were not necessarily illegal. But he also said he had never seen one that was drafted. That wasn't illegal. So basically, okay, they may not be illegal, per se, but they're never drafted in such a manner that they're not illegal. Essentially, what these schemes are nothing more than Msh and JMA is between the agent and the title company, which is the attorney. Now after that statement from Cordray, I said in many meetings, about Msh, where the mshs were being pitched by lenders to my clients. And the lender swore every time that their high paying lawyers from Washington, DC and New York City had vetted all of these and they knew they were they were safe. But every time as the lawyer for my client, I asked him, were they 100%? Sure. And they would waffle on that? Well, we're not we're really sure. But they never say they're 100%. Sure. And when I asked them if they would protect my client from lawsuits, and damages, and fines, would they sign an indemnification agreement every single time they bought. So these companies will also tell you that they are doing them all over the country. These are this is a natural course of how real estate is going across the country. First of all, so we're MSA mshs. We're all over the country. And then one day they weren't because the major banks knew the risk of doing them. And in fact, they probably violated respa. As I think this one does, this game does. That didn't mean they were also legal in the South Carolina because remember, South Carolina is different than most states, where a lawyer state not every state does closings with lawyers, lots of them like California use title companies. The rules for title companies are greatly different than lawyers. Also, we have our own statute governing real estate agents 40 to ASHRAE 57. We also have South Carolina bar rules and South Carolina court rules as it affects lawyer marketing and advertising. Other states that don't have lawyers don't have to worry about this kind of stuff. That old argument that they've been passing along there holds absolutely no water. So why would an attorney do this game? Well, typically, it's because apparently, they have a difficult time growing their business because they're not very good. So they just wish the only thing they can do is to buy it, because they were a great law firm and great at what they would do, they would have plenty of business, and they wouldn't have to go out and try to buy the business from an agency they get no business from. Because remember, there's no other financial reasons for them to all of a sudden cut a brokerage into a large portion of their fee. Because remember, the brokerage provides nothing to this transaction, no work, no staff, nothing. All they provide is the referral. So remember, because they're providing you nothing. They're cutting into the fees as the attorney. So the one that I saw here recently in Colombia was they were asking a lawyer to set up a title insurance company with them. And they would get 50%. And the attorney would get 50% of the percentage of title insurance Commission's that they receive in any transaction. That is a huge cost because a large portion of the attorney fee is actually based on the title insurance. lawyers don't make money on closings based solely on that title. On the attorney fee. They make it on the attorney fee, and the title insurance that they write. And so if a lawyer is giving up 50% of one of their factors of how they are money, that's the big problem, you have to ask yourself, what do they get out of it other than the client? Because if the brokerage is giving them no support, no staff, no office nothing. And the attorney is losing 50% of a fee he normally gets as part of his overall fee. Why would he do that other than the fact that the real estate agency is providing them with their client, though referral, which does makes it improper. The bottom line is just like in real estate sales, to protect the consumer, there must be a level playing field for everyone. the determining factor is a which party you refer your loans, you refer your attorney, you refer for termite Heating and Air ladders should be based not on the fact that you're getting paid, but it's your how much money actually you're not getting paid, your company is getting paid, but rather on the quality, the speed and the price of the service that that provider is providing you. Now, I don't think there's any lender, attorney or vendor that I know of that ever complains about losing business to a competitor. Because that competitor does a better job or they charge less, we may not like it, but that's business. And if somebody takes our clients, all we can do is improve our business, which benefits the consumer because they get better customer service. But a lot of attorneys, lenders and other do not like the fact that there are attorneys out there who don't go get the business the right and honest way they go out and write a check or set up a scheme like that. Buying business or these referral schemes is not a level playing field. Imagine if a real estate agency could go to the MLS and buy the MLS And then they can control everything who gets paid when they get paid? How they get access to information? Would that be a level playing field? in your industry? The answer is no. Now as a cooperating agent involved in these transaction, it also hurts you think of this, if you're the listing agent, and the other agent directs this business are you now not infuriated? Because the closing, you're at the closing, you're helping to subsidize, that brokerage, your competitor, you're helping to subsidize their business, they can't run the business efficiently. So now they're having you subsidized by their clients using a particular attorney who's sharing fee. And in fact, if your company doesn't have one of these agreements, than the closer you refer to that closing attorney, you can go into a title company of your competitor. So let's say your closing attorney has set up one of these games with another one of your competitors, you're referring business