The End of Real Estate Commissions? The NAR Lawsuit Settlement Effects

NAR settled on their Sitzer/Burnett class action Lawsuit. What are the effects that removing the standard 6% commission for real estate agents? In this episode, we discuss the possible outcomes and how it may spark change and innovation in the real estate market.

Is the 6% commission still justifiable with Artificial intelligence (AI) and other technology? Will sellers still offer seller-paid commissions? We discuss how real estate agents may be able to leverage technology to help keep costs down.

Mentioned in this episode:

Details on class action lawsuit

Previous Episode Discussing lawsuit

Transcript

Speaker 1: 0:00

There's going to be less of the ability to justify commissions anymore, and so I feel like we're probably going to head down towards a more of a package or more of a flat fee type deal. Welcome to the Money Chisme Podcast, a fun and safe space for personal finance, investing and entrepreneurship tips, where we get the chisme on all things money with sass and humor. I am your host, violeta, a first-generation Mexican immigrant, a real estate investor, entrepreneur, and I am here to help you kick ass in the financial game. Each week, I not only bring you expert tips, but also share the financial game. Each week, I not only bring you expert tips, but also share the financial freedom and entrepreneurship journeys from our own community, because you know, representation is important. So grab un cafecito or, si quieres, an adult beverage and let's get into this week's money chisme. Hola, hola.

Speaker 1: 1:01

Welcome to another episode of the Money Chisme Podcast, and this week I want to talk about the possible end of the 6% commission for realtors for either the buyers or the seller side. This is a more recent development and you know the lawsuit has been around for about a year or so, and I will have more details of it linked in the description in the show notes. But here I want to talk about what are the possible effects of, now that they settled on this lawsuit and I did have a podcast episode previously kind of discussing how it's going to affect first-time homebuyers and especially in the Latino community but now that I've had some time to kind of sit on it and think about it and reflect on it a little bit more, I have a few more thoughts. So before we get into my thoughts, just a quick brief breakdown and background of what this lawsuit was about. I'm not going to get into the nitty gritty, it's just a quick summary. Again, I'm going to have more information on that, like links to more detail and kind of like what it is and who was all in this lawsuit uh down in the description.

Speaker 1: 2:26

But basically, um, there was a lawsuit, a class action lawsuit, that um was brought up by some sellers in a few States, um, mostly against, like, the MLS, which is the multiple listing services, and um the NAR, which is again the national association of realtors. And um, the basic um summary of this lawsuit is that the sellers were not in agreeance that they had to pay the buyer's commission on top of their own seller's real estate agent commission and they felt that they were required even though technically it was negotiable. But really the standard was that you didn't really negotiate as much Like I don't remember, in any of the properties that I've bought or sold, actually ever negotiating, because I actually didn't really think we could negotiate it. I thought this was just like the standard, and same thing with these sellers is that because in order to list on any of these MLSs, you had to put up front if you were paying the buyer's commission and how much, so that kind of put it out there and you felt like you had to put a higher commission and, on top of that, actually pay the buyer's commission, buyer's agent commission, otherwise you're not gonna get any buyers for your property. And although you know Um, you didn't really uh see that too often Uh, it did leave the sellers kind of feeling like you know what, if I didn't put such a high commission, would agents bring buyers to my home, because they would probably prefer the homes that have a higher percentage?

Speaker 1: 4:32

Or if you didn't pay for the buyer's agent, then you'd be less likely to have buyers uh brought to you. And that was one of the things that in this lawsuit they addressed. And not only that, they also felt like it shouldn't be on the sellers to pay the buyer's commission, because they're like you know what? I am selling my home and I got my own representation. Why am I paying for the representation for the buyer side when all they're going to do is knock down my sales price? And then that's another kick in the butt is like now, not only did you knock me down a few thousand dollars from my sales price, but now, on top of that, I got to pay the commission for your agent. And so that was some of the main things that this lawsuit covered, and NAR ended up settling recently and the effect is going to be felt sometime in July. Effect is going to be felt sometime in July. You know the judge still has to give their stamp of approval and then it's going to go into effect, you know. But that's basically kind of the background of the lawsuit.

