How the N.A.R. Lawsuit Could Change Real Estate Forever

In this pivotal episode, Jeff delves into the seismic shift happening in the real estate world following a landmark ruling that could transform the home-buying process in America. A federal jury has found the National Association of Realtors and major brokerages guilty of conspiring to inflate commissions — a verdict with staggering implications for the industry.

The jury's decision not only mandates nearly $1.8 billion in damages, potentially tripling to over $5 billion, but also signifies a potential end to the longstanding “cooperative compensation rule.” This rule traditionally required home sellers to pay the buyer's agent commissions, a practice now scrutinized for its fairness and competitiveness. With this verdict, agents may now set their own rates, leading to more competitive pricing and possibly slashing commission rates.

But the repercussions don't stop at commission structures. The ruling casts a critical eye on the N.A.R.'s influence, which has been further questioned following recent leadership controversies. The association, despite its intentions to appeal, faces a growing distrust among real estate professionals — many of whom are now questioning the value of their membership dues and the organization's leadership.

Jeff not only examines the court's decision and its immediate aftermath but also ventures into the broader implications of this verdict on the real estate landscape. How will brokerages adjust their business models? What does this mean for home sellers and buyers in the United States? And importantly, Jeff explores how individual realtors, like Jason Haber, view the judgment and the future of their profession.

In the second segment, Jeff doesn't lose sight of the practical — he transitions into the indispensable strategy of leveraging referrals and reviews to grow your business. With the industry at a potential turning point, learning how to effectively harness the power of your clientele's voice is more crucial than ever. Discover actionable tips on how to encourage and manage referrals and reviews, elevating your business amidst a rapidly changing market.

This is not just an episode; it's a masterclass for every real estate professional, homeowner, or buyer who wants to navigate the turbulent waters of a changing industry. Tune in to equip yourself with the knowledge to thrive in the new real estate era and learn the art of business growth in times of industry upheaval.

Important Links & Info:
Follow Jeff:
Instagram: https://www.instagram.com/jeffsmithaz/
Facebook: https://www.facebook.com/profile.php?id=100002927397116
LinkedIn: https://www.linkedin.com/in/jeff-smith-40627016/

Jeff Smith - Tiger Home Loans
📲 480.909.4000
📩 [e-mail]
🔗 www.tigerhomeloans.com
Equal Housing Opportunity
Tiger Home Loans NMLS: 2425582 NMLS: 413643

Episode Transcript

Speaker 1 (00:04):
Welcome to the show fairways and finance.
My name is Jeff Smith.
I've been in the mortgagebusiness for 16 years top
quarter percent L O nationwideand you know this podcast.
We want to talk about yourfinances, how to grow and
accumulate wealth and all thingsrelated to the mortgage
industry.
But we're golf lovers here aswell, so we're going to work in
some golf.
Don't worry for my golf loversout there.

(00:26):
We got you and I hope you enjoythe show.
Hey, welcome back to the show.
Everybody Jeff Smith, fairwaysand finance Glad you can join us
and some big news in the realestate industry.
This week there was a ruling onan antitrust lawsuit that's been
working its way through thecourt system since 2019.

(00:46):
And it's an antitrust lawsuitrelated to real estate
commissions for realtors,listing agents and buyer's
agents, and you know realtorcommissions have been under fire
for quite a while and I think alot of it's misrepresented.
We're going to get into thathere.
But with this class actionlawsuit, there was $1.8 million

(01:09):
in damages awarded and there wasa couple of real estate firms
listed in the suit.
The National Association ofRealtors, nar, was listed in the
suit and Remax was one of thosebrokerages and they've now
since settled for a lower number.
Nar has vowed that they areappealing this decision and

(01:30):
that's now going to go throughan appeals process.
So we don't expect any majorchanges to be taking place in
the real estate industry anytimesoon, because this whole thing
is going to have to work its waythrough the appeals system now.
But it's not the only classaction in process now.
There are a couple other classaction lawsuits in process.

(01:53):
The Justice Department and theFederal Trade Commission are
also looking into the antitrustissue with real estate
commission.
So there's a lot under themicroscope right now as it
relates to real estatecommissions and I have no idea
how this is going to play out.
But you would think, with allof this going on, there's going

(02:13):
to be some sort of changescoming to the way that real
estate commissions are paidgoing forward.
So at the heart of this lawsuitis the plaintiffs alleging that
because the NationalAssociation of Realtors requires
listings to be put into the MLSsystem and in the MLS system it

(02:38):
is required that the seller paythe buyers and listing agent
commission, they are required tooffer at least $1 in commission
to the buyer's agent and thatin and of itself is the crux of
this whole antitrust suit thatsellers are being forced to pay
a buyer's agent commission.

(02:59):
That then in turn inflates realestate prices and it reduces
competition for buyers agentcommissions because customarily
it's become 5% to 6% in totalcommissions, not become, but
that's what it's been for thelast numerous decades 5% to 6%

(03:21):
in total commissions being splitbetween the buyers agent and
the listing agent.
And so because that's customaryand somewhat written into the
rules of NAR, that it is anticompetition and antitrust and
consumers are overpaying forthese services.
And so you know I've got a fewthoughts on that.

