Discover the seismic shifts about to transform every corner of the real estate world as we unpack the implications of the National Association of Realtors' commission settlement. The foundations of real estate transactions are quaking - from how buyer's agents are compensated to the undeniable surge of alternatives to the traditional Realtor in the housing market. In this episode, we're peeling back the layers of these groundbreaking changes, revealing how they'll affect everyone from buyers and sellers of real estate to realtors and agents who service the industry.
Today's real estate landscape is brimming with nuances and surprises, as evidenced by Hillsborough County data that challenge buyer's agents' perceived value. With transaction times and sale prices on the line, we wade through the statistics to bring to light the real impact of having a professional by your side in the buying process. Plus, as the reign of the MLS wanes in the wake of platforms like Zillow, we ponder the future roles of realtors and tech advancements in buying and selling homes.
The marketplace is being pushed toward a redefined real estate ecosystem like travelers on a moving walkway. We spotlight the resilience and ingenuity of realtors prepared to embrace these changes. Get ready to navigate the undulating tides of the industry with us at homeprop.com. Your real estate journey is about to get much more interesting, and we're here to guide you every step of the way. Tune in for a candid conversation that demystifies the complexities of the market and gives you the insights you'll need for the path ahead.
For all your Real Estate Investment and Property Management needs check out HomeProp!
https://www.homeprop.com
https://www.HomepropPM.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
Hello everybody and welcome to the Buying Tampa Bay
podcast where your hosts PeterMurphy and Chase Clark.
The National Association ofRealtors has just reached a
landmark settlement agreementaimed at resolving claims
brought by home sellers overbroker commissions.
This settlement, subject tocourt approval of course,
outlines several significantchanges to the traditional real
(00:31):
estate transaction framework.
It marks a notable shift in howbuyers and sellers and agents
are going to interact with themarketplace.
So today we want to break downthe details of the settlement
for you and approach theconversation from the
(00:51):
perspective of why this had tohappen in the first place and
how the settlement might affectthe various stakeholders
involved, and by stakeholders Imean the buyers and the sellers,
the buyer's agents and seller'sagents, all the third-party
service providers like wellZillow and title agents and
escrow agents and, of course,the realtor associations
themselves.
Chase, it's a complicated caseand lots of real life
ramifications.
I think yes.
Speaker 2 (01:12):
Yeah, it's kind of like a snowball that's been
rolling downhill for actuallythe last, I think, three or four
years is when the genesis ofthis actually started and, as I
heard a lawyer say the other day, it's now moving at the speed
of light from a legalperspective right A settlement
of over $400 million by NAR.
That happened within a coupleof weeks, I think.
(01:34):
All the state associations,local associations and licensed
brokers and agents.
Speaker 1 (01:51):
Right, lots of money involved here and lots of
coverage.
I mean there's millions ofrealtors who are being covered
by this settlement, and so it's.
The National Association ofRealtors is a very wealthy
organization and they're payingout a huge amount of money, a
(02:11):
good chunk of it at the point ofsettlement and then yearly
payments for the next two andfour years to try and absolve
themselves of this well,cardinal sin, which of course
they're denying that they havecolluded to fix pricing.
But they have put in place acouple of standards of practice
(02:32):
that are well, this is what'ssending shockwaves through the
industry.
Standard of practice number one, that realtors can no longer
offer a compensation to buyersagents in the multiple listing
service.
So, for those of you who arenot in the industry, your
realtor uses the MLS or themultiple listing service to
(02:52):
advertise your home for sale andin every MLS listing,
historically there has been anoffer of compensation and the
idea is is that the seller'sagent is saying that buyer's
agents, if you know a buyer whowould like to buy my home, I
will agree to pay 3% or 2.5% or2% or 1% or whatever that field
(03:13):
might contain.
I will pay that buyer's agentthat amount of money at the
point of closing if you bring abuyer to this transaction.
Well, the settlement says thatis no longer allowed.
There can be no offer ofcompensation made in MLS and
additionally, that the MLScannot facilitate that
discussion whatsoever.
(03:34):
So they can't.
You can't put that a buyer'sagent fee will be paid in the
language of a listing.
You can't use any integratedservices to reflect that an
offer of compensation might beavailable.
That whole negotiation processor that offer process has to be
removed entirely out of the MLSstructure.
(03:54):
So that's big deal number one.
Big deal number two is thatevery buyer's agent must enter
into a written contract withtheir buyer and that written
contract has to indicate withrelative precision how much
they're going to get paid fortheir services.
So no longer can a buyer betold that their services are
(04:17):
free, that the realtor servesthem complementarily to find the
house.
They have to be toldspecifically and exactly how
much it's going to cost them touse that buyer's agent to help
them find a house.
Those are really the two giantstipulations that are being
pushed down.
Speaker 2 (04:36):
Yeah, and all of this , we got 90 days to figure out,
right, we got until mid-July,okay, so it's coming down the
pipe real fast.
And the big question oneveryone's mind is okay, so what
you know, it's a.
This is an administrativechange.
We can't put the offer,compensation and MLS.
But what's really going tochange here?
Right, I mean for years, years,decades, however long now, most
(04:57):
most really good buyers agentshave had a broker buyer
agreement in place for theirbuyer clients, right, and if you
haven't, it hasn't really beenthat big of a deal because
you've been able to look in MLSand kind of see what your
compensation might be from thatparticular listing.
But it's varied.
You know, there's been abandwidth in which that's
(05:18):
operated and most buyers agentshave been very comfortable with
that.
So now what's going to happen?
Is the big question, right, isthe buyer going to pay the
buyer's agent commission?
Or is it going to continue tobe something now that is paid by
the seller but is now having tobe negotiated on a contract by
contract or deal by deal basis?
Right?
(05:38):
That's the big cloud hangingover this.
Right Is will buyer's agents goaway because they're not going
to get paid?
Right, how are we going tohandle that as an industry?
Speaker 1 (05:47):
Yeah, it's a huge thing for the industry and it's
all being presented as this biggiant win for the market right
that this is going to cause homeprices to come way down.
I mean, joe Biden even waschatting about that the other
day and one of his presserstalking about the home
affordability problem.
He said well, for the firsttime ever, commissions are
(06:08):
negotiable.
Well, like many things thatthat's come out of the Oval
Office, that wasn't factual inthe slightest.
Commissions have alwaystechnically been negotiable, but
boy does that six percentcommission price seem to ring
consistent in our ears, as thisis the price that it costs to
sell a home 6%.
And what the initial plaintiffsto this suit wanted to test was
(06:33):
the idea that, well, thatshould not be what everyone
thinks it costs to sell a home,that there should be real
negotiation.
That happens inside of a realestate transaction.
And if we look at what isactually being paid out, if we
look at what people are actuallysaying in their negotiations
with buyers and sellers, whatthe plaintiffs determine is that
(06:54):
, well, this looks a whole lotlike price fixing.
Everyone is somewhere around 6%and everyone is sharing
somewhere around 3% with buyer'sagents and in the narrative
conversations that are being hadbetween buyers and sellers and
their agents.
Although everyone's saying thatthings are negotiable, when
push came to shove it was alwaysfalling back to these numbers
(07:16):
with great consistency.
And so now people say, well,this is going to bring prices
way down in the housing market.
And everyone's hoping that'sthe case because, well, things
are real expensive in thehousing market right now.
Speaker 2 (07:27):
Yeah, that'll be the day I think.
Just my opinion, obviously.
But if there's room to be hadin any of this, where will those
funds flow?
Is it going to be a rebate tothe buyer and a reduction in
price, or is the money going togo to the seller, or is the
listing agent going to pocket itall right?
In my mind, the pecking orderputs the buyer at the bottom,
(07:52):
and I don't see this affectinghousing prices at all, because
the big complaint here was thatsellers were having to pay too
much and therefore not nettingenough from the sale, and so you
know they're going to belooking for more.
If they're looking at thedetails and following the suit,
sellers are going to be possiblyexpecting to put more money in
their pocket by paying lowersettlement costs.
Hard for me to believe that'sreally going to impact housing
(08:15):
prices.
Speaker 1 (08:16):
Yeah, you know, it's kind of the inflationary market,
right.
I mean when you see when pricesgo up, right, and then raw
material costs then drop.
And we saw this happen acrossthe board post COVID, right, it
wasn't like sellers droppedtheir prices to give lower
prices now back to themarketplace.
They kept their prices high andthey're telling us that their
cost of doing business is higherthan ever, and while some of
(08:38):
them are showing by theirbalance sheets that really
what's higher than ever is theirprofits and they're like having
wonderful robust profitsbecause they've been able to
hold onto this higher pricing.
So it's very hard for me as aseller of properties to think
that now that this real estatecommission becomes negotiable,
I'm going to drop my price.
I'm just not going to do that.
But I'm going to be reallyhappy if I don't have to pay
(08:58):
extra money to a broker, if Ican hold onto that somehow.
And that's interesting, right?
Because well, with all thetechnological improvements in
the housing market over the last20 or so years, with players
like Zillow and with theautomation of so many of our
processes, real estatecommissions have been relatively
unscathed in that process andreduced fee players or flat fee
(09:21):
players have not risen up inforce to take advantage of these
marketplace efficiencies andtechnologies so well.
I wonder why that is, and thatmight also give a little bit of
strength to the idea that therealtor lobby has played just a
very strong hand and acontrolling hand in the cost of
their services, and now all ofthat is called into question.
Speaker 2 (09:44):
Well, you know from experience.
At the end of the day, I knowthat realtors make deals happen
right and you know, whereas youmay have a listing agreement at
five or 6%, if you've got to goto four to make a deal happen,
because that's what the sellerneeds, that's what realtors do
you know.
And so, at the end of the day,I find most sellers looking at
(10:05):
their net sheet.
They want to know what am Igoing to net from this
transaction?
Am I going to be where I needto be on the net funds, proceeds
that I collect from closing,and if they're in a good spot
and the number hits their target, they rarely question the costs
involved, everything that'sdeducted from that sale price.
And after they pay off theirmortgage and all of that stuff
(10:26):
right Now, if it's tight or ifit's below what they're
expecting or need, then theystart looking, and that's where
negotiation typically alreadyhappens right.
Things get moved, realtors givecredits, things like that, to
make a deal work, and so that'sbeen going on behind the scenes,
but I think that's somethingthat the general public doesn't
hear about and doesn't knowabout.
Speaker 1 (10:48):
Yeah, that's a great point.
Now, when I looked at the,there was a great interview in
the Wall Street Journal with theplaintiffs to this case and
they look like humble folksbringing a lawsuit on behalf of
the great unwashed masses forall the hardships done to them
by realtors.
Right, because what you justdescribed there Chase of that
(11:08):
negotiation going on behind thescenes, these plaintiffs said,
is not happening.
Well, and who knows.
Right, I guess some juriesbelieved them and thought that
was the case, and maybe we allkind of believe them too,
because isn't this what happensevery now and then?
Right, someone who has amortgage on a home goes to sell
a house and well, they're indistress of sorts, or they're
not going to make as much on itas they thought they would.
