Cash Flow Guys Podcast

National Association of Realtors Lawsuit & Buyer Representation

The Lawsuit - What's at Stake?

• Moehrl v. NAR et al.: This class-action lawsuit alleges that NAR policies force home sellers to offer a commission to a buyer's agent, when listed in the MLS

• Antitrust Concerns: Plaintiffs argue that this rule reduces competition between buyer's agents by making it harder for discount brokerages or agents operating on lower commission structures to attract clients. They also argue that it inflates commission rates overall, as there's less incentive for negotiation.

• Class Action: The lawsuit represents millions of American homebuyers who have allegedly paid inflated commissions due to NAR's rules. Potential damages could be in the billions of dollars, depending on the outcome.

Origins of the Dispute - Why Now?

• Shifting Real Estate Landscape: The rise of online real estate platforms, discount brokerages, and flat-fee MLS listing services has challenged the traditional model of high commission rates. Buyers are becoming more cost-conscious and seeking alternative service models.

• Consumer Advocacy: Increased media attention on high housing costs and concerns about hidden fees like commissions have fueled public scrutiny of the real estate industry. Consumer groups are pushing for more transparency and buyer-friendly practices.

• Department of Justice Scrutiny: In 2020, the DOJ launched an antitrust investigation into NAR's policies, specifically focusing on the Buyer Broker Commission Rule and its potential anticompetitive effects. This investigation is ongoing and its findings could influence the outcome of the Moehrl lawsuit.

Part 3: Potential Outcomes and Implications

• Scenario 1: NAR Loses: The court could overturn the Buyer Broker Commission Rule, giving sellers more flexibility in how they offer compensation to buyer's agents. This could lead to increased competition and potentially lower commission rates for buyers. However, it could also make it harder for some buyers to find representation, especially in rural areas.

• Scenario 2: NAR Wins: The court could uphold the Buyer Broker Commission Rule, maintaining the status quo. This would likely benefit real estate agents and traditional brokerages, but it could also leave buyers feeling frustrated with limited choices and high costs.

• Uncertain Future: The lawsuit is complex and ongoing, with multiple appeals possible. Predicting the final outcome and its long-term impact on the real estate industry is difficult.

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Quick recap

Tyler and Michael had a comprehensive discussion about the current state of businesses and the economy. They explored alternative investment opportunities, including franchising, real estate, and cash-flow businesses, as potential avenues for financial security. The conversation also featured Greg Mohr, who provided insights into the franchising process, including different types of franchise models, fee structures, and potential earnings in the service sector.

Summary

Business, Economy, and Investment Challenges

Tyler and Michael discussed the current state of businesses and the economy, focusing on the challenges faced by employees and business owners due to government intervention and market uncertainties. They also explored alternative investment opportunities, including franchising, real estate, and cash-flow businesses, as potential avenues for financial security. Greg Mohr, the owner of Franchise Maven, joined the conversation to explain his role as a middleman between franchisees and franchisors, providing valuable insights into the franchising process.

Franchise Models and Earnings Potential

Greg provided Tyler with an explanation of the different types of franchise models, particularly the role of a master franchisor. He detailed how a master franchisor purchases all 10 territories in an area and uses one as a training unit for new franchisees, then sells the remaining territories to other franchisees and earns a commission on the franchise fees and royalties. The team also discussed the concept of multi-level marketing, real estate ownership in the fast-food industry, and the potential earnings in the service sector. Tyler shared his personal experience with the service sector, expressing concerns about high fees and a lack of understanding from some service providers.

Franchise Fee Structures and Vetting Process

Tyler and Greg discussed the general fee structures of buying a franchise. Greg explained that the one-time franchise fee usually ranges from $50,000 and includes all necessary information and training. The ongoing fee is a percentage of the gross sales, typically between 5 and 10%. Greg emphasized that franchisors are looking for both business and background experience from potential franchisees. Tyler shared that their model is similar to a franchise, where they rent their facilities to operators. However, they have implemented strict measures, including hiring a consultant with real estate and business experience, to ensure the quality of care for their residents. Greg and Tyler also agreed that involving a consultant in the vetting process can increase the success of the franchise.

Franchise Feasibility Discussion

Greg and Tyler discussed the feasibility of starting a franchise as a side hustle with a budget of around $50,000. Greg confirmed that it is possible to manage a franchise with a time commitment of 10 to 15 hours weekly and that he has many clients who continue to hold their primary jobs while managing their franchises. Tyler raised a question about the process for someone who doesn't know which franchise to invest in, to which Greg clarified that the first step would be to have a conversation to understand the individual's interests and aspirations.

Franchise Earnings Inquiry and Information

Tyler inquires about the potential earnings for a franchise investment. Greg explains that the Federal Trade Commission prohibits the disclosure of specific earnings data by franchisors. However, Greg assures Tyler that he will provide all necessary information to help him make an informed decision. Greg also mentions that he will talk to multiple franchisees to get a sense of their earnings and experiences. Towards the end, Greg outlines his role as a coach in the process, helping Tyler determine if franchising is right for him and, if so, identifying the most suitable franchise opportunity.

Franchisee Characteristics and Benefits

Michael discussed the characteristics of a successful franchisee with Greg, who emphasized the importance of being coachable and willing to follow a process. Greg also highlighted the benefits of being part of a supportive network and following a specific territory. The discussion revealed that Greg provides free services to help potential franchisees find a suitable franchise within their area. The group also touched on the availability of SBA loans for financing.

Funding and Exit Strategies for Businesses

Greg and Tyler discussed funding options for SBA loans and SBA express loans, with Greg explaining that SBA loans can be obtained quickly while SBA express loans take longer. He introduced the concept of using a 7a loan for larger loans and using a 401k plan from a previous employer for funding by doing a rollover into a self-directed 401k. Greg also shared his experience of using retirement money to fund his business by creating a C corporation. Michael expressed his desire to terminate his franchise commitment and start a new business venture, leading to Greg explaining the process of exiting a franchise agreement.

Greg can be reached via FranchiseMaven.com

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