(03:43):
I think that realtors are verymuch underappreciated in terms
of how difficult the job is.
So let's take a buyer's agentas an example.
You are working when everybodyelse is not.
You're showing homes on theweekends, at night, you're
taking phone calls from clientswhen they're not at work, so

(04:03):
that's at night and on theweekends, and you're doing a lot
throughout that entire processto get a buyer through the
transaction.
So it's not just showing thehomes, it's not just negotiating
the offer, but then there's somany steps that happen once you
go under contract to get yourbuyer through from contract all
the way through to closing.

(04:24):
Now most buyers.
They don't know all the innerworkings of this process.
They don't know what aninspection report looks like.
They don't know what kind ofquestions they should be asking
when it comes to negotiating anoffer with a seller.
They don't know how to runcomps on a home and figure out
what a home might be worth.

(04:44):
They wouldn't know certainmarket intricacies to be aware
of Like in the Phoenix area it'smuch better to have a home that
does not have a west-facingbackyard because the sun's so
hot.
All these little things thatrealtors help guide their
clients through.
The average person does notknow that and I can tell you

(05:05):
from experience.
I've been in the mortgagebusiness for 17 years.
I've done quite a fewtransactions where it is a for
sale, buy owner and there may beno real term involved in the
transaction for the seller orthe buyer.
And guess where all thosequestions go?
They go to me because theaverage consumer doesn't know
the answers to these questions.

(05:25):
Now, I am not a licensed realestate agent so I can't
negotiate a contract.
I legally cannot advise them onanything contractual.
But then they're asking mequestions about all other kinds
of things and even for me, beingin the mortgage business, some
of those things.
I don't know the answer becauseI'm not doing that type of work
every day.
So I think it's easy to look atthe dollar number on these

(05:48):
commissions and I think it'seasy for the average consumer to
say, well, oh my gosh, thisrealtor is making $20,000 on
this transaction.
They must be making $1 milliona year and they did a terrible
job.
And the reality is the averagerealtor makes well under
$100,000 a year in commissionand that commission that they're

(06:12):
earning that number that yousee on the settlement statement,
that's the gross amount ofcommission.
It is before expenses.
It is before the real estatebrokerage takes a cut as well.
So the realtor themselves,they're not making all of that
money, and realtors on everytransaction have expenses.

(06:33):
So a buyer's agent may not haveas much in expenses as a listing
agent.
Does you know?
A listing agent's going to havea lot of cost for marketing the
home, social media advertising,online advertising, listing
photos, all the different thingsthat they need to do.

(06:54):
Staging these types of thingscost money to put on for their
clients, and so they are notearning all that you see on that
settlement statement, and so Ithink that's something that gets
grossly misunderstood and it'sreally difficult to get
transactions and to closetransactions.
So that's why you may see alarge number for commission

(07:16):
there on a transaction, but thereality is most real estate
agents aren't doing a lot oftransactions, so they're not
making millions of dollars ayear, which I think the average
person just assumes that whenthey see the numbers on the
settlement statement.
So I think it's very misleadingthere and a lot of people get
really bent out of shape aboutit.

(07:36):
But I think for me that has moreto do with some industry issues
and barrier of entry issuesthan it does with the dollar
amount itself.
It's too easy to become a realestate agent.
I would even argue it's tooeasy to become a loan officer as
well.
There's so many realtorsbecause the barrier of entry is

(07:57):
low and when you have a ton ofpeople in an industry you know
it's the 80, 20 rule.
80% of them aren't going to bethat good and 20% of them are
going to be great.
But you're going to see the 80%more than you see the 20%.
So if the barrier to entry washigher in real estate, I think
overall consumers would have abetter experience with the real

(08:18):
estate agent they work with.
There may not be as muchfrustration as out there at
times regarding the cost of thecommissions.
So I think these are importantthings to think about, because
the average consumer just has noidea what they're doing when it
comes to a real estatetransaction.
And it is complex, and thereare real estate contracts in

(08:41):
place in every state with a tonof language in them, because
there's a lot that can go wrongin a real estate transaction,
and when something goes wrong ina real estate transaction and
people lawyer up, it becomesvery expensive.
And so we've got to think aboutthe dollars being saved in
paying commissions versus thedollars being spent either

(09:06):
offering the wrong number for ahouse, buying one that you end
up having to spend a ton ofmoney on repairs, buying one you
just simply don't like and nowyou move to another house.
Or not understanding terms of acontract, breaking rules on a
contract, and now you get suedby the buyer or the seller.