(11:30):
And then now they've got to paysettlement expenses to title
agents and they've got to paytaxes and they've got to pay
real estate commissions, andthen they've got to pay off
their mortgage and they'rehorrified when they discover
they don't have as much money intheir pockets as they thought
they would once all thoseexpenses are paid.
And the largest single line itemat all of those costs after the
(11:51):
mortgage is usually realtorcommissions.
And so they're shocked whenthey see the settlement
agreement did a great job inthrowing out big numbers.
They're shocked when they saw$12,000 going to pay the agents,
or $20,000 going to pay theagents and they were only
walking away themselves with$10,000 or $15,000, but they
(12:13):
were paying everything theequivalent of that to buyers and
sellers, agents for theirservices they provided, and so
well.
That was a wonderful optic forthe plaintiffs that looks like
they're being gouged and beingcharged way too much and that
they had well no idea that itwas going to happen until it was
too late to negotiate and theyweren't able to negotiate.
(12:33):
That's kind of what that lookedand felt like for that whole
process.
Speaker 2 (12:37):
Yeah, you know, the rumblings of friction cost
reduction in the real estateworld, you know, kind of have
been boiling up since blockchain.
Right, people would say, oh,blockchain is going to be the
way that we reduce all thefriction costs in real estate.
Right, and that may come tofruition.
I know there's a lot of peopleworking on that right, but in a
lot of ways, if you sit back andthink objectively about this
(12:59):
lawsuit and maybe some of thechanges that will come out of it
, it's not at all surprising.
Right, we've seen this happenspecifically in the stock and
investment brokerage industry.
Right, the advent of E-Trade,you know, 20, 25 years ago,
totally upended brokercommissions in the investment
realm.
(13:20):
Right, when you could go in andbuy a stock, for what did it
start at $4.95 or something likethat.
Now it's down to free.
Right, buy and sell for free.
Now you got Robinhood on yourphone.
Right, you're buying andselling for free.
Right, friction costs werecompletely removed or
drastically reduced in theinvestment realm.
And I think that's probablywhat we're trying to right-size
(13:43):
here in the real estate industry, because the costs are enormous
.
Right, at the end of the day,like you said, second biggest
line item next to your mortgagepayoff on your closing statement
, and so you know the fact thatthose costs would eventually get
reduced over time due toefficiency, technology trend
changes and and industry changes.
(14:05):
It makes sense to me thatthat's going on right now.
Speaker 1 (14:09):
Yeah, well, and let's talk about this enormousness in
terms of raw numbers.
Okay, so, chase, let's sayhypothetically, you're going to
go sell your million dollar homeand let's say the commission
you've negotiated is 6%, right?
Well, you know that roughly.
Then you're going to be paying$60,000 to buyers and sellers
(14:30):
agents to sell your milliondollar home.
Now, at the same time, I'mgoing to go sell my $500,000
home and I've also negotiated 6%.
Well, I'm going to pay $30,000to buyers and sellers agents if
I've negotiated that same 6%commission price.
And so there we have a bunch ofdiscrepancies that we need to
contend with.
Did the agents involved in yourdeal versus my deal deserve
(14:53):
twice the commissions becauseyour house was sold versus mine?
Did they work twice as hard?
Did they bring twice the value?
Did they bring $60,000 of valueat all?
How do you quantify the valuethat an agent brought to that
deal when what they did was putyour house on the market and
took pictures and helped you setthe price which, by the way,
(15:14):
you pretty much had a reallygood idea of anyway without them
?
So what value are they bringing?
And are they bringing valuecommensurate to that giant
sticker price that you pay atthe end of the transaction.
This is the devil's advocateconversation, right?
I mean, defend your exorbitantexpenses to me.
Speaker 2 (15:32):
Well, you know you did some analysis and I think
one interesting point that cameout of that was that 90% of
sales transactions involve abuyer's agent.
Right, and I think when we talkabout commissions and the
biggest value that a seller isgetting for whatever price they
pay to a real estate broker,it's been access to the MLS.
(15:53):
Right, mls has been the chiefprimary database by which all
homes are bought and sold nowfor decades, right, and so we
know if you're a listing agentwhen you put your house on MLS
here in Hillsborough County,it's going to be seen or be
accessible to tens of thousandsof real estate agents right,
(16:13):
that may or may not have a buyerthat they're working with,
that's looking for the exacthome that you have.
It's one of the most efficientmarketplaces in the world from
that standpoint because it's gotaccess to all the information.
Now Zillow, I believe, has puta huge dent in this competitive
(16:36):
advantage over the past fewyears that they're going to make
an even more competitive playgoing forward, because what
they've accumulated now in termsof database and ability to
market and present properties tothe general public, both for
sale and for rent, has becomevery effective and highly used
(16:56):
by the general public.
So that advantage that realtorsused to have that was a highly
valued competitive advantage mayhave been worth that $60,000
price tag on a million-dollarhome in the past.
Not so sure it's going to beworth that going forward Now.
(17:17):
You can factor into that.
Beyond technology.
Realtors know the laws, theyknow the documents, they know
the legalities, they know theinspectors, they know the
photographers, they know thetitle companies and the lenders
and all this stuff and they knowhow to get a deal done and we
know there's a lot of value inthat expertise about how to get
a house sold, the condition itshould be in, repairs that you
(17:41):
should probably make beforelisting.
All of these little kind ofnuance industry expert type
things that a good realtorpossesses are extremely
important and there should be aprice paid for that value.
But if you as a homeowner wannago it alone and throw your
house on Zillow and maybe offera small 1% fee to a buyer's
(18:06):
agent who may bring you a buyerand help facilitate the
transaction, you know that maybe a viable option for you.
You'll do it without all thatexpertise and advice.
But my fear is, as a licensedrealtor, that going forward
technological advances are goingto put that once naive seller
(18:28):
in a much more favorableposition, because they can get
expert advice and become muchmore knowledgeable about the
process and what they should doto sell their home effectively
by using something like chat GPT.
Speaker 1 (18:45):
Yeah, so AI is the one to punch right Zillow, plus,
the continued evolution ofquality information from our AI
systems is going to give us, say, a body of knowledge that's
going to well rival thecompetitive advantage that
realtors once had through theirtraining.
And, of course, they'll allrevolt to hear us say that Full
disclosure, we are realtors,right, because they've gone to
(19:06):
school.
And how can you say that aperson who's gone to school and
has a license is less qualified,or that a bot is more qualified
than that?
And well, like I think we allneed to have a little bit of
introspection on the quality ofthe real estate licensing
programs too.
Well, that's not anexceptionally high bar, and it
hasn't been for a long time.
I mean, we all know peoplewho've taken that licensing test
(19:28):
dozens, you know nine times toget it, to get it passed.
And once they get it passed,they're kind of in and they
don't need a high degree ofprofessional knowledge.
In order to get the license inthe first place, you've got to
go through some law study, whichis done in online formats, and
as long as you pass the test,you are a realtor.
(19:48):
So can we easily compete withthat with any kind of strong
knowledge base.
I think you can.
I don't know if that'snecessarily a strong, lasting
competitive advantage, but youdid talk about the deals that
realtors do, the way a realtorworks to make deals happen.
And I did that data research.
(20:09):
I looked at all thetransactions that happened just
last month in one county, whichis the Hillsborough County
marketplace, and that's whereTampa Bay sits, and I wanted to
look at how transactions wentwhen a buyer's and a seller's
agent were involved versus howthey went when just a seller's
agent were involved.
And all that data was availablein MLS for us.
(20:30):
Now what that does not includeis, let's say, a transaction
that happened without any kindof agent at all, a FISBO, a for
sale by owner.
Mls doesn't reflect that, butMLS shows me if an agent was
involved.
What does that transaction looklike?
And so here are a couple ofreally key takeaways, that kind
of talk to your point a littlebit.
When a buyer's agent and aseller's agent are both involved
(20:53):
in a transaction a buyer'sagent and a seller's agent are
both involved in a transactionlast month that transaction
happened in 35 and a half dayson average.
But when only a seller's agentwas involved no buyer's agent,
that transaction happened in 47days on average.
So it seems like that datapoints to the idea that when a
buyer's agent is involved, atransaction happens in 11 and a
(21:17):
half days faster on average, andthat's a pretty big advantage.
11 and a half days is notnothing.
It's a pretty quick improvementover 47.
So let's speak to that a littlebit.
I mean we're talking about afaster transaction.
So let's speak to that a littlebit.
I mean we're talking about afaster transaction.
We're talking about, maybe, abuyer who now has professional
advice through their deal and sothey're getting to their
(21:40):
inspections quicker, they'remeeting their deadlines more
precisely and the deal isclosing faster.
So all that's good.
Speaker 2 (21:47):
Yes, Well, yeah, you know, I mean, the average person
is going to need someone toshepherd them through the
contract to close process, rightEven from shopping lenders to
communicating with a titlecompany, to making sure
documents flow efficiently andtimely.
If you've got a seller who isworking a full-time job, they've
(22:10):
only got after hours andweekend time to do some of this
stuff, whereas a buyer's agentis on this seven days a week
pushing this process along andfacilitating things and greasing
the wheel to make this thingmove forward faster.
And obviously they have anincentive to do it, because the
faster it closes, the fasterthey get paid.
Right, it's in the seller'sbest interest to close it faster
(22:33):
.
It's really only in the buyer'sbest interest to close it on
time, right, they want to closewhen they need to close, you
know, and so that's what getsdone, and it usually gets done a
little faster, as you've said,with a buyer's agent involved.
Speaker 1 (22:46):
for all those reasons , yeah, and I think it should be
.
It's fair to say it's well.
It's a little 30% faster, butit's not like working without a
buyer's agent creates just anuntenable delay.
It's 47 days versus 35.
That's 11 days, two weeks.
I mean, how many people's livesare upended by having to wait
two weeks longer for a deal toclose?
(23:08):
That's not a huge amount oftime.
So one can say that, well, whocares right?
Like, probably there's not amajor financial impact to either
party by the fact that it'staking a little longer to not
have a buyer's agent involved.
Speaker 2 (23:20):
Well, that said, how many deals have you been a part
of where three, five, seven daysmade a huge difference?
Right, Because maybe thesecontracts are all you know 35
day closes and 12 days later theones without agents are finally
closing with extensions becausesomeone dropped the ball.
You know, I see that a lot.
(23:43):
You know, and we all know too,that all agents aren't created
equal.
You've got some buyers, agentsthat don't do their job very
well, you know, and so theirdeals don't run as smoothly as
the ones that are really on topof it.
So, you know, it just depends,I guess, deal by deal.
But if you go in with theexpectation that, hey,
everything's a 47 day deal, youknow, no, no harm, no foul, yeah
(24:06):
, Well, it does seem to me thatthere's an efficiency that's
brought to play by a buyer'sagent being involved.
