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National Association of Realtors Settlement: Behind the Headline Hysteria | All Roads LTR Podcast | Ep. 32
27 Plays8 months ago
Join Matt and special guest Doug Rubin, a licensed attorney and broker, for a conversation that dissects the headlines causing panic in the real estate world. From sensationalized accusations of price-fixing to landmark lawsuits against industry giants.
In this podcast they navigate through the nuances of buyer representation agreements and the potential impact on affordability, this episode is not just about real estate—it's about empowering consumers with knowledge, demystifying industry practices, and fostering a deeper understanding of the evolving landscape, bringing clarity and context to the forefront as they offer insights from both agent and consumer perspectives, from first-time homebuyers to seasoned investors.
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Transcript
Introduction to Real Estate Headlines
00:00:10
Speaker
All right. Hello, everyone. This is Matt Rine and I have a special guest with me on all roads lead to real estate. And this is not a traditional interview like I've done many times in the past. This is more of like a what do you call this? A special news alert because you don't even have to be in real estate. You certainly don't have to even be in the market to buy or sell a home. And you will have seen some headlines in the last, what do you say, week ago, two weeks, maybe. Yep. Last few days. Pretty much everywhere I'm talking to is at least
00:00:40
Speaker
Their mother-in-law has sent them an email, oh my god, are you okay? Is everything, is the sky falling? My friends, family, my enemies, everybody has texted me saying, oh my god Matt, are you still gonna be making a living in real estate? Are you quitting? Can I offer you a job? And that's not a joke.
00:00:56
Speaker
And so the headlines are pretty strong, folks. And so I wanted to try to add some context because the national headlines, as we all have learned in the last several years with this election cycle that never ends, that sometimes they can be pretty much the more wild or out loud and outlandish they can possibly be. Yes. The more clicks they get. Yeah, it's been it's been pretty irresponsible out there. So I really appreciate you kind of
00:01:22
Speaker
giving professionals a platform to hopefully maybe calm people down, God forbid,
Analyzing Media Impact on Real Estate
00:01:28
Speaker
a little bit.
00:01:28
Speaker
Yeah, let's calm people down and at the same time inform them because I'm going to try to take a very even approach to this because I don't want to just speak as an agent, a real estate agent. And you'll introduce you properly in just a moment. Certainly we're both in the real estate side of things. And so we certainly will have our opinions based on the fact that we're in the trenches daily. But also as a consumer point of view, I think it's important to understand the way that they're thinking.
00:01:57
Speaker
and try to put this out there in a fair and balanced way the best we possibly can. Yep. And so let's get to the actual headlines.
Criminal Allegations in Real Estate
00:02:04
Speaker
So what's a headline you've read recently?
00:02:07
Speaker
Um, 6% commissions are no more prices about to fall. Uh, real estate commissions turned on their head. That's sort of the gist of what I pretty much, and they make out real estate agents as being essentially criminals and that either price gouging price fixing. I've seen virtually that it's a mafia of individuals that are orchestrating in price fixing commissions.
00:02:37
Speaker
And so what you as a consumer has to pay if you're trying to transact in real estate, that there are no options and that you're stuck paying a certain number. And the headlines are just outrageous. Yeah, it's it's been sort of silly season and it's sort of been, you know, the takeaway from the headlines is basically, you know, these criminal realtors have been putting a gun to your head and forcing you to pay money that you should not have been paying. And in fact, it's all illegal and, you know,
00:03:05
Speaker
I'll say we're already not sounding balanced here. Right. Because the headlines are so far in one direction, it's almost like we could be as equally in the other direction and still not balance it out. But I'll try to bring us back in just a moment, but that's what we're going to be discussing today.
00:03:22
Speaker
are it just the, it's a landmark, um, lawsuit and settlement that has happened. So the national association of realtors has, has just settled for an enormous sum of money. Um, over $400 million is the settlement to the class action lawsuit against the, uh, you know, brought by folks. Is it what States that in, is it, um, Missouri? It was, um, Oklahoma.
00:03:46
Speaker
You get the point. It's over there. The reason it's a landmark decision is that they're trying to upend the way compensation is made between a buyer agent and a listing agent. The crux of all of this, and this is why I think it's important to talk about, the whys behind all of this is that
00:04:09
Speaker
that buyers who are represented by a buyer's agent, they don't exactly know how much they're paying their agent. They don't know where the money's coming from. And as a result, sellers are the ones that typically fork over the money at the settlement table
00:04:26
Speaker
And they felt they didn't have an opportunity to negotiate that rate. They weren't fully educated or informed. And as a result, there was enough of this going around where they thought the National Association of Realers were nervous they might lose a lawsuit. And they thought it was in the best interest of all of their members, meaning me, you know, agents, that they should settle and not take this to court.