(09:27):
So all these things can end upcosting you tens of thousands of
dollars, and so it would beinteresting to know what the
expenses become for buyers ifthey're saving money on a
buyer's agent commission but nowthey're spending more money for
expenses in other areas.
So I think these are unknownconsequences right now, as this

(09:52):
is working its way through.
Now buyers can still pay realtorcommissions.
So, moving forward, that's whatit's going to be.
No longer will the seller berequired to pay realtor
commissions.
The buyer is going to end uppaying realtor commissions.
The seller could, but it's notgoing to be an unwritten or

(10:13):
basically written rule thatsellers need to pay some amount
of buyer's agent commission.
The payment is going to have tocome from the buyers themselves
.
Now A lot of clients I dealwith they don't have extra money
to be spending on buyer's agentcommissions.
So it'll be interesting to knowwhat happens to these people.
Are they going to gounrepresented?
Are sellers going to listsomeone's house and then offer

(10:37):
them a reduced buyer's agentcommission to help them find the
next house that they're buying?
Are sellers going to see valuein paying buyer's agent
commissions to get morevisibility for their property
and more looks at their propertyto sell it?
That could happen.
Is the mortgage industry goingto step in and allow something

(10:59):
buyer's financing commissionsinto their buyer's agent
commissions, into their loan,something to that effect?
We don't know how this is goingto play out, but it will be
interesting to see.
So these are just a few of mythoughts on this.
I think, either way that thisgoes, it seems like we're

(11:22):
working toward a situation wherethere will probably be fewer
real estate agents in theindustry because buyer's agents,
if they now have to negotiate acommission with their client,
that's a much more difficultconversation to have than having
it just be on the settlementstatement at closing.
So that will lend itself moreto the professional realtors who

(11:47):
are in that top 20% tier, whoreally know what they're doing.
They're more likely to get aclient to agree to pay their
commission.
So on that side of it, gettingthe industry to a higher
professional level as a whole Ithink is good and I think the
mortgage industry needs the samething.
So from that perspective Idon't think that's all bad.

(12:11):
And from the perspective of areal estate agent if I'm a real
estate agent there's alwaysanxiety when these types of
changes happen and we've gonethrough some of these changes in
the mortgage industry andsometimes these types of things
end up not shaking up theindustry as expected and things
operate roughly the same as theywere.

(12:33):
Sometimes things like this comethrough the works and now that
80% of the industry that doesone transaction a year or less.
Now they're gone, and the 20%of the industry who's doing a
great job is in it full time andworking really hard.
They're all of a sudden they'redoing more deals because
there's fewer realtors tocompete with and the pie is the

(12:59):
same size, but their slice ofthe pie has gone up
significantly.
So even if that were to happenand commissions per transaction
were less, real estate agentswould end up making more.
So there's so many differentways that this can go.
It's going to be reallyfascinating to see how this
plays out.
It's going to be fascinating tosee if the Justice Department
or the Federal Trade Commissionstep in and do anything about

(13:22):
this as well.
They may just allow these suitsto go through the system and
then not do anything on top ofthat, so it'd be interesting to
see if NAR is able to pull arabbit out of the hat through
the appeals process or if thismoves forward and now the
Justice Department and the FTCfeel like they don't need to do

(13:42):
anything additional because it'sbeen settled in the courts.
So I think that remains to beseen.
It's a shame with these classaction lawsuits.
While I understand their needto go through now.
There's going to be multiple ofthem, but so much of that class
action money goes to theattorneys involved and not to

(14:07):
the plaintiffs and those thatare alleging that they were
harmed in the situation.
Now you were seeing a bunchmore class action lawsuits pop
up because there's a lot ofmoney to be made there.
So this argument that buyers,agent commissions are inflating
real estate prices, I don'treally buy that.

(14:29):
You've got margin built in toany product or service that you
buy in the economy.
I mean, the way our economyworks is that you do business
with a company, they make amargin, which is their profit.
That's how they survive, that'show they pay their bills and
then, by the way, when you'reworking at your company or

(14:50):
you're doing your job, there's aprofit margin that's built in
there as well.
So this idea that becausebuyers, agent commissions are
being paid, it's over inflatinghouse prices, I don't agree with
that, because you've got marginbuilt in on any product or
service and so home prices andreal estate commissions is the

(15:13):
same thing.
So summarize this I think thatreal estate as a whole is very
much misunderstood from theaverage consumer.
They don't understand howdifficult these transactions are
and how complex they can be,and I personally think that the
3% in commissions the agents areearning is warranted,

(15:35):
especially given the expensesthat they pay to operate.
But we will see how this goesas it plays out through the
system.
It'll be fascinating to watch.
I don't expect any majorchanges in the near term because
of this appeals process, butit'll be interesting to see
where our industry moves goingforward.
Hey guys, thanks for listening.
I hope you enjoyed the show andgot some valuable information

(15:58):
out of it.
I want to help to educateothers and help people grow
their business and build wealth,and I can only do that with
referrals and your help gettingthe word out about this podcast.
So if you come across someoneyou think of benefit from this,
please share it with them and ifthere's somebody who comes to
mind, a five star review go along way in helping me to grow
this podcast and grow the brand.
So appreciate your support.