Speaker 1 (24:14):
There's a speed of the deal and we might have a
whole lot of challenges andobstacles that are being that a
buyer is being carefullycounseled through by the
presence of a buyer's agent thatwould not be counseled at all
if a buyer's agent weren't atplay.
A buyer's agent is getting somevalue through a lower stress
transaction, quite possiblythrough just a more smooth flow.
(24:40):
So that's a good thing, andwhen something happens faster,
generally it's considered to bea really good thing.
So well, that's one componentthat came out of my research.
The other component that cameout of my research was this one,
which is a more challengingconcept to comprehend so when a
buyer's agent is involved in atransaction, there is, on
(25:01):
average, a 4.9% discount that abuyer's agent is able to
negotiate from the asking price.
So let me give you some hardnumbers.
A buyer's home is being listedat $442,000.
The buyer's agent is, onaverage, able to negotiate that
(25:22):
closing at $420,000, which is aabout 5% discount.
Right, but when no buyer'sagent is involved, there is a
larger discount being negotiatedon average.
Speaker 2 (25:41):
So you know, if you're a seller, you might look
at it this way.
It's worth it for me to pay abuyer's agent up to one and a
half percent in commission,because that's the amount more
that I get when one is involved.
Now, if you're the buyer,you're thinking what is this guy
doing for me?
I'm paying one and a halfpercent more.
(26:04):
So yeah, there's a little bitof counterintuitive thinking on
that, but maybe one explanationfor this is that buyers think
properties are worth one thingand their buying agents suggest
to them that maybe they shouldbe willing to pay a little bit
(26:25):
more to get the deal done,because we're in a highly
competitive market.
I don't know.
Speaker 1 (26:31):
That's a great point.
In a seller's market, in amarket where you have a shortage
of inventory, the mostimportant thing is often not the
price.
The most important thing isbuying the house you want, right
.
And what does that usuallyrequire?
Well, it requires sometimesmore money and it requires
sometimes a faster close.
And so what we've got in thelast month in Hillsborough
(26:52):
County is that exact thinghappening.
We've got in the last month inHillsborough County is that
exact thing happening.
Buyers agents are negotiating,are paying more money for homes
than a home that does notinvolve a buyer's agent, but
it's happening faster.
Maybe that's why 90% of alldeals are involving buyer's
agents right now.
Maybe it's that exact dynamicthe fact that, in order to get a
(27:12):
home sold right now, a sellerwants the most money and the
sort of shortest amount of time,and that is what a buyer's
agent is accomplishing those twothings they're making that
happen quickly.
But, yes, if you're the buyer,you're like well, hang on,
you're supposed to benegotiating the best price for
me, and now I find out that whenyou're involved, I'm actually
paying one and a half percentmore because you're involved,
(27:36):
and that could be a little bitof a bitter pill for a buyer to
swallow.
I think it's probably some ofwhat fueled the plaintiff's
lawsuit, because buyers wererealizing that a buyer's agent
doesn't necessarily bring me thebest price.
Speaker 2 (27:52):
Yeah, and the ironic thing is right, I don't think
buyers are even included in thissuit, right?
The?
The webinar we were on theother day is talking about how
there may be another suit thatcomes representing buyers.
Yeah, right, this one was justfor the sellers, evidently.
You know, which is something Ihadn't really realized until I
heard that the other day um,thankfully, this settlement
probably will wipe out theability of a lot of those buyers
(28:17):
to bring any suit.
But you're right, it's likewith the average home price
right now in Tampa Bay, an extraone and a half percent results
in what?
About six to $8,000 more thatyou're going to pay for the home
, and so you could look at thatas a buyer and say, well, all
right, I'm going to pay thisextra money for the home, but I
got all this help with the deal.
Was that worth it?
I don't know.
(28:37):
There's value there.
Is it $6,000 to $8,000 onaverage?
Is it 1.5%?
Not sure.
Everybody's got their ownhourly rate and they do their
own calculation.
Speaker 1 (28:48):
Yeah, right, all right.
So let's wrap up this sectionwith a quick summary of why do
realtors actually exist?
Why do they benefit themarketplace, and I think the
data shows this.
They benefit the marketplacebecause the seller, when a
seller's agent is involved or abuyer's agent is involved, is
going to get a price that'sabout 1.5% closer to his asking
(29:09):
price.
When a buyer's agent isinvolved, that's a good thing
for the seller and a seller getsa faster transaction.
That's a great thing by 11 anda half days.
And the seller possibly gets amore trouble-free transaction.
When a professional is involvedwho's done this before, that's a
great thing for the seller andthe buyer.
Well, the buyer is going to paycloser to asking price.
(29:30):
Well, that might not sound likea great thing for the buyer at
first, but it actually probablyhelps the buyer win the home.
So that's a good thing for thebuyer in one sense.
And they receive transactionalsupport right.
They've got someone in theircourt who's advising them
through that process.
And they receive confidence andmarketplace knowledge right, so
they're not going blind into anegotiation situation, or at
(29:53):
least vision impaired right,which you do when you're going
without counsel, right?
Oh, by the way, my sense of allthis is, if you choose to go
without realtor counsel and yougo in with different kinds of
counsel, you build arepresentative team that
includes an attorney to reviewyour contract, an inspector to
help you evaluate the home,different kinds of professionals
(30:14):
to fill the gaps of what therealtor has been doing for you.
I don't I'm not convinced thatthat price is way off or way
short of what the price is rightnow for a realtor, but that
remains to be seen because wedon't know yet what impact this
is going to have on the use ofbuyers and sellers.
Agents and I guess that's wherewe're going right now is so
like okay, so what?
(30:34):
What's the huge impact that'sgoing to happen across the board
to all the stakeholders?
Speaker 2 (30:39):
Well, you know one thing regarding that and
regarding buyers and sellers thereason that the real estate
industry has been able to keepits pricing the way it has for
decades now, in my mind, isprimarily because the average
person has fear of the unknown,and there is a large amount of
(31:00):
uncertainty and doubt involvedin selling a very expensive
asset.
Right, you don't want to mess itup.
Right, you don't want to dosomething that's going to get
you legally in trouble.
You don't want to leave moneyon the table, you don't want to
do the wrong thing.
And there's so many scams andall the media out there on the
(31:21):
internet social media talkingabout all these things that can
go wrong with your house andreal estate and getting scammed.
That leaves a ton ofuncertainty and doubt in the
minds of people, and I thinkthey're buying an insurance
policy when they hire an agent.
Right, and yeah, it's not cheap, but it puts peace of mind in
(31:43):
the deal for so many people andI think that's why they've
signed up for it.
They've paid the fees and, atthe end of the day, when their
net turns out where they need itto be, they've been very happy
with that.
Speaker 1 (31:54):
Yeah, that's right.
People are paying for adviceand they're hoping it's good
advice.
But good advice is not cheap.
Right and well that's.
We all know that by experiencewhen we haven't paid for good
advice and we have a loss toshow for it, so well, that's
something to think about.
So talk with us.
Let's talk through thedifferent stakeholders who are
going to be affected by theoutcome of this deal.
(32:16):
We certainly have realtorsthat's the National Association
of Realtors, the FloridaAssociation of Realtors.
In our area, it's the GreaterTampa Association of Realtors
but there's millions of realtorswho are going to be affected by
this deal.
What do you think this lookslike for them?
Speaker 2 (32:33):
Well, worst case scenario, the forecast I've seen
is that nationally we'll loseover a million licensed real
estate agents, and that's badfor NAR, bad for all these
associations.
That means less revenue cominginto their pockets right, less
lobby power, less prevalence asan industry, but at the same
(32:56):
time, some reduction in thenumber of agents just leads to
that efficiency quotient that Ithink the industry is going to
cycle through over the next fewyears.
We don't need how many realtors.
We have three, four millionrealtors in the US right now.
I mean, do we really need thatmany, is the question.
And I know some of them arepart-time, some of them are
(33:19):
partially retired, voluntary andactive.
Maybe we lose some of the oneson the fringe and the ones that
really know what they're doingstick with it, and so we've got
a higher quality agent on thestreet and not just your friend
next door or your aunt or yourcousin that may have a license
your friend next door or youraunt or your cousin that may
have a license.
Speaker 1 (33:42):
Right, the average age of a realtor has always
exceeded the average age of manyother licensed professionals,
which could indicate apopulation of service providers
that are on the cusp ofretirement, ought to retire and
this might move them into earlyretirement, especially as these
tech changes are going to comeup behind them and they may not
be positioned to take advantageof them.
So certainly big losses inrealtor potential.
I wonder also if we're not goingto see a diminishment, a
(34:04):
substantial diminishment, in thevalue of the multiple listing
service right, so we've talkedabout that already.
If the multiple listing serviceis no longer really needed to
communicate an offer ofcompensation and property
details with the marketplace,and if buyers, if sellers of
homes can list their homes onZillow and are doing so with
(34:27):
near ubiquity almost every homethat's listed for sale is also
listed on Zillow then whatmarketplace advantage does the
MLS offer anymore, especially ifthe searching features for
those who use it are inferiortheir marketplace, their
customer-facing website andrealtorcom.
(34:48):
You have to benchmarkrealtorcom versus Zillow.
There is an absolute differencein the usability of those two
interfaces and I think you wouldfind one of them to be far more
favorable and have a far morerobust service offering attached
to it than the other, one ofthem to be far more favorable
and have a far more robustservice offering attached to it
than the other.
And so will it be that the MLSdoes no longer offer a
competitive and defendable valueagainst marketplace
(35:10):
alternatives.
Speaker 2 (35:12):
Yeah, really, right now.
The only big competitiveadvantage I see going forward
for the MLS or for realtorcomfor that matter, which I believe
is owned by some kind ofcooperative with the MLS and
realtors and NationalAssociation of Realtors is that
once a property sells,realtorcom and MLS still retain
(35:33):
all the photos and all theinformation for that property,
whereas right now with Zillow,because of a lawsuit that
happened several years ago withZillow, because of a lawsuit
that happened several years ago,all the photos disappeared.
So if they've been syndicatedthrough MLS now, if sellers
going forward decide to directlylist with Zillow, meaning the
(35:54):
origin of the listing is Zillowand it's not syndicated through
another platform like MLS, thenZillow will now start to retain
all those qualities as well ontheir site.
But right now there's asyndication agreement whereby
Zillow basically flushes thephotos and the details once a
property sells, which is notadvantageous to the market, and
(36:15):
I think that one change may evenbolster Zillow even more.
Speaker 1 (36:19):
Yeah right.
Well, it will be interesting tosee what kind of product
offerings then Zillow bringsmore.
Yeah right, well, it will beinteresting to see what kind of
product offerings then Zillowbrings along to help fill in the
gaps.
I suppose the third parties whoare connected to this
opportunity or maybedisconnected from the
opportunity and boy, we'vetalked privately.
I wonder who's funded this case.
Because the people who stand towin the most from this outcome
are players like Zillow, becauseif the marketplace,
(36:41):
competitiveness and the controlthat realtors had over
information continues to beeroded, then I think the
advantage goes to players likeZillow.
So let's talk about that alittle bit.