00:04:50
Speaker
It's a, it's a weird lawsuit. So you, you mentioned the word like mafia before, right? I mean that it was a conspiracy, like price fixing antitrust claim. So it goes back to the federal Sherman antitrust act where basically the accusation was
00:05:10
Speaker
and most of the big real estate brokerages out there were colluding and setting a specific price in a way that was anti-competitive, right? And let me stop you just for a second, because I was so heated at the beginning of this, folks. I need to first introduce you.
Legal Insights on Commission Changes
00:05:27
Speaker
Oh, hi.
00:05:27
Speaker
Let's start off there so it'll make a little more sense why he doesn't sound like me. Right, and why you should listen to me. Yeah, something like that. Well, you can tell just in two seconds that we're both licensed in Maryland, but one of us sounds very different. One of us is a little more educated than the other, meaning him.
00:05:43
Speaker
So this is Doug Rubin, and he is a broker of record here in the state of Maryland. He's also from Maryland, Baltimore County. He went to the University of Richmond, and he studied law at the University of Maryland. And so he is a licensed attorney in the state of Maryland, as well as Virginia, and he's a licensed real estate broker in Maryland, Pennsylvania, and DC.
00:06:06
Speaker
And so I wanted to bring light to that because the way he speaks and he'll speak about this case is certainly different than your average real estate agent out there and certainly different than myself. So I appreciate you joining me to bring a different opinion and a different voice to this. I appreciate that a lot, Matt. And, you know, the hope is that.
00:06:28
Speaker
So there aren't a lot of, so I am a realtor and I'm also an attorney and I'm also a broker and I have various leadership capacities, but I also serve on the state forms committee. So I'm, I've, we've been having discussions about how to make sure we're compliant, how to make sure we're communicating correctly as an industry. Um, so it's, it's been fun to kind of.
00:06:50
Speaker
Allow my two worlds to collide very a lot of people want to know what doug wants to think about this all of a sudden you became popular Yeah, exactly. Yeah, somebody told me like you should ask for a raise and I said I don't I wouldn't Yeah, so so to get back to the super boring stuff so it it really so it really is basically this federal conspiracy that's been alleged and
00:07:14
Speaker
there was a jury verdict where it was several billions of dollars that came against NAR Keller Williams home sale and several other like big institutions. Right. So that was the sort of first domino to fall was that there was this huge jury verdict. It was just in one state, but it was really impactful. Right. So then the settlement started to happen. Right. So Keller Williams, where Ryan and I are both affiliated, they settled a week or two ago.
00:07:44
Speaker
NAR just settled this past week, and there's different ramifications that we're going to kind of go through. But the NAR one is really, really big because they're changing the way that things can be advertised. They're changing the manner in which people are getting paid. And I think it's really important that we dig pretty deep into figuring out exactly what it means, especially for our buyers and our sellers.
00:08:09
Speaker
Yeah. So, I mean, as an agent, you're looking at this wondering, can I continue the livelihood in the career that I've done if they're upending the way we make a living and consumers want to know, can I save money? What do I pay? How much do I have to pay?
Future of Real Estate Payments
00:08:26
Speaker
Is what's considered typical? And as an agent, I can say that commissions in general have never been fixed. That's illegal. There is been what the lawsuits have
00:08:38
Speaker
Basically come forward is there is a what we would call like a typical or what's what we typically see But that's not a doesn't mean it's fixed. It just means that's kind of Naturally where it's evolved and by the way, it is different in different regions of the country And I know that to be true I have friends elsewhere outside of the state of Maryland and they earn typically believe it or not more than we do here from what I hear at least and
00:09:01
Speaker
Yeah. And so what I'm saying is it's certainly not a fixed price. However, you can understand why a jury after they hear deliberations might think otherwise. Yeah, it's been. And and I have to say that as an industry, we've probably done a pretty poor job explaining how things are done, why things are done the way that they are, because it's really nonintuitive. Right. So just as background typically.
00:09:29
Speaker
A seller will pay both sides as far as the representative brokers are concerned. So out of the seller's proceeds, they'll pay their brokerage to sell and they'll also pay the buyer agent. So that's really strange, right? If we're in a courtroom,
00:09:48
Speaker
You're gonna pay for your own lawyer right and your adversaries so there is this sort of weird aspect that the seller you know why should i pay for the other side to have representation basically and. There's a lot of history as to why this sort of came about but it's it's been a pretty effective system.
00:10:08
Speaker
in so far as everybody's been able to get representation and it's been so invaluable for maximizing eyeballs that are onto our seller's properties and also making sure things actually get to the closing table. So it's been this really kind of unique system that I think has brought a lot of benefit to buyers and sellers.
00:10:28
Speaker
But and but we might sort of be starting this new experiment where, you know, hey, why doesn't the buyer just pay for their own side? And I think we're going to kind of see what ramifications fall out of that. And in the goal as a consumer, I buy homes, I have homes and I've had to sell some of my homes and I still offer to pay a buyer's agent to bring a buyer on my own properties.
00:10:53
Speaker
So I know the business inside and out. I know if there's a conspiracy, then I by definition would be a part of it. And yet I still chose to actively participate in the system in which we have. And for one reason, I would like the maximum number of opportunities to sell my property for the most amount of money.