Speaker 1: 5:52

Now, if you have either sold or bought a home, the way that it currently still works, you know, until the change is made, is that you know, if I were to go list my house, I, you know, will hire a listing agent that is going to put up my house for sale and they prep the house and all that right, and they work off of a commission which is based off the final sales price of the home. And on the buyer's side, they go and get a real estate agent for themselves, so they get their own representation, but usually, um, it doesn't really often come at a cost for the buyer, because it has been again the standard for the seller to pay that commission, you know, on the buyer side. So, um, I it's on here. It says 6%, but you know it can range from like four, three to four, five, 6%, right, I think the highest that I've seen was 6%. I definitely have paid 6% on one of my properties and then that 6% is split between the seller's agent and the buyer's agent and from there the fees go right.

Speaker 1: 7:27

But now, with this lawsuit, there may be some changes when you sell or buy a property and it's going to be more transparency, which is not necessarily a bad thing. Nobody's really uh upset, really, about being more transparent. The thing is that now there is two points that there's a lot of debate on whether is anything going to change, because in reality, um, one of the things that is coming from this lawsuit is that you don't, uh, have to put like the commission when you list the property on or put it on the MLS, and you don't have to put like the commission when you list the property or put it on the MLS and you don't have to necessarily say that you're paying the commission of the buyer's agent so, and you don't have to pay it, right. And so now there's going to, when you go search up these places like Zillowcom or whatever, um, it's no longer going to show, because right now, if you go to any of these, it's going to show hey, uh, three percent commissions, whatever, right. But now that's going away and the hopes is that now this is going to deter the pressure that sellers were feeling of having to have these high commissions and having to pay for the buyer's agent. And so the transparency portion for the buyer's side, and even, I guess, on the seller's side as well, is that now they're going to have to, you know, be on contract, which you already did, but it's going to be, I guess, more detailed on what to expect. Uh, but the thing is some people think it's just not going to change, it's just going to be done in the background and that is um, possible and I believe that that's going to going to be the way that it works, especially at the beginning.

Speaker 1: 9:21

But I feel like there's going to have to be some major change in the way we sell and buy real estate, because it's been a long time coming, because a lot of people feel the same way that real estate agents are sometimes overpaid on what they do and on some other side they say they're not paid enough based on what everything a real estate agent does. And I'm kind of like not necessarily in the middle because I do like this change, because as a seller and you know I'm gonna sell this house I did not like the idea that I was going to spend so much money on paying a commission for something that I feel like doesn't bring the same value as it did before. There's definitely some value that a real estate agent does, but I think now, in the time of technology and the internet you know where a lot of us do a lot of the legwork ourselves in some things um, the commission is sometimes not justifiable. But before we get all into, like the, what the value is with the real estate agent, I want to talk about, um, the effect that it might have on the buyer side, especially first time home buyers. Um, that is one of the the biggest things that people are worried about, things that people are worried about and I definitely see that as well, which is, you know, my initial take on um when I heard about this lawsuit and that was my initial take with the first episode, uh, previous episode that I I put out on this topic and I still am worried about that. But I feel like now, eventually buyers are going to give a pushback and kind of like drive change on the commission structure. So the fear right now is that because now sellers are not going to feel obligated to pay the commission for the buyer, that now it's going to fall on the buyer to pay that and although it's, it sucks and it's a bigger, it's more of an expense, right, because on top of you know, high housing prices and on top of, like, the down payment that you have to do and closing costs and stuff, having to pay the commission of your representation kind of sucks. It's like another obstacle that first-time homebuyers have to deal with and may have to deal with. If you know, now it's passed on to the buyer and I do get that. Um, the problem is that it shouldn't have had to been on the seller in the first place.