What will Zillow see as anadvantage from all this?
How about mortgage lenders?
How about loan officers?
How will they be affected bythe change in this dynamic?
(37:02):
What will we see their livesand their roles within the
transaction process evolve to?
Speaker 2 (37:07):
Well, we know historically that in deals where
there's no buyer's agent, moreheavy lifting has to be done by
mortgage lenders, loan officers,title agents, people like that
right, Because they're allincentivized to get the deal
closed and so they want to helpand do as much as they can to
shepherd through anon-represented buyer and we see
this all the time.
(37:28):
So they may need to assess thatand figure out are they willing
and what kind of mechanism willthey put in place to assist
maybe a growing number ofnon-represented buyers that
could come to the marketplace?
The other thing going on rightnow with the mortgage industry
is the Mortgage BrokersAssociation is now lobbying
(37:50):
Fannie and Freddie to try andget realtor commissions for
buyers' agents allowed to bepaid out of loan proceeds.
That's something that hasn'tbeen allowed up until now, but
also the buyer has never reallypaid those fees.
That's something that hasn'tbeen allowed up until now, but
also the buyer has never reallypaid those fees.
It's always been paid by theseller, and so if the buyers now
are going to have to startpaying their buying agent in the
(38:11):
deal, how will they do that?
Especially if it is two, 3% ofthe purchase price.
That's a big chunk of money,sometimes as much as their down
payment, so they're going towant it or need to roll that in
to their loan.
Will that actually happen?
Will Fannie and Freddie sign upfor that?
Speaker 1 (38:30):
Yeah, you know it's a good question, chase, and it's
one that we've discussed oftentoo, because you know, in
essence the buyer is paying forthat commission right Through a
higher price right.
It's just that that pay hascome out of on the real estate
closing statement, that thatline item compensation to the
agent has been put on theseller's side of the ledger
(38:52):
right and it looks like it comesout of their proceeds.
But, as we've already mentioned, the price is high, the sale
price to include that reality.
So well, a buyer's kind ofpaying for it through a higher
price, and that's not going togo away because of this new deal
.
So now we're saying that alender needs to change their
underwriting guidelines to allowfor that number to be moved to
(39:12):
the buyer's side of the ledgerand to be paid for by the buyer.
Well, I would hope they wouldsay it was already being done
that way.
Let's just agree to do it andpay it as we would any of their
other closing costs.
Speaker 2 (39:26):
Well, the problem right now is that, technically,
they're not paying higher prices, right?
Would the seller reduce theprice if they paid less
commission?
We don't know.
There's really no empiricalevidence to suggest that.
Right, we know they're payingone and a half percent on
average more with a buyer'sagent.
But the real issue here, right,is how banks have always
(39:48):
approved loans, right, they'regetting an appraisal done and
the appraisal is not going toinclude the buyer's agent
commission, right.
And so if the bank's stillgoing to continue only to lend
on appraised value and yourcontract price is at appraised
value or higher, there's no roomto add the commission in, right
, and that's the issue, right.
And so how will banks handlethat?
(40:10):
Will they make a concessionwhere up to three percent
potentially could be paid to abuyer's agent from loan proceeds
or not, proceeds or not, youknow?
And then, on the flip side ofit, what we see?
An increase in sellerconcessions to a buyer.
Maybe that comes without anagent, right?
So, hey, I'm not bringing anagent, so you don't have to pay
(40:30):
anyone.
But you know, give me, give mesome concessions to help pay my
closing costs, right?
Or give me a concession so thenI can pay my, my agent right,
so you may see some of that aswell.
Speaker 1 (40:42):
Well, and that's specifically outlined as an
allowable item within this newMLS communication structure.
A listing can indicate if aseller will offer a closing cost
concession to cover things likebuyer's agent commissions.
Now, of course, the marketplaceimpact of that is VA and FHA
buyers are capped in the amountof a seller concession that they
(41:03):
can receive to do a deal.
So this kind of structure, youknow, as it always seems to,
could have a disparately largeimpact on the lower end of the
marketplace.
These things always affect thelower end of the marketplace
place, and so while plaintiffsmight be patting themselves on
the back for their egalitarianand win for the little man, it
(41:27):
might be the little man whosuffers most from this kind of
gerrymandering.
And I say that because this is aprocess that the marketplace
has put in place and upheld fornearly a century.
The kinds of negotiations, thekinds of commission fee
structures that are paid toagents are not ones that were
(41:48):
forced down upon us by theprocess of lawsuit or by fiat or
by government.
They were processes that thefree market implemented and the
free market adopted over thecourse of many, many years and
over almost 90% of alltransactions willingly
subscribed to.
So the fact that we now havesome interference from third
parties, from lawyers and thelikes in all of this does not
(42:11):
bode well for having amarketplace good solution
emerging.
So just registering that point.
Speaker 2 (42:17):
Yeah, no doubt.
And what this does is it shiftsmore liability and more
financial responsibility in thedeal to the buyer, which has
never been a good thing.
You want buyers to be able toseamlessly afford and be able to
buy properties, because in theabsence of buyers being able to
(42:37):
seamlessly buy houses, pricesmight come down because demand
will diminish.
Right, so we don't want to putany more roadblocks in the way
of buyers.
Right, we want to be able togive them full concessions that
go right in their pocket anddon't have to pay an agent.
Right, we want to be able tohelp them with all kinds of
assistance for their closingcosts and down payment.
We don't want them to have toworry about having to sign a
(43:00):
broker buyer agreement wherethey're going to be obligated to
pay an agent two or threepercent.
Right, we don't want that.
Those are roadblocks in the wayof buyers coming to the table
and buying homes.
Right, we don't want there tobe an effect on demand.
Right, and if these roadblocksprevent someone from qualifying,
we got problems, we got tofigure that out.
Speaker 1 (43:23):
I do think it's going to be very interesting to see
when we start fully disclosingthe cost to buyer's agents of
what a buyer's service will cost.
Well, let's look at that fromwhat historically has been.
Let's say you, as a buyer'sagent, think that a 2% fee on
the purchase price of a home isfully justified for the kind of
value you bring.
And so you tell a buyer who'sbuying that million dollar home
(43:47):
that you're going to be chargingthem $20,000 to help them buy
that deal.
And they see that in black andwhite in front of them on an
agreement and they've got tosign their name to it, right?
What effect will that have?
Right?
What chilling effect will thathave?
Well, maybe it just has theeffect of the buyer saying no
way are you worth $20,000 to me?
I'm gonna pay you a whole lotless than that I wanna pay.
(44:10):
I think you're worth 10,000.
I think you're worth 5,000.
I think $1,000 is what you'reworth.
I mean, they've got lots ofways to measure your value, by
the way, because there's allkinds of alternatives that you
can benchmark that against.
So that will be a veryinteresting thing to see where
the marketplace ends up decidingonce they start seeing that
(44:30):
line item fee charged to buyers,whether they start thinking a
buyer's agent is actually worth.
Speaker 2 (44:34):
Well, if that's the way that all this ends up going,
I can almost guarantee you thatbuyer's agents will diminish,
if not completely fall away,unless these buyers have a
better mechanism to pay for thatfee.
If they're the ones responsiblefor paying, it's just not going
to happen.
They're not going to have thefunds to do it, unless you're a
(44:57):
cash buyer on a high-end dealand you can just write a check
right now for it.
No big deal, right?
But the majority oftransactions that happen through
the FHA and the 5% downmechanisms out there that are
first time home buyers, newconstruction, the average house
price in Hillsborough County for$400,000 to $500,000, people
(45:19):
don't have an extra two percentlaying around to stroke a check,
nor will they find two percentin the deal to make that happen,
and so this is part of thecloud of question right now
that's hanging out here aboutthis is what will be the impact
on buyers agents?
What will be the impact onlisting agents?
Will listing agents now becomethe dominant players in the
market where they'llsubstantially benefit from both
(45:42):
sides of a commission?
Potentially, will listingcommissions be lowered for
sellers?
Will a listing agent say heylook, I used to charge five or
6%, now I'm charging three.
That's what you pay me.
When an offer comes in, we'llsee what the buyer's agent
requests for compensation andwe'll negotiate that into the
(46:02):
deal.
You know, that's another aspectthat I haven't really heard too
many people talk about.
But commissions for a buyer'sagent may literally be
negotiated deal or offer byoffer right.
So depending on the strength ofyour buyer's offer, your buying
agent may or may not get anycommission paid to them because
(46:22):
the seller will feel like theoffer is not good enough.
So there's some implicationsthere that we're unsure of.
And at the end of the day, willthis also potentially lead to
sellers going the FISBO route,listing directly on Zillow and
offering a buyer's agent one,two or 3% directly and totally
(46:44):
bypassing the listing process,because the perception of the
MLS value now is less than thevalue that Zillow can bring to
the table in this new paradigmof realtor commissions?
Speaker 1 (46:59):
Yeah, lots of questions.
We just got to wonder how thiswill all change things out, and
you know well, there's also apossible scenario that things
don't change all that much atall right over the course of the
next couple of months.
Does the mortgage lobby unitewith the realtor lobby to craft
a financing of vehicle for thesecommissions so that all of this
(47:23):
can be rolled into the purchaseprice?
And does the appraisalrequirement on mortgages get to
be netted up by the costs of acommission?
Right, so some of these fundscan still flow?
We know that disclosure isgoing to have to happen and
that's probably the right thingfor the marketplace.
Let's let there be transparencyin the cost of real estate
commissions.
We've all kind of been hurt bythat lack of transparency and I
(47:47):
think we're all shocked by that.
Whenever a big, bright light isshown upon what you make for an
individual transaction, I thinkthere's always a little shock
that goes along with that.
So transparency is probably nota bad thing.
But, as in any of these things,there's often a scenario in
which not a whole lot ends upchanging in much of the
day-to-day practices of thepeople in the deals.
(48:08):
At the end of the day, there's awhole lot of people who want to
buy homes.
They need help buying a homebecause it's very complicated
and there's lots of risk in it.
And there's a lot of people whowant to sell a home and they
don't have the time or theexpertise to do that without
some professional representationon their part and the whole
economy.
It has a lot riding on africtionless housing market.
(48:31):
If we gum that up withbureaucracy and legislation and
uncertainty, we're all affectedin a negative way.
So it remains to be seen whatJuly looks like.
Negative way.
So it remains to be seen whatJuly looks like.
But there's a part of me thathopes that not a whole lot
changes as we try to get amarketplace-driven solution that
actually makes sense.
Speaker 2 (48:51):
Yeah, we're all kind of waiting around to see.
Is this just going to beanother one of those frivolous
lawsuits where lawyers pocketall the money and get all the
praise but nothing reallyhappens to benefit the consumer?
Or is this the beginning ofthis reduction of friction costs
and efficiency coming to thereal estate marketplace?
Speaker 1 (49:14):
I guess, watch this space.
We'll be back in your ear in acouple of months to talk about
the outcomes.
It'll be a fun podcast.
Yeah, it will.