00:11:13
Speaker
And so what I like to offer less, I'm a consumer, I look for deals, I listen, I go online and shop for coupons for virtually anything I buy. Like I want to get the best value like anybody else. And so in this country, we actually do pay higher total fees for transactions than many other countries or parts of the world.
00:11:34
Speaker
And that's a fact. But, you know, so the idea that we should bring that down isn't a horrible idea. And I think after reviewing this, this settlement and with all these facts, and I'll get your opinion on it in a moment, but I think there are benefits to this. So I think some people think it's doom and gloom. And by the way, some of this is just nutty just when reading through it. But
00:11:55
Speaker
The good part is, in a way, I want consumers to have better value. And it'd be fabulous if this scares the living bananas out of some of the people that aren't professionals in our industry. Which there are lots of those. And if any one of my clients is listening to this, you know I've griped about having to work with agents that don't do this full time, that are very limited with their knowledge and experience, and are not, in my opinion, really professionals.
00:12:22
Speaker
And this very well could be the way to get some of them to choose a different path.
Transparency and Value in Agent Compensation
00:12:27
Speaker
Yeah, no doubt we're going to. I think there's going to be the people that take it less seriously that are going to step out. And I think some of it boils down to they don't want to have a conversation about compensation. Like we as an industry are going to have to be
00:12:45
Speaker
and ought to have been the whole time just a lot more transparent and a lot more clear about how we're getting paid and the value that we're providing. I think there are some shabby agents that are accused of being overpaid and they probably were. They are. Right. Like there are absolutely agents that are being overpaid and that's kind of tarnished our industry. So I think there may well be a little bit more demanded of any individual agent and they're going to have to really justify it.
00:13:14
Speaker
The purpose is to create more opportunity for negotiation, more transparency. So I think there are some potentially good outcomes, but it's going to be a little bit messy as we kind of work through the details.
00:13:29
Speaker
Well, and so that's, you know, that's what I want to highlight. So let me get to some of the facts, because I feel like I'm 10 minutes into this thing, 15 minutes into it. I haven't described exactly what is and is not going to happen. But essentially now, if you are a buyer out there, let me tell you what's going to happen a little bit different. And that's it's not even that it's different, especially in the state of Maryland. But you should be having a consultation with your buyer representative prior to going out and seeing homes.
00:13:58
Speaker
And so you would think, oh, that makes sense, right? I have a conversation about what what this process is going to look like, what you're going to do on my behalf, what what do you do and what don't you do and what value is there? And then ultimately, what am I going to have to compensate you for this? And do you agree to that compensation? And that is, by the way, a very positive thing because
00:14:24
Speaker
I can tell you, I advertise, we do a lot of showings. I meet a lot of clients that want to see a home, right? And I have Craig in the studio who's with me, works with me every day. And at the same time, he will tell you that people are typically very interested in the house, open the door. They're not so interested typically.
00:14:42
Speaker
to get to know who we are and what we do and what we would charge for that service. And so the reality of what real life is, and especially in the age of Zillow and all these platforms that have all the eyeballs, you all are out there. If you're a consumer, you're clicking these buttons, I know, because we get a lot of phone calls. And what's happening is you want someone to open the door right away. You're not looking for necessarily an agent, you're looking for a house.
00:15:08
Speaker
And fundamentally, when I see this, it's going to change because I think the response that some agents have, if you're a referral only agent, it's a very different world you live in than someone who's predominantly internet lead based because you don't know that person. You don't even know necessarily who they're coming from or what. It's really wild out there. And so some of this is naturally going to have to progress and change because
00:15:33
Speaker
Sometimes you meet them at the door and introduce yourself and get to know who they are and do a consult after. And that's gonna have to change.
00:15:41
Speaker
Yeah, I mean, um, so you, you alluded to the state of Maryland, maybe not actually undergoing as many changes as some other places. So one of the big pieces of the NIR settlement is that every realtor has to have a buyer agency agreement in order to represent that buyer. And you're supposed to get that signed before you show them a single house, right? So that's essentially already been the rule in Maryland. There's a requirement that you have this form and that form is just,
00:16:10
Speaker
Immensely helpful and is meant to be this tool to educate both the buyer and the agent and make sure we understand Everybody's rights responsibilities. It allows the agent to kind of act as the fiduciary be their true agent and also it explains how they're getting paid which is The the problem that a lot of
00:16:29
Speaker
buyer agents would have, especially if they didn't do necessarily a ton of business, they would just gloss over the compensation paragraph. Don't worry, you don't pay me, the seller pays me. Exactly. Let's go see homes at three. Yeah, don't even worry about it. There's some weird ethical stuff that we could get into that some people definitely maybe not fully paying attention to.
