As the saying goes, “there is no such thing as a free lunch.” It’s one of the main takeaways from the classic Brothers Grimm fairy tale, “Rumpelstiltskin.”
If it has been a minute since you have read the 19th century German fable, here is a quick refresh: A miller brags to the king that his daughter can spin straw into gold. The king then summons the miller’s daughter and locks her in a tower room filled with straw and a spinning wheel with the ultimatum that if all the straw is not turned to gold by morning, he will have her killed. The miller’s daughter tries in vain to spin the straw into gold, but just as she gives up hope, an imp-like man appears in the room and agrees to help the fair maiden out by spinning the straw for her. But in return she must give him her first-born child.
While the tale ends happily with the miller’s daughter (who goes on to marry the king and become queen) keeping her first-born child, she learns that there is always a price to pay.
Now let’s put this in housing terms. Imagine you are a homeowner in need of a little extra cash, say somewhere in the ballpark of $300-$5,000, and you come across a website that claims it can give you the cash you need without a loan. But just like “Rumpelstiltskin,” there is a catch: You have to sign an agreement saying the firm has the right to list your home if you choose to sell it in the next 40 years.
“The way business is done today, somebody will sign a listing agreement and it is good for a certain number of months — it might be four, it might be six, it just depends on the market,” Ken Trepeta, the executive director of the Real Estate Services Providers Council, said. “If the home doesn’t sell, then you can renew or go with someone else. It isn’t like this lifetime commitment, like one you would make in a fairy tale.”
MV Realty under fire
As firms look to modernize and revamp the way we buy and sell homes, some companies have turned to cash incentives and right to list agreements to generate new business. The most notable firm taking this route is MV Realty with its Homeowner Benefit Program.
Based in Florida and led by founder and chief sales officer Amanda Zachman, best known as a contestant on reality television series “Big Brother,” MV Realty’s unique business model has its genesis on Wall Street, where David Schiff, the founder of Innovatus brainstormed the idea of packaging revenue generated by real estate agent commissions and selling it to investors, according to a complaint filed by MV Realty against ICP in 2018.
In the complaint, the attorneys for MV Realty say that Schiff first discussed the idea in 2017 with MV Realty’s CEO Tony Mitchell and brokerage co-owner Jonathan Neuman. This idea would become the basis for MV Realty’s HBP (MV does not package and sell its revenue to investors), despite a deal never being finalized with Schiff.
Whether or not MV Realty should be allowed to continue with its operation, as well as why the deal with Schiff and ICP fell through, have been the subject of several lawsuits. However, MV Realty proved that the idea was not originally Schiff’s and had in fact already been patented in 2008, allowing the firm to continue running its HBP. The litigation with ICP concluded in December of 2022 after the parties issued a joint stipulation of dismissal with prejudice.
But MV Realty’s legal woes didn’t end there. The firm is currently under fire from Attorneys General in Florida, Massachusetts, and Pennsylvania. The lawsuits allege that MV Realty misleads and confuses homeowners through its so-called Homeowner Benefit Program.
“MV Realty conceals in its marketing and sales processes material terms including its ability to foreclose on the home, that the company only acts as a ‘non-agent facilitator,’ and that if the heirs won’t assume the agreement after a homeowner’s death, MV Realty can foreclose,” according to the Massachusetts suit.
“A non-agent facilitator is a type of transaction broker that owes no duty of loyalty to the seller, has no obligation to seek the highest price the market will bear, and owes no duty of confidentiality to the seller,” the complaint reads.
Under MV Realty’s Homeowner Benefit Agreement, in exchange for a cash payment, the homeowner signs over the right to list their home for the next 40 years to MV Realty. This means that if a homeowner decides to sell their house sometime in the next 40 years, MV Realty is entitled to list the home for a 3% commission, which is separate from the commission earned by the buy side agent. If the homeowner breaks the agreement or decides to terminate the agreement early, the homeowner must pay MV Realty 6% of the appraised value of the home.
“Ten years from now commissions could be a lot less,” Trepeta said. “You never know how the market is going to change, and with this, you are stuck paying a fairly high commission to them. When you go to sell, you might be stuck paying a 6% commission to make it fair for the buyer’s agent when everyone else is paying 4.5%”
Since starting the program in August 2020, MV Realty says it has enrolled over 35,000 homeowners in 33 states and has paid homeowners close to $40 million.
MV Realty claims the HBA is a memorandum and not a lien that the firm files on the house “to serve public notice of the homeowner’s obligations under the HBP agreement.”