Until then, Chase, I hope thatwe can be.
Well, I guess that everyrealtor ought to look to see how
they can be a part of thesolution to all of this.
There is likely going to be bigmarketplace opportunities for
those of us who play closely inthis space, and we'll see what
(49:37):
comes of all of that so well.
For now, this has been a lot offun.
I'm glad we had a chance to jawabout it for a bit, and we'll
see you around next week.
Speaker 2 (49:45):
Yeah, if you got any questions about this or want to
get in touch with us, see ourwebsite, homepropcom, and we'll
be glad to talk with you andanswer any questions and tell
you about what we can do for youas a well-versed, highly
experienced experts in the realestate industry.
I'll see you next time.
Hello everybody and welcome to the Buying Tampa Bay
podcast where your hosts PeterMurphy and Chase Clark.
The National Association ofRealtors has just reached a
landmark settlement agreementaimed at resolving claims
brought by home sellers overbroker commissions.
This settlement, subject tocourt approval of course,
outlines several significantchanges to the traditional real
(00:31):
estate transaction framework.
It marks a notable shift in howbuyers and sellers and agents
are going to interact with themarketplace.
So today we want to break downthe details of the settlement
for you and approach theconversation from the
(00:51):
perspective of why this had tohappen in the first place and
how the settlement might affectthe various stakeholders
involved, and by stakeholders Imean the buyers and the sellers,
the buyer's agents and seller'sagents, all the third-party
service providers like wellZillow and title agents and
escrow agents and, of course,the realtor associations
themselves.
Chase, it's a complicated caseand lots of real life
ramifications.
I think yes.
Speaker 2 (01:12):
Yeah, it's kind of like a snowball that's been
rolling downhill for actuallythe last, I think, three or four
years is when the genesis ofthis actually started and, as I
heard a lawyer say the other day, it's now moving at the speed
of light from a legalperspective right A settlement
of over $400 million by NAR.
That happened within a coupleof weeks, I think.
(01:34):
All the state associations,local associations and licensed
brokers and agents.
Speaker 1 (01:51):
Right, lots of money involved here and lots of
coverage.
I mean there's millions ofrealtors who are being covered
by this settlement, and so it's.
The National Association ofRealtors is a very wealthy
organization and they're payingout a huge amount of money, a
(02:11):
good chunk of it at the point ofsettlement and then yearly
payments for the next two andfour years to try and absolve
themselves of this well,cardinal sin, which of course
they're denying that they havecolluded to fix pricing.
But they have put in place acouple of standards of practice
(02:32):
that are well, this is what'ssending shockwaves through the
industry.
Standard of practice number one, that realtors can no longer
offer a compensation to buyersagents in the multiple listing
service.
So, for those of you who arenot in the industry, your
realtor uses the MLS or themultiple listing service to
(02:52):
advertise your home for sale andin every MLS listing,
historically there has been anoffer of compensation and the
idea is is that the seller'sagent is saying that buyer's
agents, if you know a buyer whowould like to buy my home, I
will agree to pay 3% or 2.5% or2% or 1% or whatever that field
(03:13):
might contain.
I will pay that buyer's agentthat amount of money at the
point of closing if you bring abuyer to this transaction.
Well, the settlement says thatis no longer allowed.
There can be no offer ofcompensation made in MLS and
additionally, that the MLScannot facilitate that
discussion whatsoever.
(03:34):
So they can't.
You can't put that a buyer'sagent fee will be paid in the
language of a listing.
You can't use any integratedservices to reflect that an
offer of compensation might beavailable.
That whole negotiation processor that offer process has to be
removed entirely out of the MLSstructure.
(03:54):
So that's big deal number one.
Big deal number two is thatevery buyer's agent must enter
into a written contract withtheir buyer and that written
contract has to indicate withrelative precision how much
they're going to get paid fortheir services.
So no longer can a buyer betold that their services are
(04:17):
free, that the realtor servesthem complementarily to find the
house.
They have to be toldspecifically and exactly how
much it's going to cost them touse that buyer's agent to help
them find a house.
Those are really the two giantstipulations that are being
pushed down.
Speaker 2 (04:36):
Yeah, and all of this , we got 90 days to figure out,
right, we got until mid-July,okay, so it's coming down the
pipe real fast.
And the big question oneveryone's mind is okay, so what
you know, it's a.
This is an administrativechange.
We can't put the offer,compensation and MLS.
But what's really going tochange here?
Right, I mean for years, years,decades, however long now, most
(04:57):
most really good buyers agentshave had a broker buyer
agreement in place for theirbuyer clients, right, and if you
haven't, it hasn't really beenthat big of a deal because
you've been able to look in MLSand kind of see what your
compensation might be from thatparticular listing.
But it's varied.
You know, there's been abandwidth in which that's
(05:18):
operated and most buyers agentshave been very comfortable with
that.
So now what's going to happen?
Is the big question, right, isthe buyer going to pay the
buyer's agent commission?
Or is it going to continue tobe something now that is paid by
the seller but is now having tobe negotiated on a contract by
contract or deal by deal basis?
Right?
(05:38):
That's the big cloud hangingover this.
Right Is will buyer's agents goaway because they're not going
to get paid?
Right, how are we going tohandle that as an industry?
Speaker 1 (05:47):
Yeah, it's a huge thing for the industry and it's
all being presented as this biggiant win for the market right
that this is going to cause homeprices to come way down.
I mean, joe Biden even waschatting about that the other
day and one of his presserstalking about the home
affordability problem.
He said well, for the firsttime ever, commissions are
(06:08):
negotiable.
Well, like many things thatthat's come out of the Oval
Office, that wasn't factual inthe slightest.
Commissions have alwaystechnically been negotiable, but
boy does that six percentcommission price seem to ring
consistent in our ears, as thisis the price that it costs to
sell a home 6%.
And what the initial plaintiffsto this suit wanted to test was
(06:33):
the idea that, well, thatshould not be what everyone
thinks it costs to sell a home,that there should be real
negotiation.
That happens inside of a realestate transaction.
And if we look at what isactually being paid out, if we
look at what people are actuallysaying in their negotiations
with buyers and sellers, whatthe plaintiffs determine is that
(06:54):
, well, this looks a whole lotlike price fixing.
Everyone is somewhere around 6%and everyone is sharing
somewhere around 3% with buyer'sagents and in the narrative
conversations that are being hadbetween buyers and sellers and
their agents.
Although everyone's saying thatthings are negotiable, when
push came to shove it was alwaysfalling back to these numbers
(07:16):
with great consistency.
And so now people say, well,this is going to bring prices
way down in the housing market.
And everyone's hoping that'sthe case because, well, things
are real expensive in thehousing market right now.
Speaker 2 (07:27):
Yeah, that'll be the day I think.
Just my opinion, obviously.
But if there's room to be hadin any of this, where will those
funds flow?
Is it going to be a rebate tothe buyer and a reduction in
price, or is the money going togo to the seller, or is the
listing agent going to pocket itall right?
In my mind, the pecking orderputs the buyer at the bottom,
(07:52):
and I don't see this affectinghousing prices at all, because
the big complaint here was thatsellers were having to pay too
much and therefore not nettingenough from the sale, and so you
know they're going to belooking for more.
If they're looking at thedetails and following the suit,
sellers are going to be possiblyexpecting to put more money in
their pocket by paying lowersettlement costs.
Hard for me to believe that'sreally going to impact housing
(08:15):
prices.
Speaker 1 (08:16):
Yeah, you know, it's kind of the inflationary market,
right.
I mean when you see when pricesgo up, right, and then raw
material costs then drop.
And we saw this happen acrossthe board post COVID, right, it
wasn't like sellers droppedtheir prices to give lower
prices now back to themarketplace.
They kept their prices high andthey're telling us that their
cost of doing business is higherthan ever, and while some of
(08:38):
them are showing by theirbalance sheets that really
what's higher than ever is theirprofits and they're like having
wonderful robust profitsbecause they've been able to
hold onto this higher pricing.
So it's very hard for me as aseller of properties to think
that now that this real estatecommission becomes negotiable,
I'm going to drop my price.
I'm just not going to do that.
But I'm going to be reallyhappy if I don't have to pay
(08:58):
extra money to a broker, if Ican hold onto that somehow.
And that's interesting, right?
Because well, with all thetechnological improvements in
the housing market over the last20 or so years, with players
like Zillow and with theautomation of so many of our
processes, real estatecommissions have been relatively
unscathed in that process andreduced fee players or flat fee
(09:21):
players have not risen up inforce to take advantage of these
marketplace efficiencies andtechnologies so well.
I wonder why that is, and thatmight also give a little bit of
strength to the idea that therealtor lobby has played just a
very strong hand and acontrolling hand in the cost of
their services, and now all ofthat is called into question.
Speaker 2 (09:44):
Well, you know from experience.
At the end of the day, I knowthat realtors make deals happen
right and you know, whereas youmay have a listing agreement at
five or 6%, if you've got to goto four to make a deal happen,
because that's what the sellerneeds, that's what realtors do
you know.
And so, at the end of the day,I find most sellers looking at
(10:05):
their net sheet.
They want to know what am Igoing to net from this
transaction?
Am I going to be where I needto be on the net funds, proceeds
that I collect from closing,and if they're in a good spot
and the number hits their target, they rarely question the costs
involved, everything that'sdeducted from that sale price.
And after they pay off theirmortgage and all of that stuff
(10:26):
right Now, if it's tight or ifit's below what they're
expecting or need, then theystart looking, and that's where
negotiation typically alreadyhappens right.
Things get moved, realtors givecredits, things like that, to
make a deal work, and so that'sbeen going on behind the scenes,
but I think that's somethingthat the general public doesn't
hear about and doesn't knowabout.
Speaker 1 (10:48):
Yeah, that's a great point.
Now, when I looked at the,there was a great interview in
the Wall Street Journal with theplaintiffs to this case and
they look like humble folksbringing a lawsuit on behalf of
the great unwashed masses forall the hardships done to them
by realtors.
Right, because what you justdescribed there Chase of that
(11:08):
negotiation going on behind thescenes, these plaintiffs said,
is not happening.
Well, and who knows.
Right, I guess some juriesbelieved them and thought that
was the case, and maybe we allkind of believe them too,
because isn't this what happensevery now and then?
Right, someone who has amortgage on a home goes to sell
a house and well, they're indistress of sorts, or they're
not going to make as much on itas they thought they would.
(11:30):
And then now they've got to paysettlement expenses to title
agents and they've got to paytaxes and they've got to pay
real estate commissions, andthen they've got to pay off
their mortgage and they'rehorrified when they discover
they don't have as much money intheir pockets as they thought
they would once all thoseexpenses are paid.
And the largest single line itemat all of those costs after the
(11:51):
mortgage is usually realtorcommissions.
And so they're shocked whenthey see the settlement
agreement did a great job inthrowing out big numbers.
They're shocked when they saw$12,000 going to pay the agents,
or $20,000 going to pay theagents and they were only
walking away themselves with$10,000 or $15,000, but they
(12:13):
were paying everything theequivalent of that to buyers and
sellers, agents for theirservices they provided, and so
well.