00:16:52
Speaker
I think we were bad at having that conversation because like, I'm pretty sure the seller is going to pay for it. Like don't even worry about it. And they, and it usually was fine. So you didn't want to kind of have the conversation, but now we get, we have to get really good at that conversation. And I think it's going to make expectations a lot more clear. I think it's going to make
00:17:10
Speaker
the process feel less shady. I think people really just like haven't understood the process and it just felt icky for people. So, you know, I think especially for people that have value to present, I think it's an opportunity to just establish what that value is and and work through your model. Right. And so to be clear, what's going to be required is that by representation agreement to be signed prior to seeing Holmes.
00:17:36
Speaker
Offers of compensation are not going to be made on the MLS. So no longer will your agent know what will be offered from the seller to basically pay to be your representation. So they won't know. It's not going to be allowed. So the reason for that to add context is that there could be steering involved if you as a seller decided to offer very little
00:18:01
Speaker
And your agent saw that online like they can today. But everyone else seems to be offering more. You're offering virtually nothing as a seller. They might very well say, oh, you don't want to see that neighborhood. Let's go check out the other neighborhood instead. And that's one of the key parts of this lawsuit. Yes. Is that that, in fact, is pretty obvious, by the way, your they are salespeople and you're telling them you're going to make nothing or almost nothing. If you go to option A or option B, you get paid three times as much.
00:18:30
Speaker
What do you think people are going to do? Yeah, so it's definitely a human nature thing that I think we probably did fall into occasionally. But I also probably think it's a little bit of a red herring. It's obviously something that was really easy to kind of latch onto as far as, oh, these criminal realtors, they're not even like if you're only giving two and two percent, they're not even going to show you the house because they really they're so greedy. Right. Like that. That's really what a lot of this boils down to.
00:19:00
Speaker
but we also have an ethical obligation to show any house that people really want to see. So I think that's always been a part of it, but yes, that this concept of steering is definitely like in the craw of the plaintiff's attorneys, the DOJ cares about it. It's built into this NAR settlement too, that there cannot be any sorting mechanism where we can sort by commissions provided, and we need to make sure that that's just not a factor anymore.
00:19:28
Speaker
And I should add probably should have added this at the very top. But all of this is in conversation because this has not been approved. This right. The settlement agreement and the terms have not been fully approved by the Department of Justice. Yes. So there could be very well be changes to this. Yes, this is.
00:19:45
Speaker
Everybody is freaking out right now. And, and I, and I appreciate you bringing that up because that's, that's at least an opportunity for us to take a breath, right? We, this is a proposed settlement that needs to be approved by the court.
00:20:00
Speaker
And then sort of a number of things will kick in potentially and it could absolutely still change.
Settlement Uncertainties and DOJ Involvement
00:20:06
Speaker
The Department of Justice, you mentioned, doesn't think this goes far enough, right? Like they want it to be even more restrictive. So it's very much kind of a fluid process and we're just trying to understand it and prepare as best we can.
00:20:19
Speaker
Yeah. And so, I mean, some of the nuances I'm about to go into are important for a lot of reasons. And I'll explain as we go. But that offer of cooperation compensation is allowed to be made, though, off the MLS and the MLS is the multiple listing service. And so it's not that they're not the sellers aren't allowed to offer it anymore. And it's not that they're not allowed to communicate it to other agents. They just can't communicate it on the main portal that we all communicate with currently. Yeah.
00:20:48
Speaker
So think about that for just a second, how that's going to work. Do you not? I mean, come on, people. It's it. Yes. So is it just semantics? Are there ways around this? The answer is probably have cell phones. There's ways around this. Now, it'll be interesting, though, because I do think that. I mean, there are sellers that are reading headlines right now and thinking.
00:21:10
Speaker
Oh, I heard it was illegal to offer compensation. Uh, you know, it's unethical, you know, based on this conspiracy, we shouldn't be doing this anyway. Um, so it's going to be, we're going to need to like really dig into specific scenarios with our sellers, especially to say, look, cause to your point,
00:21:29
Speaker
The accusation is that seller agents were saying, Mr. Seller, I'm putting a gun to your head. You better make sure you compensate my friends a lot because they deserve it and we're buddies, basically. And we need to just be crystal clear that
00:21:47
Speaker
If I'm representing the seller and I have a listing agreement, I only care about that seller, right? So it's going through the math. It's understanding the supply and demand economics and, and letting them make an informed decision. Hey, should you offer compensation? If so, how much, and just walk through the pros and cons.
00:22:04
Speaker
In my example of, if this is a conspiracy, I'm clearly part of it, and when I sell my own homes, why in the world if I knew this was all a joke, why would I still offer my own money in this situation for a buyer's agent to bring a buyer to my property?
00:22:22
Speaker
That's the reality. That's why when people say, wow, I'm going to save so much in compensation to these agents, the reality is a little bit different than that. They're hoping that the market plays a role in this and there's less expensive options out there. By the way, some of that will naturally happen. I do believe based on everything I've read, there will be compression in general.