“While the memorandum is not a lien, some jurisdictions may record it as a ‘lien’ or even as a ‘mortgage.’ MV cannot control how the various county clerks and/or states categorize the filing of the memorandum,” a spokesperson for the firm wrote in an email.
However, if the homeowner wishes to refinance the mortgage on their property, they must first contact MV Realty to temporarily subordinate the position of their memorandum.
This caught the attention of the American Land Title Association, whose CEO Diane Tomb said the trade group is concerned about the duration and enforcement of these agreements, as well as consumer understanding of their implications.
“Additionally, recording these agreements in property records can create a long-term barrier to the transfer or financing of real estate or hamper estate administration. Non-Title Recorded Agreements for Personal Services (NTRAPS) and the recording of such agreements undermine a homeowner’s property rights,” Tomb wrote in an email.
In addition, the trade organization stated that it is advocating for state laws and regulations preventing the enforcement of what it has termed NTRAPS.
The National Association of Realtors also expressed concerns about MV Realty and their right to list agreement.
“Consumers should be sure they are aware of all aspects of any listing agreement and should consider consulting with a professional advisor regarding the obligations and any potential risks,” the trade organization wrote in an email.
Besides Attorneys General and industry trade groups, MV Realty has also caught the attention of three Democratic U.S. senators, Sherrod Brown of Ohio, Minnesota’s Tina Smith and Ron Wyden of Oregon.
…Recording these agreements in property records can create a long-term barrier to the transfer or financing of real estate or hamper estate administration. Non-Title Recorded Agreements for Personal Services (NTRAPS) and the recording of such agreements undermine a homeowner’s property rights.
Diane Tomb, CEO of American Land Title Association
In a letter sent in late December to the Federal Trade Commission and the Consumer Financial Protection Bureau, the three senators wrote: “MV Realty, and companies like it, take tens of thousands of dollars from homeowners in exchange for a minimal upfront payment. By advertising these agreements as a ‘loan alternative,’ companies are attempting to avoid the legal limitations on lending while in essence charging borrowers onerous rates. Sadly, exclusive listing companies are now a national problem, affecting consumers across state lines.”
The senators are asking the FTC and CFPB to determine if MV Realty was breaking any federal laws.
In response to the criticisms and the lawsuits MV Realty currently faces, a spokesperson for the firm wrote in an email: “New and innovative business models, like the HBA, can transform established industries and can sometimes draw questions from critics or outright hostility from those whose existing business model is threatened. However, to suggest that MV Realty has engaged in unfair or deceptive practices is simply false.”
MV Realty said it was “committed” to working with policymakers and regulators, telling HousingWire it is confident that “after a full airing of the facts,” the discussions will “reinforce how MV Realty’s business transactions are legal and ethical and that our team operates in full compliance with state laws.”
Trepeta added: “I am not really sure if there is anything illegal about the HBA. It is certainly not a common business practice, but unless people are being actively misled, they don’t appear to be doing anything that is strongly against the law. But when you look at it just kind of feels like a bad deal.”
In addition to facing complaints and allegations of deceptive business practices, the firm is also facing allegations that it disproportionately targets low income and minority households.
According to data from the Reinvestment Fund, first reported on by Forbes, 69% of the MV Realty HBAs signed in Philadelphia are from Black homeowners, who make up just 37% of all homeowners in the city.
“MV only contacts people who have “opted-in” seeking information. This opt-in is typically obtained through digital marketing campaigns,” MV Realty wrote in response to this claim on its “Fact versus Fiction” document. “MV does not have any data on ethnicity and typically only learns someone’s age at the time they indicate they would like to complete a transaction. MV does not consider an individual’s race, ethnicity, or age in any way when determining whether to enter into an HBA with a homeowner.”
I am not really sure if there is anything illegal about the HBA. It is certainly not a common business practice, but unless people are being actively misled, they don’t appear to be doing anything that is strongly against the law. But when you look at it just kind of feels like a bad deal.
Ken Trepeta, executive director of the Real Estate Services Providers Council
Right to list choices
While MV Realty is currently the only firm currently facing legal trouble, it is certainly not the only firm utilizing right-to-list agreements.
SellWhenever and HomeOptions are two other firms generating home listing business through cash payments to homeowners and right to list agreements.
Like MV Realty, both firms hold brokerage licenses, but unlike MV Realty, they do not have their own in-house agents who list and sell the properties of those enrolled in their programs. Instead, they partner with agents, teams and boutique brokerages in the areas they operate.