That was a wonderful optic forthe plaintiffs that looks like
they're being gouged and beingcharged way too much and that
they had well no idea that itwas going to happen until it was
too late to negotiate and theyweren't able to negotiate.
(12:33):
That's kind of what that lookedand felt like for that whole
process.
Speaker 2 (12:37):
Yeah, you know, the rumblings of friction cost
reduction in the real estateworld, you know, kind of have
been boiling up since blockchain.
Right, people would say, oh,blockchain is going to be the
way that we reduce all thefriction costs in real estate.
Right, and that may come tofruition.
I know there's a lot of peopleworking on that right, but in a
lot of ways, if you sit back andthink objectively about this
(12:59):
lawsuit and maybe some of thechanges that will come out of it
, it's not at all surprising.
Right, we've seen this happenspecifically in the stock and
investment brokerage industry.
Right, the advent of E-Trade,you know, 20, 25 years ago,
totally upended brokercommissions in the investment
realm.
(13:20):
Right, when you could go in andbuy a stock, for what did it
start at $4.95 or something likethat.
Now it's down to free.
Right, buy and sell for free.
Now you got Robinhood on yourphone.
Right, you're buying andselling for free.
Right, friction costs werecompletely removed or
drastically reduced in theinvestment realm.
And I think that's probablywhat we're trying to right-size
(13:43):
here in the real estate industry, because the costs are enormous
.
Right, at the end of the day,like you said, second biggest
line item next to your mortgagepayoff on your closing statement
, and so you know the fact thatthose costs would eventually get
reduced over time due toefficiency, technology trend
changes and and industry changes.
(14:05):
It makes sense to me thatthat's going on right now.
Speaker 1 (14:09):
Yeah, well, and let's talk about this enormousness in
terms of raw numbers.
Okay, so, chase, let's sayhypothetically, you're going to
go sell your million dollar homeand let's say the commission
you've negotiated is 6%, right?
Well, you know that roughly.
Then you're going to be paying$60,000 to buyers and sellers
(14:30):
agents to sell your milliondollar home.
Now, at the same time, I'mgoing to go sell my $500,000
home and I've also negotiated 6%.
Well, I'm going to pay $30,000to buyers and sellers agents if
I've negotiated that same 6%commission price.
And so there we have a bunch ofdiscrepancies that we need to
contend with.
Did the agents involved in yourdeal versus my deal deserve
(14:53):
twice the commissions becauseyour house was sold versus mine?
Did they work twice as hard?
Did they bring twice the value?
Did they bring $60,000 of valueat all?
How do you quantify the valuethat an agent brought to that
deal when what they did was putyour house on the market and
took pictures and helped you setthe price which, by the way,
(15:14):
you pretty much had a reallygood idea of anyway without them
?
So what value are they bringing?
And are they bringing valuecommensurate to that giant
sticker price that you pay atthe end of the transaction.
This is the devil's advocateconversation, right?
I mean, defend your exorbitantexpenses to me.
Speaker 2 (15:32):
Well, you know you did some analysis and I think
one interesting point that cameout of that was that 90% of
sales transactions involve abuyer's agent.
Right, and I think when we talkabout commissions and the
biggest value that a seller isgetting for whatever price they
pay to a real estate broker,it's been access to the MLS.
(15:53):
Right, mls has been the chiefprimary database by which all
homes are bought and sold nowfor decades, right, and so we
know if you're a listing agentwhen you put your house on MLS
here in Hillsborough County,it's going to be seen or be
accessible to tens of thousandsof real estate agents right,
(16:13):
that may or may not have a buyerthat they're working with,
that's looking for the exacthome that you have.
It's one of the most efficientmarketplaces in the world from
that standpoint because it's gotaccess to all the information.
Now Zillow, I believe, has puta huge dent in this competitive
(16:36):
advantage over the past fewyears that they're going to make
an even more competitive playgoing forward, because what
they've accumulated now in termsof database and ability to
market and present properties tothe general public, both for
sale and for rent, has becomevery effective and highly used
(16:56):
by the general public.
So that advantage that realtorsused to have that was a highly
valued competitive advantage mayhave been worth that $60,000
price tag on a million-dollarhome in the past.
Not so sure it's going to beworth that going forward Now.
(17:17):
You can factor into that.
Beyond technology.
Realtors know the laws, theyknow the documents, they know
the legalities, they know theinspectors, they know the
photographers, they know thetitle companies and the lenders
and all this stuff and they knowhow to get a deal done and we
know there's a lot of value inthat expertise about how to get
a house sold, the condition itshould be in, repairs that you
(17:41):
should probably make beforelisting.
All of these little kind ofnuance industry expert type
things that a good realtorpossesses are extremely
important and there should be aprice paid for that value.
But if you as a homeowner wannago it alone and throw your
house on Zillow and maybe offera small 1% fee to a buyer's
(18:06):
agent who may bring you a buyerand help facilitate the
transaction, you know that maybe a viable option for you.
You'll do it without all thatexpertise and advice.
But my fear is, as a licensedrealtor, that going forward
technological advances are goingto put that once naive seller
(18:28):
in a much more favorableposition, because they can get
expert advice and become muchmore knowledgeable about the
process and what they should doto sell their home effectively
by using something like chat GPT.
Speaker 1 (18:45):
Yeah, so AI is the one to punch right Zillow, plus,
the continued evolution ofquality information from our AI
systems is going to give us, say, a body of knowledge that's
going to well rival thecompetitive advantage that
realtors once had through theirtraining.
And, of course, they'll allrevolt to hear us say that Full
disclosure, we are realtors,right, because they've gone to
(19:06):
school.
And how can you say that aperson who's gone to school and
has a license is less qualified,or that a bot is more qualified
than that?
And well, like I think we allneed to have a little bit of
introspection on the quality ofthe real estate licensing
programs too.
Well, that's not anexceptionally high bar, and it
hasn't been for a long time.
I mean, we all know peoplewho've taken that licensing test
(19:28):
dozens, you know nine times toget it, to get it passed.
And once they get it passed,they're kind of in and they
don't need a high degree ofprofessional knowledge.
In order to get the license inthe first place, you've got to
go through some law study, whichis done in online formats, and
as long as you pass the test,you are a realtor.
(19:48):
So can we easily compete withthat with any kind of strong
knowledge base.
I think you can.
I don't know if that'snecessarily a strong, lasting
competitive advantage, but youdid talk about the deals that
realtors do, the way a realtorworks to make deals happen.
And I did that data research.
(20:09):
I looked at all thetransactions that happened just
last month in one county, whichis the Hillsborough County
marketplace, and that's whereTampa Bay sits, and I wanted to
look at how transactions wentwhen a buyer's and a seller's
agent were involved versus howthey went when just a seller's
agent were involved.
And all that data was availablein MLS for us.
(20:30):
Now what that does not includeis, let's say, a transaction
that happened without any kindof agent at all, a FISBO, a for
sale by owner.
Mls doesn't reflect that, butMLS shows me if an agent was
involved.
What does that transaction looklike?
And so here are a couple ofreally key takeaways, that kind
of talk to your point a littlebit.
When a buyer's agent and aseller's agent are both involved
(20:53):
in a transaction a buyer'sagent and a seller's agent are
both involved in a transactionlast month that transaction
happened in 35 and a half dayson average.
But when only a seller's agentwas involved no buyer's agent,
that transaction happened in 47days on average.
So it seems like that datapoints to the idea that when a
buyer's agent is involved, atransaction happens in 11 and a
(21:17):
half days faster on average, andthat's a pretty big advantage.
11 and a half days is notnothing.
It's a pretty quick improvementover 47.
So let's speak to that a littlebit.
I mean we're talking about afaster transaction.
So let's speak to that a littlebit.
I mean we're talking about afaster transaction.
We're talking about, maybe, abuyer who now has professional
advice through their deal and sothey're getting to their
(21:40):
inspections quicker, they'remeeting their deadlines more
precisely and the deal isclosing faster.
So all that's good.
Speaker 2 (21:47):
Yes, Well, yeah, you know, I mean, the average person
is going to need someone toshepherd them through the
contract to close process, rightEven from shopping lenders to
communicating with a titlecompany, to making sure
documents flow efficiently andtimely.
If you've got a seller who isworking a full-time job, they've
(22:10):
only got after hours andweekend time to do some of this
stuff, whereas a buyer's agentis on this seven days a week
pushing this process along andfacilitating things and greasing
the wheel to make this thingmove forward faster.
And obviously they have anincentive to do it, because the
faster it closes, the fasterthey get paid.
Right, it's in the seller'sbest interest to close it faster
(22:33):
.
It's really only in the buyer'sbest interest to close it on
time, right, they want to closewhen they need to close, you
know, and so that's what getsdone, and it usually gets done a
little faster, as you've said,with a buyer's agent involved.
Speaker 1 (22:46):
for all those reasons , yeah, and I think it should be
.
It's fair to say it's well.
It's a little 30% faster, butit's not like working without a
buyer's agent creates just anuntenable delay.
It's 47 days versus 35.
That's 11 days, two weeks.
I mean, how many people's livesare upended by having to wait
two weeks longer for a deal toclose?
(23:08):
That's not a huge amount oftime.
So one can say that, well, whocares right?
Like, probably there's not amajor financial impact to either
party by the fact that it'staking a little longer to not
have a buyer's agent involved.
Speaker 2 (23:20):
Well, that said, how many deals have you been a part
of where three, five, seven daysmade a huge difference?
Right, Because maybe thesecontracts are all you know 35
day closes and 12 days later theones without agents are finally
closing with extensions becausesomeone dropped the ball.
You know, I see that a lot.
(23:43):
You know, and we all know too,that all agents aren't created
equal.
You've got some buyers, agentsthat don't do their job very
well, you know, and so theirdeals don't run as smoothly as
the ones that are really on topof it.
So, you know, it just depends,I guess, deal by deal.
But if you go in with theexpectation that, hey,
everything's a 47 day deal, youknow, no, no harm, no foul, yeah
(24:06):
, Well, it does seem to me thatthere's an efficiency that's
brought to play by a buyer'sagent being involved.
Speaker 1 (24:14):
There's a speed of the deal and we might have a
whole lot of challenges andobstacles that are being that a
buyer is being carefullycounseled through by the
presence of a buyer's agent thatwould not be counseled at all
if a buyer's agent weren't atplay.
A buyer's agent is getting somevalue through a lower stress
transaction, quite possiblythrough just a more smooth flow.
(24:40):
So that's a good thing, andwhen something happens faster,
generally it's considered to bea really good thing.
So well, that's one componentthat came out of my research.
The other component that cameout of my research was this one,
which is a more challengingconcept to comprehend so when a
buyer's agent is involved in atransaction, there is, on
(25:01):
average, a 4.9% discount that abuyer's agent is able to
negotiate from the asking price.
So let me give you some hardnumbers.