00:22:44
Speaker
Nothing is free in this world and virtually every option that's going to be super, super cheap if there is it, because now that sellers might choose not to publish and or offer any seller credit to offset this on behalf of the buyer. So the way that this will work, semantics, but the point is if they choose not to to save money,
00:23:04
Speaker
It very well could affect the sale ability of their home and ultimately what they receive. Because we know off market properties that offer no compensation to any agents, this is facts, this is an opinion, sell for less money than homes that have professional representation. And there's lots of evidence out there to support that. So the influence of professionals bringing their clients is real. I just think that
00:23:29
Speaker
Actually providing value and showing a buyer that you can do something for them and that they see value and quite frankly It's conversations that if you're not comfortable having them as a professional agent, which by the way, I'll be honest I would not have felt comfortable doing that my first year or two in the business
00:23:45
Speaker
I didn't call friends or family that knew me at all. I was too scared because I knew I was like, I don't think I know enough. I'm like, I have to see them at Thanksgiving. I don't want to. Right. Screw this up. Right. Yeah, exactly. And I hate to say that to my early clients that might have trusted me. But I was I was nervous. Every new agent should be truthfully unless they're crazy, delusional, delusional. So I think
00:24:07
Speaker
I just think this is a good thing because now I just I've been in it long enough. It's like I know I'm worth you paying me for it. You will have a better outcome if you hire me than if you go it alone. Yeah. And I believe that to be true. And I think the biggest thing that buyers and sellers really need to think about is.
00:24:27
Speaker
So the concept that we're talking about that the DOJ really wants is decoupling. They want the buyer to pay for their representation and the seller to pay for their representation, right? Which intuitively makes sense. It's like, like, because you're at odds with each other, you want each other, your representation. The.
00:24:47
Speaker
problem comes down to affordability, right? So commissions are not small. We're not going to pretend that real estate is cheap, right? So let's say we're, let me just throw out a $10,000 commission number. So that's a hefty price point. It's a hefty, it's a, it's a decent little house. If a buyer,
00:25:09
Speaker
is not getting help from the seller anymore. They need to have closing costs, they need to have down payment, and they need to have cash on hand to pay their representative as well.
00:25:21
Speaker
That's a lot of money that you need liquid in a bank account, folks, that there's a ton of people that simply don't have that extra cash. We work with people all the time that are especially with home prices as high as they are and interest rates as high as they are. People are at the tippy top of what they can afford sometimes. Affordability is tough these days. It's awful. A few years ago with super low interest rates and lower prices, affordability was at all time U.S. records. Yeah.
00:25:51
Speaker
They're in verse now. Yeah, it's absolutely.
00:25:57
Speaker
Affordability is a real crisis in this country. And what this does when you read this, there is nobody that can read this judgment and in real life to see what the who this is going to impact most substantially and most negatively. It's going to be folks at the lower economic. Yes. Levels first and the most as folks with real money and assets are going to demand really good representation.
00:26:24
Speaker
and they're willing to pay for it. If it truly does, and we can talk about the odds of this really happening and what the way is around it, but the notion of truly separating and making the buyers 100% responsible for this fee,
00:26:39
Speaker
I do worry that I'll kind of create a have and have not situation where a more privileged a privileged class will have the opportunity for representation because they can afford it. And your first time home buyer barely have enough for a down payment. Yeah, exactly. And they get a consult that says you now owe me two and a half or three percent or whatever that percentage is. Right. They're going to say, I can't do that. Yeah. But this is a perfect analogy. And you're an attorney, so maybe you can
00:27:07
Speaker
I'd shed some light. When I see this, it reminds me of the world of an attorney. If I got myself in a bad situation, sticky situation, I need a higher representation, somebody that's the best of the best is going to charge more than somebody fresh out of law school that's never tried a case before. And if I have all the resources in the world, I'm going to get the best legal team in the world, the dream team.
00:27:31
Speaker
And I kind of just feel there's some parallels with what real estate is going to do before you could get the best of the best interview, whoever you like. Pretty much if you if you're savvy enough to interview, you're going to get some amazing representation. Yeah. And now you can't afford the amazing representation because they can defend their their charge, their fee. Well, and.
00:27:52
Speaker
So there's, I guess, the three classes. There's the excellent representation, which you hope you can get. There's crappy representation. There's gonna be plenty of, there may well be real discount realtors out there that are gonna- $25 a door. Right, that are gonna give you discount service, I promise.
00:28:09
Speaker
And then there are people that can't even really afford that right that feel like i can't afford to work with a realtor i need to go unrepresented completely right and matt and i can tell you stories that it is not always easy there will be things that go wrong and i promise you having representation is helpful good representation good representation so it's one of those things where there will be.
00:28:32
Speaker
A population of people that either feels like they can't afford it or can't afford it at all. And they will absolutely be harmed if it goes that direction. So and the flip side for the sellers.
00:28:44
Speaker
If this person can't afford it, they can no longer make an offer on your house. So there's a smaller universe of people that can make an offer on your house. Right. Especially because they're not. Remember, this this is not going to change if it goes through exactly as it's currently printed.