Speaker 1: 12:25

I think, um, it started off as a kind of selling point at the beginning, I feel, and, um, if you wanted to sell your house, it was kind of another incentive for a buyer to go for your house, right. But now I became, instead of it being an optional thing for sellers, it became expected. And I think that's where the big issue ended up, because now anybody that wants to sell their house is expected to, you know, have these costs, and I do understand that. You know, while you're selling your house as part of the cost and stuff like that, I don't believe it should be part of that cost. You know, like, uh, imagine if I had to sell my car and then I had to pay, uh, somebody to you know list my car somewhere and on top of that I have to pay somebody to bring me a buyer like and pay that when the buyer's representation is going to knock my sales price down on my car, like it doesn't, you know, work in other different transactions.

Speaker 1: 13:37

So when having to do this with a large house that you invested in, it's like you're just giving money away at some point, and I do understand that at the beginning, I mean, we didn't have, like the, the uh internet so available, and so you did rely on real estate agents a lot. But really now, like anybody can put their property on the MLS, I um search all my properties by myself online and I actually just use uh real estate agents just to close, basically. And so, um, the value is not there as much as it used to to be able to say like, yo, I'm going to pay the commission for your agent. Like, it's not, it's not worth it at this point. Now, I'm not a real estate agent, but I've worked with several and I have some friends that are real estate agents and, um, this is not to you know, um say that they should not get paid what they're worth.

Speaker 1: 14:48

I'm just saying that at this point in time, with technology and everything like that, um, the uh, the ability for buyers to do a lot of the legwork, and the sellers too, is just not going to be able to, you're not going to be able to justify these high costs, and so I think there's going to have to be a change in the way that these fees are charged to, either the seller or the buyer, because I feel like, yes, at the beginning they're still going to have the commission, but I think it's going to probably evolve. This is my guess, my prediction, that buyers are going to push back and they're going to be like, no, this is not feasible for me to pay you such a large commission when I'm the one that's going on Zillow and all that stuff. And I feel like they could just do more of a package deal at this point and it's going to be so much more beneficial to you know, um, the real estate agent. Because how many times do you hear a realtor saying that, hey, I had a buyer and they had me going showing them houses here and there. And so I think, doing a package deal where, like, you have something to wear, like, hey, for for one or three months, whatever, I show you properties and then, um, also help you close and all that stuff, right, and that will will be this fee, but if you decide not to buy, then it's just a little small flat fee, right, so that way the realtor still gets some type of reimbursement for their time and but also it's not as costly as having to pay a commission.

Speaker 1: 16:35

And then, um, it could be catered based on the buyer as well, because, for example, first time home buyers are going to need a lot of guidance and you can have like package deals for that, and you know, someone like me doesn't need that much. I just need you to do the paperwork really and negotiate maybe, but not too much. So I really don't need a lot of help and you know so they could be a different package for for people like that and a different package for a first time home buyers, which I can see how you know it's going to suck for first time home buyers, but maybe going the package deal is going to be way less than having to pay a commission. Um, you know, because now you have set in stone what they're going to be doing and maybe setting hours. Or you know, because a lot of um, I see these realtors, they're like running around spending long hours and stuff like that.

Speaker 1: 17:38

I think that's where we are now. We have all these real estate agents that, um, a lot of them just don't bring the value, and I think that's why we have this issue and and why we ended up with this lawsuit, because, um, there's a lot of agents that are giving the good ones a bad name because they do barely do anything, and I believe one of the issues was because the houses and the housing market was like crazy, was on fire, like a few years ago, where the houses flew off the shelf Like people were like buying houses without even looking at them fully, without home inspections or whatever. It was so freaking easy for real estate agents to just make money and a lot of them just stayed that way, where they do very minimal work because of technology. And so I think that is one of the issues and why we got to this point now where we're challenging the commission because the value is not there and there's other options and we do a lot of the legwork as well too that really they're here because they're required for certain things. Right, and you know, real estate agents I'm not saying that they don't bring any value at all because they a lot of them, you know, have really good experience and stuff like that. Again, I'm saying that a lot of new realtors that were just jumping in when the market was hot and easy to sell, like um, they barely did any work and now it really um brought it to light. Like you know, why are we paying these high commissions? And I think now in this time, it's even harder to justify that commission because of technology.