to that attorney, not knowing that all of your title insurance that they receive on the closing goes to that competitor, how does that make you feel as a buyer's agent in that company, you're getting a bag full of nothing. Now your company provides you with no risk reduction, no identification, no protection at these claims are eventually filed lawsuits against and your names added into it, they're not going to defend you. Remember, I represent real estate agencies all across South Carolina, they do not defend you in most cases, sometimes you get some defense sometimes will pay a percentage based on your commission splits for the most of the time you're on your own, unless you're the broker, and your insurance typically is not going to cover you. And even if it does cover you most of your insurance is going to have a five or $10,000 deductible. Remember, you get no money out of this scheme that your brokerage set up, all this money goes to your brokerage, and sometimes to those brokers in charge. So why don't you put your client and your business at risk? When there's no financial benefit to you? All you risk is your client not having good service and being upset with you? Listen to what they tell you, when they try to sell these kind of schemes to you. They're gonna give you a hotline to a lawyer. Really, that's something Any closing attorney will answer your questions. Heck, I've got a podcast and a video blog for the last couple of years that I've been doing that are based on agents asking questions, that's nothing. Mainly what you get is you get owned, and that law firm owns you because they pay for you. And when somebody owns you, they don't give you good service. Why should they they will spend resources and time and effort on those who they're trying to impress not those they own, you have to give them the business because they paid you for it in various services only are going to hurt you as the agent, because a transaction will not be a superior transaction, your clients are not going to be happy. And they're going to hold that against you. Many of you listening today, if you really think about it and realize it, you're part of one of these games and a lot of you are and you don't might not even know it, you know that the service you're getting from that firm that that's being pushed by that brokerage is lacking, promises are made, but promises are rarely kept. It'll be better next time they're working to fix those things. But things never change. They haven't changed in years, and they never do. But let's talk consumer now, the consumer in this transaction really gets no true choice. They are very heavily persuaded to use a partner attorney because not of quality, not speed, not cost, but rather because the brokerage makes money. So how is it you're giving your client honest and true opinions as to what's best for the consumer, when there's a financial benefit for your broker. And your broker is persuading you and pushing you to get to that consumer that consumer to them. That's not helping your consumer, they're not getting the best representation. In fact, I believe that could run afoul of Article seven and section 40 dash 57 because you may not interfere with buyers choice. Be honest with yourself, if you are pushing a particular vendor because your brokerage gets paid. are you interfering in some manner? With your agent, your your clients ability on consumer choice? Yes, you are because you're not giving them full information, truthful information, correct information, you're giving them tainted information based on a financial benefit of your broker and your brokerage. Secondly, your consumer will pay more. And why is that? Because your lawyers just gave away half of the poor their portion of their title insurance premiums, which as I said earlier, is a large component of the attorney fee. And if they say oh, no, no, no, they don't they don't raise fees. Well, then the CounterPoint should be made as well, if they can willy nilly give away two and $300 on every transaction, doesn't that mean they just overcharge two or$300? For all those other ones? Look, if there aren't making money or making a lot of money with this scheme, and I can tell you they're not they have to charge higher fees to make money otherwise they're working for free and taking on a ton of liability. Lastly, it is without a doubt that the service is not as good. We know that if you do not give clients great service, that you have many other options in this marketplace for other closing attorneys. But when you are paid for your business, you have no other option that you have to give it all you can do is complain you'll need to do better, but ultimately they know they're paying you And you're not going to walk away from the money. So your client gets worse service, you get worse service, get what you pay for, or what's really paid for you. But you pay for it in the end, because your clients are not happy at the end of the day. And remember, you're trying to get more referrals, more great reviews from the transaction. And when those transactions are horrible, because the person that you recommended based on you getting paid or your brokerage getting paid, It only hurts you in the long run. Too many people are very short sighted and look at today, and not the long effect. And these things now for you guys that have company that do these things already. Ask yourself, is this great service? Am I getting anything out of this relationship? Or just all the money going back to the management in the brokerage that are going in management's pockets? The answer is probably yes. Are your clients getting the best closings that you've been promised? Probably not. I've talked to many of you in Greenville, and many of you here in Columbia. And I hear the answers for those that know that you're in these schemes. So the next time your brokers tries to pitch to you, this new partner scheme are really pushes the partner scheme they already have in place. Ask them what are you really getting out of it? What are their splits? How much