Affordability Challenges and Seller Credits
00:28:59
Speaker
It's not going to say any seller can't offer a they'll call it like a seller credit. Right. So the buyer can then use that credit to pay for their representation.
00:29:09
Speaker
It's not that's not outlawed. So the reality is a lot of people are still going to choose to offer credit. And so if most which I think still most will still be offering compensation of some kind and or we call it seller credit, it's assumed most will. But if you're the one that chooses not to, it's still going to influence who can go. Because if we have this open conversation with our buyer, they're going to need to know prior to writing that offer.
00:29:37
Speaker
Am I going to pay you the full service fee that you charge or are they going to help offset it with a credit? Exactly. That conversation is still going to be had. And if the answer is they're not offering any opportunity for credit, if they don't have the money, they don't have the money. We're going to say, I can't buy that house. I love the house. I can't get it. And imagine, you know, there's buyers that are looking at they might be interested in five houses at any given time.
00:30:01
Speaker
if four of them are offering a credit to help with this fee and the one isn't, you know, that seller better be prepared that, you know, what is so special about your house that your house is now more expensive than all, than all your neighbors because you're not offering this, offering this credit. Um, and we just need to give sellers all the information and they can decide, they might say, look, I know my house is going to be in high demand. I'm going to roll the dice. If you have 10 offers on the second day on the market, chances are you might save some money.
00:30:33
Speaker
It's still paramount that they make sure that the buyer has an agent that will be a help and not a hindrance. That's still a factor that I'm sure you take into account when you're reviewing buyer offers with your seller.
00:30:47
Speaker
This guy's a crook. This guy's never sold a house. Like we can we can get a little bit of context. But yeah, I mean, I think there is a universe of people that could save a few bucks this way. But it's going to be very much price point demand geography specific where you're going to need to have a seller agent who's hyper plugged in and will understand to be able to explain those pros and cons. I'm just scared. I don't want to mention other
00:31:14
Speaker
Brokerages names, but there are brokers out there that have a business model where they have very any Again, how do I say this? They're inexperienced Agents typically that open doors and don't say a whole lot and don't add a ton of value. Let's just put it this way I see them, you know them out there if you've ever shopped for homes and did any amount of looking around I feel like we're gonna have an influx of those agents that open doors for a very cheap model
00:31:38
Speaker
and won't be providing the same level of service, but they'll be labeled as not like a discount, a way to save money on the buy side. And I'm nervous that that's going to be out there and it's going to diminish the value of some of the good folks out there. And I'm really scared for the people that don't know the difference.
00:31:57
Speaker
And it may be, Matt, that there's gonna be some really creative solutions that people are gonna come up with. And more lawsuits to follow, promise you. As this all sorts itself out. And the broker hat that I wear is super excited about the risk that the brokerage and all these people are taking. But yeah, that is potentially messy.
00:32:22
Speaker
Yeah. So what's the solution to all of this or what's the end outcome? No one knows. So I think there's a lot of nerves and a lot of clients out there. And as we transition into whatever this is eventually going to be, it's going to be bumpy because I think some people might change their practices while others don't. And as a result,
00:32:40
Speaker
People won't exactly know like as we figure out and i can just tell you as a buyer if i had to pay my agent directly cuz i bought a hot property and had to sell my old property that maybe isn't as in demand and i have to offer a full credit your pain twice you're paying more than you would have.
00:32:57
Speaker
in the current standard market that we're in because typically the way it has been for a very long time, right? The seller of the house I'm buying is covering the fees for my representation typically. And I'm paying for both on my sale. That's what it's historically been. So there will be a large subset of people that buy a really in demand home that might have to pay for representation directly.
00:33:21
Speaker
in the house they're selling, they're still gonna have to offer credit in order to sell it. Does that make sense? I feel like they're gonna have to pay twice. Or am I overthinking that? No, that's absolutely going to happen. And there's also, remember,
00:33:34
Speaker
All the people that may have just bought a house in the last five years where their seller paid for their buyer agent, but now when they sell it, maybe they can say, ha ha. Well, now I don't have to pay anything and try to, you know, they got the benefit going in, but now they get to kind of close the door on the way out. Um, but you know,
00:33:52
Speaker
This is going to be very interesting to track as far as what it means really for buyers and sellers because this could still go a hundred different ways, as you said. I'm not in a position to guess exactly how we think this is going to go.