Under the SellWhenever model, when homeowners who signed up for its “Loyalty Benefit Program” decide it is time to sell their home, they can choose an agent from SellWhenever’s network to partner with.
“SellWhenever maintains partnerships with brokers in multiple states and our collaborations are centered on one mutual goal – improving the homeownership experience for our homeowners and our clients. Our brokerage partners connect with SellWhenever to offer our Loyalty Benefit Program to homeowners who have already had a successful experience with those brokerage partners,” a spokesperson for the firm wrote in an email.
Some of SellWhenever’s partners include Monument Realty, Connect Realty, NestFinders and All City Real Estate. Agents who partner with SellWhenever pay the firm a “referral fee” from their commission on the closed sale transaction.
According to the firm’s site, SellWhenever has thousands of “happy members” of its Loyalty Program. However, if a homeowner is unhappy with the program and decides to terminate their contract, they must pay a termination fee of “approximately 1.5% of their property’s fair market value (as determined by an independent third party).”
SellWhenever does not disclose the length of their Loyalty Benefit Program contract on their website and the firm did not respond to questions asking about the time span of the contract.
Similar to SellWhenever, HomeOptions has a network of real estate agents it partners with, however, homeowners who have signed on with HomeOptions who wish to sell their home do not have to use a HomeOptions affiliated agent if they don’t want to. According to the firm, if a homeowner decides to bring in their own agent, HomeOptions will have the agent sign a temporary agreement with the firm. As per the agreement, the listing agent must share part of their commission with HomeOptions and the firm said agents who are not part of their network are not penalized.
“The best agent for a particular customer is not always the agent that does the most deals. Maybe it is someone who specializes in town homes or condos and not single family homes,” Kevin Li, the founder and CEO of the firm, said. “I am not going to be able to hire all the right agents internally, so why not let the customer choose elsewhere and find the agent that is the right fit for them.”
Li also noted that HomeOptions often finds future partner agents from the agents homeowners bring to their transaction.
In addition to allowing homeowners greater flexibility in who they decide to use as a listing agent, this year, HomeOptions will start allowing homeowners to decide the length of their contract, from five, 10, 15, and 20 years. Currently the firm only offers 20 year contracts.
“It really came from consumer feedback and people saying, ‘I am thinking about selling my home in five years, I don’t really want to sign up for a 20 year contract,’” Li said. However, he noted that the longer of a contract a homeowner signs, the greater their payout will be.
Like the SellWhenever model, agents who successfully close a transaction for HomeOptions pay the firm a referral fee from their commission. The firm said the amount an agent pays depends on the size of the transactions.
According to Li, it was important to him that with HomeOptions, agents only pay for transactions that close.
“Before starting HomeOptions, I was at an agent referral firm and I realized that $26 billion a year was being spent on advertising to less than 1% of homeowners — basically only the people who wanted to buy or sell a home within the next six months,” Li said. “So, I looked at where this money was going and most of it was going to lead generation sites and advertising platforms like Google or Facebook, but agents were not seeing a large return for the amount they were investing in it.”
The best agent for a particular customer is not always the agent that does the most deals. Maybe it is someone who specializes in town homes or condos and not single family homes. I am not going to be able to hire all the right agents internally, so why not let the customer choose elsewhere and find the agent that is the right fit for them.
Kevin Li, the founder and CEO of HomeOptions
Instead of paying for Google Ads or subscribing to a lead generating service that may or may not provide leads that result in successful transactions, Li said agents who partner with HomeOptions will be recommended to home sellers who don’t already have an agent in mind.
Robert Gluskin, the team leader of the Nevada-based Braswell Gluskin Group, began partnering with HomeOptions two months ago. Although most of his business is still organic from social media or based off of referrals from past clients, and he doesn’t see that changing any time soon, he is pleased with the HomeOptions leads he has received.
“I currently have 17 listings and two are from HomeOptions, but I could see it growing to about 40% of my business eventually,” Gluskin said. “With the HomeOptions clients, they never bring up HomeOptions, but going in, I get a greater sense of trust from them immediately. I don’t treat those clients differently because they are from HomeOptions, so I think it must have to do with how they refer and match homeowners with agents on the backend.”
Although the three firms share the commonality of utilizing right to list agreements, the way in which they do it differs. For Trepeta, these differences are key to understanding why MV Realty alone is facing lawsuits.
“We can’t be sure what the outcome of this will be,” Trepeta said. “They may wind up negotiating that they need to do better disclosures or the states themselves may say this is not a reasonable practice and then pass some laws that constrain these practices.”