money are they making? What aren't they telling you? Because they probably won't tell you ask them how much money is coming into the go to come to you into your pocket? They will tell you they're gonna give you better marketing tools, more administrative help. Well, once you think about that, why aren't they doing that already? Isn't that the position and the end of what the good brokerage is supposed to do? Why do they have to get more money? Some way that's questionable, that interferes with your ability to make sure your clients get the best service possible so they can put more money in their pockets. Ask them if they'll give you written identification. Ask them if they'll guarantee you a level of service. Ask them if they'll guarantee that your cost to your clients is going to be the same as other law firms. They can't, their answers are going to be hilarious. And don't forget to ask yourself, if you think you will get an outstanding customer service, you know what the answer is, you're not agents, you should also consider asking the closing attorneys you work with if they have any of these agreements, because you need to know every time you're doing a closing and your firm doesn't have one of these games are your closing fees or the money that your attorney makes going into one of these games paying for your competitor to make money. I pledge to you this almost all of my brethren in this industry, people that I know that are very good at what they do. They're going to do things the right way. Blair Cato will never ever pay for business. We're either going to earn your business by the quality of our work, and the support, we give you an education resources or trade associations. And if we don't get it that way, then we're just going to work harder at what we do to do it better to visually get your business. If we lose your business because someone does it better. That's fine. We'll work to improve our systems, and we'll earn it back. But we will not pay for business and you shouldn't be for sale in the first place and nor should your business because you will always be the loser. And that in the end. And before we move over to what happened while you were out showing, let's spend a few minutes here and talk about your continuing education classes. Blair Cato is proud to announce that we have partnered with a Central Carolina realtors association to offer classes this year, the Central Carolina realtors association is offering the classes in Blair Cato is guest lecturing for them. And we have three classes that are coming up here in the near future. And you can sign up for all of these classes by going to Blair cato.com. Clicking on resources and under realtor resources, you'll find the class list and a way to sign up for the classes, you also can just simply contact ccra. And they will provide the information to you as well. So the classes that we have coming up the realtor code of ethics on March 16, the core class is on March 23. And I will tell you, I taught this class this past Tuesday, and I'm a huge fan. Rarely do I ever say I'm a fan of any of the core classes that have been offered. This class is really, really good. It's four hours of going over 40 dash 57, which is the statute that applies to you as a real estate agent. And I can tell you that the agents that took the class were highly engaged in the class because they were all asking questions and the question and answer box and they were doing a lot of comments in the chat box. So a lot of engagement in this class, I think you will learn quite a bit of things that you're probably doing right some things that you might not be doing right or things you didn't even know. So there's a really good core class this year. And I'm really excited to be teaching it on April 27. We're doing our broker in charge class. And that will be the only time we offer that class this year. So if you're a broker in charge, you have to get this for our class in order to renew your license. So be sure to go ahead and sign up through the Association for this class broker in charge again to sign up on our website or at the association as well for those. Now we will offer other classes later on. And we'll be updating our website throughout the time so that you can see other class dates, but go ahead and schedule these all the classes are limited to a certain number of people. So be sure to go ahead and sign up as soon as possible. And now what happened while you were out show so a couple of weeks ago I talked about the new requirement that the real estate real estate Commission has on getting fingerprinted. And this all comes out of the Todd Cole hat case where Cole had killed several people and held some people hostage. He was a real estate agent up in Woodruff, South Carolina. And what they found out after this event happened was that he was previously imprisoned, and Arizona belief for attempted rape and kidnapping of a child. But back then there was really no background check. And so colthup was able to become a real estate agent in South Carolina, even though he had served time in prison for these horrendous crimes. And so he should never have been enabled should never have been able to become a real estate agent. So the legislature acted and passed a law that says, when you renew your license, or when you become an agent for the first time, you have to go through a background check with the FBI and sled and so that's what they're working on. At this day, we don't have final answers for you on how this is going to go down. This is for everybody who is renewing by June 30 2021. So I reached out to one of my great contacts over at the commissioner and asked him, How were they planning on having these fingerprints done? Could you go wherever you want? Do you submit them by paper? Do you have to submit under slab FBI was was the answer. His answer was they were still working on all the logistics and the backend stuff. And they're also working on the instructions for the contractors with sled, they anticipate that they're going to be able to send out from