00:34:12
Speaker
Sellers still have an opportunity to offer a concession. They can't say Commission. Sorry. No, it'll be a concession. It'll be a it'll be a credit seller. It'll be a seller credit to the buyer and then the buyer can pay their agent or they could buy a new roof or buy whatever. So there will be a mechanism where where sellers can help. The question is, is it going to stay sort of the same how it is where
00:34:38
Speaker
Let's say they were offering a 2% or 2.5% commission and now they'll just offer a 2.5% seller credit. And maybe that's all sort of the same. Maybe the seller, maybe sellers generally reduce their credits that they're giving a little bit, but then the buyers need to come up with a little bit of money. So there are hybrid models that could evolve. There are, you know, and it's going to be based on price point. And honestly, I think also,
00:35:06
Speaker
there are some things that need to kind of swing back a little bit. I mean, there are a few things that are definitely unintended consequences here in terms of let's say a VA buyer. I don't know if you've read any of the nonsense here. So basically with VA, there are protections in place that are meant to protect these borrowers and they're literally not allowed to pay money for a real estate
00:35:32
Speaker
It's built in there. It's built into the loan product. And that was fine when the seller pays for it. But now if you're asking the buyer to pay for it, now there's actually a provision that says they can't. All of our veterans, as of today, which we know something has to get worked out because that's nuts. Every veteran in the United States will not have representation on the buy side because they can't pay for it. They are not allowed to have representation. That's why we know something has to work because can you imagine the headlines if that goes through?
00:35:59
Speaker
So the point is there's a lot of a lot of that we have to figure out here, but.
00:36:05
Speaker
All I can say is they can't, you can't even finance the commission yet or the compensation. So you can't add it, you need to have the cash to have representation. And then what if you're, like right now there's all these restrictions guys on, if you only have let's say 3% down and you're using a certain type of loan product, you can only get a maximum 3% credit from the seller. That happens, there's loan restrictions currently and they've been that way for a long time.
00:36:32
Speaker
So that means if the seller is giving a credit to offset what you as a buyer now have to pay for representation, if the hot water heater breaks and the roof needs to be replaced back in the day, you used to be able to get a credit for that. Sure. Yeah. Well, now the inspection process, that's how you solved a lot of it. Now you can't do that.
00:36:49
Speaker
Right. If you're capped, if you're already asking for 3% and you're capped at 3%. No, no, no. For you. Yeah. Right. No hot water for you today. The point is, I like laugh at it because it's so ridiculous, but at the same time, I think eventually we'll figure this out. There are smart people that are looking at this. God, I hope so. I hope it just doesn't get pushed through and no one's thinking about these details.
00:37:12
Speaker
I think I think it'll be bumpy. I mean, basically, a court said a really specific thing has to go away and is illegal. And now it literally takes an act of Congress to change some of this stuff. I mean, so
00:37:26
Speaker
This isn't a policy decision that's been made. It's been a really finite legal decision, a legal determination that's been made and it has all these consequences. So now hopefully, you know, it might take six months, it might take a year when they realized, oh, historically marginalized populations are now being victimized because they can't afford to pay for their representation.
00:37:47
Speaker
Oh, maybe we should do something about that. Hopefully government agencies step up. Hopefully different nonprofits. The VA would allow, I don't know, a certain fixed fee credit to be given to VA buyers or something. Yeah. Imagine we're getting paid now from the VA directly. That'd be interesting. Yeah. I mean, NAR and VA are meeting as we speak. They're trying to figure this out. You know, similarly with the other loan products, if you're capped at 3%,
00:38:13
Speaker
Maybe Fannie and Freddie decide, well, let's raise that to five percent instead of three to give people a little bit more wiggle room. So I think there are ways forward. You know, I like to say the prior method probably wasn't perfect. Like our industry isn't perfect and it wasn't perfect. Too much fat on the bone. People are right to criticize it. It wasn't.
00:38:32
Speaker
It was not a flawless system. It was not it was not fabulous. So it'll be interesting. So the pendulum is swinging. I think there will be some unintended consequences that will need to tidy up. But it's honestly kind of an exciting time to be in the business where we have a little bit of a say in, you know, where we ultimately where we wind up. Hopefully we can kind of, you know, come up from the ashes a little bit and be in a better position than we were before.
00:38:59
Speaker
I hope so because I think consumers didn't fully understand truly what they were getting into and who pays what. That truly should be more transparent and people should have a better understanding and agents should provide enough value to say, I am worth X amount of dollars minimally. We should have some value and the people that just open doors and don't add much value, good riddance.
00:39:22
Speaker
I'm tired of dealing with you. Well, and look, that can be a business model. There will be people that will have a menu, right? They'll say, sure. All right. Here is the open. Here's the the door opener milieu where you go. You know, I'll charge you $50 a door. And then as you go up, if you want me to actually give you advice and be a wealth advisor and be someone that cares about your family, it's going to be like the financial advisors. I don't know. Schwab does it. All these companies do it where they do trades very for a couple dollars. Right.
00:39:50
Speaker
And then if you want to speak to someone, they'll give you an expert, someone who's licensed, which by the way, if they were really good, they would not be doing 15 minute zoom calls. That's what they don't tell you. But they give you a certified financial planner for 15 minutes and they can review your situation. I think that's going to pop up because you'll have someone who's been in the industry 10 years that knows something to talk about your situation. But in no way does anyone think that they didn't have just met you.