A buyer's home is being listedat $442,000.
The buyer's agent is, onaverage, able to negotiate that
(25:22):
closing at $420,000, which is aabout 5% discount.
Right, but when no buyer'sagent is involved, there is a
larger discount being negotiatedon average.
Speaker 2 (25:41):
So you know, if you're a seller, you might look
at it this way.
It's worth it for me to pay abuyer's agent up to one and a
half percent in commission,because that's the amount more
that I get when one is involved.
Now, if you're the buyer,you're thinking what is this guy
doing for me?
I'm paying one and a halfpercent more.
(26:04):
So yeah, there's a little bitof counterintuitive thinking on
that, but maybe one explanationfor this is that buyers think
properties are worth one thingand their buying agents suggest
to them that maybe they shouldbe willing to pay a little bit
(26:25):
more to get the deal done,because we're in a highly
competitive market.
I don't know.
Speaker 1 (26:31):
That's a great point.
In a seller's market, in amarket where you have a shortage
of inventory, the mostimportant thing is often not the
price.
The most important thing isbuying the house you want, right
.
And what does that usuallyrequire?
Well, it requires sometimesmore money and it requires
sometimes a faster close.
And so what we've got in thelast month in Hillsborough
(26:52):
County is that exact thinghappening.
We've got in the last month inHillsborough County is that
exact thing happening.
Buyers agents are negotiating,are paying more money for homes
than a home that does notinvolve a buyer's agent, but
it's happening faster.
Maybe that's why 90% of alldeals are involving buyer's
agents right now.
Maybe it's that exact dynamicthe fact that, in order to get a
(27:12):
home sold right now, a sellerwants the most money and the
sort of shortest amount of time,and that is what a buyer's
agent is accomplishing those twothings they're making that
happen quickly.
But, yes, if you're the buyer,you're like well, hang on,
you're supposed to benegotiating the best price for
me, and now I find out that whenyou're involved, I'm actually
paying one and a half percentmore because you're involved,
(27:36):
and that could be a little bitof a bitter pill for a buyer to
swallow.
I think it's probably some ofwhat fueled the plaintiff's
lawsuit, because buyers wererealizing that a buyer's agent
doesn't necessarily bring me thebest price.
Speaker 2 (27:52):
Yeah, and the ironic thing is right, I don't think
buyers are even included in thissuit, right?
The?
The webinar we were on theother day is talking about how
there may be another suit thatcomes representing buyers.
Yeah, right, this one was justfor the sellers, evidently.
You know, which is something Ihadn't really realized until I
heard that the other day um,thankfully, this settlement
probably will wipe out theability of a lot of those buyers
(28:17):
to bring any suit.
But you're right, it's likewith the average home price
right now in Tampa Bay, an extraone and a half percent results
in what?
About six to $8,000 more thatyou're going to pay for the home
, and so you could look at thatas a buyer and say, well, all
right, I'm going to pay thisextra money for the home, but I
got all this help with the deal.
Was that worth it?
I don't know.
(28:37):
There's value there.
Is it $6,000 to $8,000 onaverage?
Is it 1.5%?
Not sure.
Everybody's got their ownhourly rate and they do their
own calculation.
Speaker 1 (28:48):
Yeah, right, all right.
So let's wrap up this sectionwith a quick summary of why do
realtors actually exist?
Why do they benefit themarketplace, and I think the
data shows this.
They benefit the marketplacebecause the seller, when a
seller's agent is involved or abuyer's agent is involved, is
going to get a price that'sabout 1.5% closer to his asking
(29:09):
price.
When a buyer's agent isinvolved, that's a good thing
for the seller and a seller getsa faster transaction.
That's a great thing by 11 anda half days.
And the seller possibly gets amore trouble-free transaction.
When a professional is involvedwho's done this before, that's a
great thing for the seller andthe buyer.
Well, the buyer is going to paycloser to asking price.
(29:30):
Well, that might not sound likea great thing for the buyer at
first, but it actually probablyhelps the buyer win the home.
So that's a good thing for thebuyer in one sense.
And they receive transactionalsupport right.
They've got someone in theircourt who's advising them
through that process.
And they receive confidence andmarketplace knowledge right, so
they're not going blind into anegotiation situation, or at
(29:53):
least vision impaired right,which you do when you're going
without counsel, right?
Oh, by the way, my sense of allthis is, if you choose to go
without realtor counsel and yougo in with different kinds of
counsel, you build arepresentative team that
includes an attorney to reviewyour contract, an inspector to
help you evaluate the home,different kinds of professionals
(30:14):
to fill the gaps of what therealtor has been doing for you.
I don't I'm not convinced thatthat price is way off or way
short of what the price is rightnow for a realtor, but that
remains to be seen because wedon't know yet what impact this
is going to have on the use ofbuyers and sellers.
Agents and I guess that's wherewe're going right now is so
like okay, so what?
(30:34):
What's the huge impact that'sgoing to happen across the board
to all the stakeholders?
Speaker 2 (30:39):
Well, you know one thing regarding that and
regarding buyers and sellers thereason that the real estate
industry has been able to keepits pricing the way it has for
decades now, in my mind, isprimarily because the average
person has fear of the unknown,and there is a large amount of
(31:00):
uncertainty and doubt involvedin selling a very expensive
asset.
Right, you don't want to mess itup.
Right, you don't want to dosomething that's going to get
you legally in trouble.
You don't want to leave moneyon the table, you don't want to
do the wrong thing.
And there's so many scams andall the media out there on the
(31:21):
internet social media talkingabout all these things that can
go wrong with your house andreal estate and getting scammed.
That leaves a ton ofuncertainty and doubt in the
minds of people, and I thinkthey're buying an insurance
policy when they hire an agent.
Right, and yeah, it's not cheap, but it puts peace of mind in
(31:43):
the deal for so many people andI think that's why they've
signed up for it.
They've paid the fees and, atthe end of the day, when their
net turns out where they need itto be, they've been very happy
with that.
Speaker 1 (31:54):
Yeah, that's right.
People are paying for adviceand they're hoping it's good
advice.
But good advice is not cheap.
Right and well that's.
We all know that by experiencewhen we haven't paid for good
advice and we have a loss toshow for it, so well, that's
something to think about.
So talk with us.
Let's talk through thedifferent stakeholders who are
going to be affected by theoutcome of this deal.
(32:16):
We certainly have realtorsthat's the National Association
of Realtors, the FloridaAssociation of Realtors.
In our area, it's the GreaterTampa Association of Realtors
but there's millions of realtorswho are going to be affected by
this deal.
What do you think this lookslike for them?
Speaker 2 (32:33):
Well, worst case scenario, the forecast I've seen
is that nationally we'll loseover a million licensed real
estate agents, and that's badfor NAR, bad for all these
associations.
That means less revenue cominginto their pockets right, less
lobby power, less prevalence asan industry, but at the same
(32:56):
time, some reduction in thenumber of agents just leads to
that efficiency quotient that Ithink the industry is going to
cycle through over the next fewyears.
We don't need how many realtors.
We have three, four millionrealtors in the US right now.
I mean, do we really need thatmany, is the question.
And I know some of them arepart-time, some of them are
(33:19):
partially retired, voluntary andactive.
Maybe we lose some of the oneson the fringe and the ones that
really know what they're doingstick with it, and so we've got
a higher quality agent on thestreet and not just your friend
next door or your aunt or yourcousin that may have a license
your friend next door or youraunt or your cousin that may
have a license.
Speaker 1 (33:42):
Right, the average age of a realtor has always
exceeded the average age of manyother licensed professionals,
which could indicate apopulation of service providers
that are on the cusp ofretirement, ought to retire and
this might move them into earlyretirement, especially as these
tech changes are going to comeup behind them and they may not
be positioned to take advantageof them.
So certainly big losses inrealtor potential.
I wonder also if we're not goingto see a diminishment, a
(34:04):
substantial diminishment, in thevalue of the multiple listing
service right, so we've talkedabout that already.
If the multiple listing serviceis no longer really needed to
communicate an offer ofcompensation and property
details with the marketplace,and if buyers, if sellers of
homes can list their homes onZillow and are doing so with
(34:27):
near ubiquity almost every homethat's listed for sale is also
listed on Zillow then whatmarketplace advantage does the
MLS offer anymore, especially ifthe searching features for
those who use it are inferiortheir marketplace, their
customer-facing website andrealtorcom.
(34:48):
You have to benchmarkrealtorcom versus Zillow.
There is an absolute differencein the usability of those two
interfaces and I think you wouldfind one of them to be far more
favorable and have a far morerobust service offering attached
to it than the other, one ofthem to be far more favorable
and have a far more robustservice offering attached to it
than the other.
And so will it be that the MLSdoes no longer offer a
competitive and defendable valueagainst marketplace
(35:10):
alternatives.
Speaker 2 (35:12):
Yeah, really, right now.
The only big competitiveadvantage I see going forward
for the MLS or for realtorcomfor that matter, which I believe
is owned by some kind ofcooperative with the MLS and
realtors and NationalAssociation of Realtors is that
once a property sells,realtorcom and MLS still retain
(35:33):
all the photos and all theinformation for that property,
whereas right now with Zillow,because of a lawsuit that
happened several years ago withZillow, because of a lawsuit
that happened several years ago,all the photos disappeared.
So if they've been syndicatedthrough MLS now, if sellers
going forward decide to directlylist with Zillow, meaning the
(35:54):
origin of the listing is Zillowand it's not syndicated through
another platform like MLS, thenZillow will now start to retain
all those qualities as well ontheir site.
But right now there's asyndication agreement whereby
Zillow basically flushes thephotos and the details once a
property sells, which is notadvantageous to the market, and
(36:15):
I think that one change may evenbolster Zillow even more.
Speaker 1 (36:19):
Yeah right.
Well, it will be interesting tosee what kind of product
offerings then Zillow bringsmore.
Yeah right, well, it will beinteresting to see what kind of
product offerings then Zillowbrings along to help fill in the
gaps.
I suppose the third parties whoare connected to this
opportunity or maybedisconnected from the
opportunity and boy, we'vetalked privately.
I wonder who's funded this case.
Because the people who stand towin the most from this outcome
are players like Zillow, becauseif the marketplace,
(36:41):
competitiveness and the controlthat realtors had over
information continues to beeroded, then I think the
advantage goes to players likeZillow.
So let's talk about that alittle bit.
What will Zillow see as anadvantage from all this?
How about mortgage lenders?
How about loan officers?
How will they be affected bythe change in this dynamic?
(37:02):
What will we see their livesand their roles within the
transaction process evolve to?
Speaker 2 (37:07):
Well, we know historically that in deals where
there's no buyer's agent, moreheavy lifting has to be done by
mortgage lenders, loan officers,title agents, people like that
right, Because they're allincentivized to get the deal
closed and so they want to helpand do as much as they can to
shepherd through anon-represented buyer and we see
this all the time.
(37:28):
So they may need to assess thatand figure out are they willing
and what kind of mechanism willthey put in place to assist
maybe a growing number ofnon-represented buyers that
could come to the marketplace?
