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The Echo Fine Properties arbitration offers proof that real estate pros can turn the tide and ensure that they’re compensated for their time, Spencer Krull writes.

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Until 1954, the general consensus was that a kinesthetic barrier prevented anyone from running a mile in under four minutes. And then on May 6, 1954, Roger Bannister broke through that barrier, running the mile in three minutes, fifty-nine and four-tenths of a second.

The dam broken, “sub-fours” were suddenly being run, and records were broken on tracks around the world, proving that the barrier was more psychology than physiology. This was known as the “Bannister Effect.”

Unless we squander it, I believe real estate brokerages have achieved something of a Roger Bannister moment with Jeff Lichtenstein and Echo Fine Properties taking a buyer to arbitration for breach of their buyer-broker agreement (BBA) and winning an award of $24,000.

We need an ‘Echo Fine effect’

As a managing broker, I get calls from agents who have been stiffed on buyer-broker agreements. The conversation goes something like this:

Agent: “What can we do?”

Me: “I will write a really nasty letter letting them know that if they don’t pay the compensation they owe, we will seek legal and monetary remedy to the fullest extent provided by the agreement.”

Agent: “Does that work?”

Me: “It hasn’t yet.”

I can’t say Echo Fine is the first brokerage to pursue payment from a bad-faith client successfully, but this story should bolster other brokerages to put some teeth behind the “nasty-grams” and start taking the bad actors to court. However, if we’re going to go to battle, we need to have the right ammunition to press our case.

Here are three things the industry has to do to start turning the tide.

A 3-pronged battle plan for brokerage compensation

1. Be competent and document

If you read a summary of the Echo Fine case, the buyers tried to wriggle out of their obligation by claiming their agent abandoned them, that the BBA was ambiguous and that the contract was signed with the wrong person. Luckily, or I should say, “competently,” the agent agreement was filled out correctly, and they had documentation showing they provided competent service.

I get that we live in a high-speed, razor’s-edge world where deals can come together in minutes, but imagine if agents sent an email at the end of the day summarizing what they did for their clients. Agents have bad reputations for just mailing it in and cashing their checks. Let’s change that reputation one deal at a time.

2. Have a relationship with your client

Yes, that sounds provocative, but we need to make sure buyers understand that the BBA creates a “two-way street.” The best script I ever heard for the BBA came from a trainer I knew at KW.

Pointing at a paragraph in the BBA, she’d say, “Here are the obligations I have to you … ” and she’d list the fiduciary duties and services the agent will provide. And then she’d point to the next paragraph, “And here are the obligations you have to me … ”

Phrasing it that way really drove home that they were in a partnership working together. She’d close with, “If you feel that you don’t want to work with me exclusively, please let me know now.”

Then she’d follow it up with an email.

3. Brokerages need to commit to their agents

I get that not every commission case is going to feel worth the time, expense or effort to pursue an errant buyer or seller, but an agent deserves to have their brokerage send a demand letter at minimum, and to actually pursue the cases that are certainly worth the time and effort.

And brokerages need to publicize that they have their agents’ backs so buyers understand they can’t get a free ride. (Bonus: This could help to recruit agents who care about company culture.)

Here’s the uncomfortable part: For this to work, brokerages can’t leave it up to just one or two other offices to press the case. This needs to become an industry standard. And, no, this isn’t antitrust or collusion. We’re not setting rates, and we’re not pursuing cases in certain sections of town. We are taking a stand as an industry.

Benjamin Franklin is credited with saying, “We must, indeed, all hang together or, most assuredly, we shall all hang separately.” We’re currently hanging separately, and look where that’s gotten us.

Father knows best

Watch enough TV, and you’ll eventually see a scene in which a kid who is being bullied at school is given this advice: “Hit the bully back, and the bully will back down.”

Substitute “pursue” for “hit,” and “buyer” for “bully” and the real estate version of this advice is: “If a buyer steps out on your BBA, sue to enforce the agreement, and you might just get some money. Oh, and other buyers will hear about this, and they’ll take your buyer agreement seriously.”

You may say I’m a dreamer, but I see a world in the not-too-distant future where an agent comes into my office and tells me how they’re being stiffed by a buyer.

Agent: “Does that work?”

Me: “Let me tell you about the Echo Fine effect.”

It’s never been a more exciting — or more demanding — time to be an independent brokerage. This December, Inman is celebrating the Indie Broker. We’re digging into the tech, tools and strategies today’s leaders are using to grow in a shifting market and consolidating industry. Find out what’s working — and what’s next.

Spencer Krull is a managing broker with Side, and also works as a real estate expert witness and consultant for attorneys.

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