00:40:17
Speaker
There's no way that consultation, even though it'll be a lot cheaper, is as good as having a proper consult with someone who's local that has a laundry list of contractors, the lenders they know to work with, they know every agent in the market. That knowledge, I think, has been undervalued for some time.
00:40:39
Speaker
you're also in relationship with that person, right? It's not just that I have the name of a good plumber, but I know that you want to stay in a certain school district. I know that you want to be close to your mother-in-law. There are things that you know that are important, and when we can leverage our knowledge and our experience to find specific needs for really unique problems that people have, that's where you get the value.
00:41:06
Speaker
Correct. But once again, we're going to take the folks that have been, I think represented potentially better than they could have otherwise afforded. They're the first ones that aren't going to be able to afford that because I have a business model. That's just the reality. It's like it's not in the lawsuit, but people like me have a business model that needs a certain level of compensation or I can't help you.
00:41:26
Speaker
I have staff, I have overhead. I mean, it's you don't get this level of professionalism working with me when I was back by myself in a cubicle. And so to pay for that level of service, I can't charge $50 a door in my current model. And I, you know, it's just like, so I'm going to have to charge you a more reasonable rate, honestly, pretty close to what we have now.
00:41:48
Speaker
There's not a lot of, if you look at profit margins across the board in real estate, most of these agents and teams that are larger, they're not having 50% profit margins. They're pretty tight. And that's at today's rates. So something's going to change. Yeah. It'll be interesting. And that's really the sad thing, right? Is that there are potentially a population of people that
00:42:11
Speaker
with the old system had access to elite representation.
Adapting to Real Estate Industry Changes
00:42:15
Speaker
And with and if it sort of plays itself out the way that that it very well might, they'll just be precluded from having that. But to summarize this, I knew that I was going to try to keep this to 20 or 30 minutes. It always goes so long with me. I can't help myself, people. Sure, I didn't help. But the reality is I wouldn't go running from the industry just yet if you're nervous about if you're an agent that you're not going to be able to make a living.
00:42:40
Speaker
I don't think we understand it enough to know that to be true and i think if you're a consumer don't get too excited to break out the champagne thinking you're not gonna have to pay. You know anything close to what you're paying now i don't think for most people that's gonna happen either yeah i think i think it's.
00:42:56
Speaker
It's going to be somewhere in between. It's an evolution, not a revolution. And I think some of the evolution makes sense for consumers. I think there will be a little bit of a compression or fire representation specifically. But we're just the agents are going to need to get good at having
00:43:16
Speaker
Uncomfortable conversations where you actually have to talk about money and you're running a business and this is how I get paid and this is why I get paid and You're gonna have to figure out we're still figuring out these what form do you use? When do you ask for things? Is it a concession? Is it from the buyer? So we're working out the sort of the logistics, but I think for most people
00:43:38
Speaker
Things aren't going to change that that much is honestly where I've landed. And I think that's where it is. And I can't wait to see how all this shakes out. Hopefully, hopefully it, you know, we figure it all out and smart folks get together and think about all these intricate details because there's so many scenarios when you talk to people, they just go into these rabbit holes because
00:43:58
Speaker
Yeah, it's what we do and and so but I know listen every industry It seems like has gone through some type of evolution similar to this. Yeah financial industry certainly has yes previous to us and so they They are laughing as we go through these this journey because they all went through it Yeah, a few years back precisely, but if we want to not go the way of the travel agent, right? I think this is a time for speaking to agents. This is the time to dig in right make sure
00:44:26
Speaker
you're at a place that's providing you resources, make sure you're taking advantage of those resources. The settlement that we have now could well change. It's like a new updates, new interpretation every week. So really plug in and make sure as a consumer you're asking your agent about this stuff. If they're not comfortable talking about it,
00:44:48
Speaker
That's a red flag to me. And if it sounds like we're all over the place in this discussion, it's because it's so recent and no one knows how any of it's really going to work. That is correct. It's just like this is all we're talking about because it's influencing our livelihood so dramatically. But they're not going to have a whole lot of direct answers yet either. So I think for a while we're going to be in a wait and see situation.
00:45:11
Speaker
That's right. Once we figure this out, I will be certain to have you back and we will have such a direct podcast that has exactly what's changing and exactly what we're going to do. Yeah, but that's no fun. This is the scary, exciting stuff. I like this. Let's talk about this some more. Sure. Yeah, next time we'll have to... If it gets any scarier, we're going to have to bring booze in here. That's fine. Yeah, we'll do perfect for the next time.
00:45:34
Speaker
Well, thanks everybody for joining me and hopefully this shed some light on it. I know it's not exactly an exact science at this point, but I appreciate you, Doug, for joining. And if anybody needs to get a hold of you directly, you can be found. Just look you up. You're the broker here at KW in Towson.
00:45:51
Speaker
Yes, you can reach me at broker at KW l impact.com. And yeah, this is an exciting time to be in real estate. We'll figure it out. Well, that's it. Well, that's all for now, everybody. And I look forward to seeing in the next podcast.