the commission instructions to those people who renew in 2021. And those instructions should come out in the next week or two. But they are waiting on some final feedback and approval on the language of the communications and instructions. Now there's a lot of hoops and a lot of red tapes on this fingerprinting. And they're trying to get through all of the hurdles and through the multiple channels they have to to make sure sled and FBI is going to be okay with the timing and the communication on getting these fingerprints done, I under I believe there will be one or two vendors, which you will go through and then when you have your fingerprints done, it'll be submitted to FBI and sled through those vendors. Sort of like when if you've ever applied to be pre TSI pre approved, when you get your fingerprints done, they submit that for you so that you don't have to also understanding that those people who are renewing this year are the only ones that have to get fingerprints, the people who are renewing next year will not need to be doing this. They don't want you doing this because they don't want you clogging up the machinery. So right now they're only wanting people who are renewing June 30 2021 but they're asking that you do is to please make sure to go online and make sure that your permanent personal email is on file so that you will receive these instructions Once we receive the information we will share them to you in this podcast as well as in our other video legal tips. But you need to make sure that your email is receiving email from the commission. So if you're not receiving any emails from the commission, you might want to check your spam blocker and your junk email to make sure that make sure that you're using a good permanent personal email on file with the commission so that you are even receive this information. And that's what happened while you were out show. And now to Gary's good news only and we have lots of great news to talk about. South Carolina now ranks seventh in terms of percentage of its senior citizens receiving at least one vaccine dosage. Right now. 43.5% of South Carolina senior citizens at 65 and up have received a dosage of at least one dosage of the vaccine. That's 407,000 people out of the 937,000 senior citizens. So we ranked seventh in the entire country and getting our vaccines to the senior citizens cases are now down across the country almost 80% over the past six weeks. Could this be the beginning of again, I certainly hope so. Johnson and Johnson just announced one dosage vaccine will be finalized and approved by Friday. This is a vaccine they've been working on that you don't have to get two shots, you get one shot and that takes care of it. In fact, they think they'll have 10 million doses out by April with 100 million by the end of summer. And that brings us to a big important factor is why are the cases plummeting faster than any expert ever predicted? There's an outstanding article in the Wall Street Journal by Dr. Mitch mcherry. Ma KR wa is a professor at john Hopkins School of Medicine. He's also the Bloomberg School of Public Health Chief Medical adviser and an author of a book the price we pay. And this gentleman who as you know, that is one of the absolute top schools in the country when it comes to medicine. He says a large reason that cases have plummeted is because natural immunity from prior infections is more common as being measured by testing. He says the testing is only capturing from 10% to 25% of the infections and depending on when during the pandemic someone got the virus. So using the proper applying a proper Tom waited case capture average of one and 6.5 to the cumulative 28 million confirmed cases. He says it means about 55% of Americans already have natural immunity to the virus. He also says that former food and Drug Commissioner Scott Gottlieb estimates at 250 million doses of the vaccine is going to be delivered to some 150 million people by the end of March. So he says there's reason to think the country is racing toward an extremely low level of infection. And he says, As more people have been infected, most of whom now have mild or no symptoms are fewer Americans left to be infected. I think it's a very important point. And looking at his current trajectory, he expects COVID to be gone by you're ready for this April. So he thinks allowing Americans to resume natural normal life by end of April. He thinks this is going away. He says but, but the consistent and rapid decline in the daily cases have been since January 8, and he said it can only be explained through natural immunity behaviors didn't certainly suddenly improve over the holidays, Americans didn't travel last. Vaccines also didn't show anything from the steep decline in January. And also people were wearing masks at the same level they've always wanted. So medical experts are agreeing with him that his predictions are probably very close, that by the end of April, we could be talking about close to being to herd immunity. And but the a lot of people in the media are afraid that if they mentioned this, that people are going to become complacent and aren't going to take the necessary precautions to keep everybody safe. His position is we should encourage everyone to get the vaccine, but we need to reopen the schools reopen society to limit damage to people, their mental health and so forth. But they need to be told the truth about what's going on. So Dr. Macquarie, respected doctor from one of the best medical universities in the entire country. In fact, john hopkins is the university that has the count for the number of COVID deaths. That's where all the COVID information is coming from is john hopkins. And here is Mitch Macquarie doctor, they're saying by the end of April, we could be free of the COVID. Wouldn't that be fantastic. And that's your show for the day. I hope everybody enjoyed it and we appreciate your support of our show. If you like it if you'll please like us, subscribe to us and share us we'd greatly appreciate it if everybody has a wonderful weekend.