Speaker 1: 19:35

Um, which is another thing I want to get into, is now in the age of technology. Yes, real estate agents do put in a lot of work, but I think a lot of the things that they do can be automated at this point with AI and everything being online, where you can um look at um properties and see what's available, what properties are available, and then you can send the list. And a lot of times you know you send the criteria of what kind of things you're looking for to your real estate agent and they automatically enter you into the system with your criteria and it automatically generates a list for you and it sends it directly to your email and then you could respond saying I want to see this house, this house, this, that. So they're already automating a lot of stuff. It's no longer to where they had to go manually and then email you stuff.

Speaker 1: 20:37

Like you know, a lot of it is starting to get automated and I feel this is where realtors can start um getting back some of their time to where we can have a balance of paying them and them getting paid what um they should be getting paid without, uh, having these high commissions and um, cause I know one of the things they're going to feel is that now we're kind of shorting them on money. But this is where they can make that change and start automating a lot of stuff. I mean, things are already automated to where, like I sign things, contracts are all online. I don't really have to like like I have minimal contact with a lot of real estate agents. With the AI and automation it could really be used more efficiently to help, you know, combat that cost of your time and feeling that you're not being compensated enough, and that way it could also reduce the cost to these homebuyers, especially the first time homebuyers. So I think it's going to spark some innovation in this industry. It's going to have the really good agents you know they're going to survive, they're going to make it work, they're going to figure it out and then the bad ones hopefully they'll get weeded out and think, okay, this is going to be not worth it anymore or it's going to be too hard, and then they just dip out and now it becomes more of a balance and, um, again, just I think, with you using technology, using packages, um, you know, making packages, uh, for not only the buyers but on the seller side too.

Speaker 1: 22:25

You can make a uh like, for example, I would like, I would like to just hire a listing agent that just puts it on on there on the market, just tells me, hey, this is what I think you could sell your house for, and that's it, and then maybe handle. I don't even think I need them to handle the contract. I could just get an attorney at this point because I can negotiate myself. So I really just need them to, like, maybe take pictures, because maybe they have someone already that they work with. I'm fine with that. If not, I could hire, you know, find my own photographer to come take the pictures. I just need them to run the comps. Tell me, you know, roughly, uh, help me list it, and then that's pretty much it.

Speaker 1: 23:12

Um, so, uh, doing packages in that way as well, to where it's easy and they can automate that stuff too. Like, um, these realtors can get really savvy with it and maybe create templates or stuff to where it makes it easy for them, so they don't spend so much time but still, um, make money, you know, are paid for their time and effort and you know, but on the seller sides, I don't have to, you know, basically throw away so much of my money just because I had to get a real estate agent, when I do a lot of the legwork. So I think there's just a lot of adjustment that's going to have to happen and it's gonna I'm not gonna gonna lie, I know it's going to suck at the beginning. There's going to be less of the ability to justify commissions anymore, and so I feel like we're probably gonna head down towards a more of a package or more of a flat fee type deal which is going to allow maybe more programs, because we already have, like down payment, assistant programs and maybe we could have some type of program for that type, or maybe it'll be able to be tied into like the loan or something. We'll see how it works out.

Speaker 1: 24:36

Maybe I'm completely wrong and I guess I'll do an updated video on that in another year or so to see how it's been going and if I'm wrong, I'm wrong. But other than that, that's those are my thoughts. What do you think? Is it going to change? Is it going to go cause chaos? Is it gonna um, how do you feel that it's going to impact the first time home buyer and, like you did, you feel like it was a good decision or not, um, only time will tell. But other than that, I guess we'll see you in the next one. Bye, thank you so much for listening. Don't forget to like and share this episode so others can also find this podcast. Don't forget to follow me on all my social medias listed in the show notes below, where you can also find resources to help you in your financial journey. If you're interested in becoming a guest on the podcast, you can find that information in the show notes. Other than that, thank you so much for your support and I will see you in the next episode. Bye.