The other thing going on rightnow with the mortgage industry
is the Mortgage BrokersAssociation is now lobbying
(37:50):
Fannie and Freddie to try andget realtor commissions for
buyers' agents allowed to bepaid out of loan proceeds.
That's something that hasn'tbeen allowed up until now, but
also the buyer has never reallypaid those fees.
That's something that hasn'tbeen allowed up until now, but
also the buyer has never reallypaid those fees.
It's always been paid by theseller, and so if the buyers now
are going to have to startpaying their buying agent in the
(38:11):
deal, how will they do that?
Especially if it is two, 3% ofthe purchase price.
That's a big chunk of money,sometimes as much as their down
payment, so they're going towant it or need to roll that in
to their loan.
Will that actually happen?
Will Fannie and Freddie sign upfor that?
Speaker 1 (38:30):
Yeah, you know it's a good question, chase, and it's
one that we've discussed oftentoo, because you know, in
essence the buyer is paying forthat commission right Through a
higher price right.
It's just that that pay hascome out of on the real estate
closing statement, that thatline item compensation to the
agent has been put on theseller's side of the ledger
(38:52):
right and it looks like it comesout of their proceeds.
But, as we've already mentioned, the price is high, the sale
price to include that reality.
So well, a buyer's kind ofpaying for it through a higher
price, and that's not going togo away because of this new deal
.
So now we're saying that alender needs to change their
underwriting guidelines to allowfor that number to be moved to
(39:12):
the buyer's side of the ledgerand to be paid for by the buyer.
Well, I would hope they wouldsay it was already being done
that way.
Let's just agree to do it andpay it as we would any of their
other closing costs.
Speaker 2 (39:26):
Well, the problem right now is that, technically,
they're not paying higher prices, right?
Would the seller reduce theprice if they paid less
commission?
We don't know.
There's really no empiricalevidence to suggest that.
Right, we know they're payingone and a half percent on
average more with a buyer'sagent.
But the real issue here, right,is how banks have always
(39:48):
approved loans, right, they'regetting an appraisal done and
the appraisal is not going toinclude the buyer's agent
commission, right.
And so if the bank's stillgoing to continue only to lend
on appraised value and yourcontract price is at appraised
value or higher, there's no roomto add the commission in, right
, and that's the issue, right.
And so how will banks handlethat?
(40:10):
Will they make a concessionwhere up to three percent
potentially could be paid to abuyer's agent from loan proceeds
or not, proceeds or not, youknow?
And then, on the flip side ofit, what we see?
An increase in sellerconcessions to a buyer.
Maybe that comes without anagent, right?
So, hey, I'm not bringing anagent, so you don't have to pay
(40:30):
anyone.
But you know, give me, give mesome concessions to help pay my
closing costs, right?
Or give me a concession so thenI can pay my, my agent right,
so you may see some of that aswell.
Speaker 1 (40:42):
Well, and that's specifically outlined as an
allowable item within this newMLS communication structure.
A listing can indicate if aseller will offer a closing cost
concession to cover things likebuyer's agent commissions.
Now, of course, the marketplaceimpact of that is VA and FHA
buyers are capped in the amountof a seller concession that they
(41:03):
can receive to do a deal.
So this kind of structure, youknow, as it always seems to,
could have a disparately largeimpact on the lower end of the
marketplace.
These things always affect thelower end of the marketplace
place, and so while plaintiffsmight be patting themselves on
the back for their egalitarianand win for the little man, it
(41:27):
might be the little man whosuffers most from this kind of
gerrymandering.
And I say that because this is aprocess that the marketplace
has put in place and upheld fornearly a century.
The kinds of negotiations, thekinds of commission fee
structures that are paid toagents are not ones that were
(41:48):
forced down upon us by theprocess of lawsuit or by fiat or
by government.
They were processes that thefree market implemented and the
free market adopted over thecourse of many, many years and
over almost 90% of alltransactions willingly
subscribed to.
So the fact that we now havesome interference from third
parties, from lawyers and thelikes in all of this does not
(42:11):
bode well for having amarketplace good solution
emerging.
So just registering that point.
Speaker 2 (42:17):
Yeah, no doubt.
And what this does is it shiftsmore liability and more
financial responsibility in thedeal to the buyer, which has
never been a good thing.
You want buyers to be able toseamlessly afford and be able to
buy properties, because in theabsence of buyers being able to
(42:37):
seamlessly buy houses, pricesmight come down because demand
will diminish.
Right, so we don't want to putany more roadblocks in the way
of buyers.
Right, we want to be able togive them full concessions that
go right in their pocket anddon't have to pay an agent.
Right, we want to be able tohelp them with all kinds of
assistance for their closingcosts and down payment.
We don't want them to have toworry about having to sign a
(43:00):
broker buyer agreement wherethey're going to be obligated to
pay an agent two or threepercent.
Right, we don't want that.
Those are roadblocks in the wayof buyers coming to the table
and buying homes.
Right, we don't want there tobe an effect on demand.
Right, and if these roadblocksprevent someone from qualifying,
we got problems, we got tofigure that out.
Speaker 1 (43:23):
I do think it's going to be very interesting to see
when we start fully disclosingthe cost to buyer's agents of
what a buyer's service will cost.
Well, let's look at that fromwhat historically has been.
Let's say you, as a buyer'sagent, think that a 2% fee on
the purchase price of a home isfully justified for the kind of
value you bring.
And so you tell a buyer who'sbuying that million dollar home
(43:47):
that you're going to be chargingthem $20,000 to help them buy
that deal.
And they see that in black andwhite in front of them on an
agreement and they've got tosign their name to it, right?
What effect will that have?
Right?
What chilling effect will thathave?
Well, maybe it just has theeffect of the buyer saying no
way are you worth $20,000 to me?
I'm gonna pay you a whole lotless than that I wanna pay.
(44:10):
I think you're worth 10,000.
I think you're worth 5,000.
I think $1,000 is what you'reworth.
I mean, they've got lots ofways to measure your value, by
the way, because there's allkinds of alternatives that you
can benchmark that against.
So that will be a veryinteresting thing to see where
the marketplace ends up decidingonce they start seeing that
(44:30):
line item fee charged to buyers,whether they start thinking a
buyer's agent is actually worth.
Speaker 2 (44:34):
Well, if that's the way that all this ends up going,
I can almost guarantee you thatbuyer's agents will diminish,
if not completely fall away,unless these buyers have a
better mechanism to pay for thatfee.
If they're the ones responsiblefor paying, it's just not going
to happen.
They're not going to have thefunds to do it, unless you're a
(44:57):
cash buyer on a high-end dealand you can just write a check
right now for it.
No big deal, right?
But the majority oftransactions that happen through
the FHA and the 5% downmechanisms out there that are
first time home buyers, newconstruction, the average house
price in Hillsborough County for$400,000 to $500,000, people
(45:19):
don't have an extra two percentlaying around to stroke a check,
nor will they find two percentin the deal to make that happen,
and so this is part of thecloud of question right now
that's hanging out here aboutthis is what will be the impact
on buyers agents?
What will be the impact onlisting agents?
Will listing agents now becomethe dominant players in the
market where they'llsubstantially benefit from both
(45:42):
sides of a commission?
Potentially, will listingcommissions be lowered for
sellers?
Will a listing agent say heylook, I used to charge five or
6%, now I'm charging three.
That's what you pay me.
When an offer comes in, we'llsee what the buyer's agent
requests for compensation andwe'll negotiate that into the
(46:02):
deal.
You know, that's another aspectthat I haven't really heard too
many people talk about.
But commissions for a buyer'sagent may literally be
negotiated deal or offer byoffer right.
So depending on the strength ofyour buyer's offer, your buying
agent may or may not get anycommission paid to them because
(46:22):
the seller will feel like theoffer is not good enough.
So there's some implicationsthere that we're unsure of.
And at the end of the day, willthis also potentially lead to
sellers going the FISBO route,listing directly on Zillow and
offering a buyer's agent one,two or 3% directly and totally
(46:44):
bypassing the listing process,because the perception of the
MLS value now is less than thevalue that Zillow can bring to
the table in this new paradigmof realtor commissions?
Speaker 1 (46:59):
Yeah, lots of questions.
We just got to wonder how thiswill all change things out, and
you know well, there's also apossible scenario that things
don't change all that much atall right over the course of the
next couple of months.
Does the mortgage lobby unitewith the realtor lobby to craft
a financing of vehicle for thesecommissions so that all of this
(47:23):
can be rolled into the purchaseprice?
And does the appraisalrequirement on mortgages get to
be netted up by the costs of acommission?
Right, so some of these fundscan still flow?
We know that disclosure isgoing to have to happen and
that's probably the right thingfor the marketplace.
Let's let there be transparencyin the cost of real estate
commissions.
We've all kind of been hurt bythat lack of transparency and I
(47:47):
think we're all shocked by that.
Whenever a big, bright light isshown upon what you make for an
individual transaction, I thinkthere's always a little shock
that goes along with that.
So transparency is probably nota bad thing.
But, as in any of these things,there's often a scenario in
which not a whole lot ends upchanging in much of the
day-to-day practices of thepeople in the deals.
(48:08):
At the end of the day, there's awhole lot of people who want to
buy homes.
They need help buying a homebecause it's very complicated
and there's lots of risk in it.
And there's a lot of people whowant to sell a home and they
don't have the time or theexpertise to do that without
some professional representationon their part and the whole
economy.
It has a lot riding on africtionless housing market.
(48:31):
If we gum that up withbureaucracy and legislation and
uncertainty, we're all affectedin a negative way.
So it remains to be seen whatJuly looks like.
Negative way.
So it remains to be seen whatJuly looks like.
But there's a part of me thathopes that not a whole lot
changes as we try to get amarketplace-driven solution that
actually makes sense.
Speaker 2 (48:51):
Yeah, we're all kind of waiting around to see.
Is this just going to beanother one of those frivolous
lawsuits where lawyers pocketall the money and get all the
praise but nothing reallyhappens to benefit the consumer?
Or is this the beginning ofthis reduction of friction costs
and efficiency coming to thereal estate marketplace?
Speaker 1 (49:14):
I guess, watch this space.
We'll be back in your ear in acouple of months to talk about
the outcomes.
It'll be a fun podcast.
Yeah, it will.
Until then, Chase, I hope thatwe can be.
Well, I guess that everyrealtor ought to look to see how
they can be a part of thesolution to all of this.
There is likely going to be bigmarketplace opportunities for
those of us who play closely inthis space, and we'll see what
(49:37):
comes of all of that so well.
For now, this has been a lot offun.
I'm glad we had a chance to jawabout it for a bit, and we'll
see you around next week.
Speaker 2 (49:45):
Yeah, if you got any questions about this or want to
get in touch with us, see ourwebsite, homepropcom, and we'll
be glad to talk with you andanswer any questions and tell
you about what we can do for youas a well-versed, highly
experienced experts in the realestate industry.
I'll see you next time.
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