Buying Tampa Bay
Buying Tampa Bay
S2 E1. The Real Estate Revolution. Understanding the Realtor's Commission Settlement and the Future Role of the Realtor
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.
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Hello everybody and welcome to the Buying Tampa Bay podcast where your hosts Peter Murphy and Chase Clark. The National Association of Realtors has just reached a landmark settlement agreement aimed at resolving claims brought by home sellers over broker commissions. This settlement, subject to court approval of course, outlines several significant changes to the traditional real estate transaction framework. It marks a notable shift in how buyers and sellers and agents are going to interact with the marketplace. So today we want to break down the details of the settlement for you and approach the conversation from the perspective of why this had to happen in the first place and how the settlement might affect the various stakeholders involved, and by stakeholders I mean the buyers and the sellers, the buyer's agents and seller's agents, all the third-party service providers like well Zillow and title agents and escrow agents and, of course, the realtor associations themselves. Chase, it's a complicated case and lots of real life ramifications. I think yes.
Speaker 2:Yeah, it's kind of like a snowball that's been rolling downhill for actually the last, I think, three or four years is when the genesis of this actually started and, as I heard a lawyer say the other day, it's now moving at the speed of light from a legal perspective right A settlement of over $400 million by NAR. That happened within a couple of weeks, I think. All the state associations, local associations and licensed brokers and agents.
Speaker 1:Right, lots of money involved here and lots of coverage. I mean there's millions of realtors who are being covered by this settlement, and so it's. The National Association of Realtors is a very wealthy organization and they're paying out a huge amount of money, a good chunk of it at the point of settlement and then yearly payments for the next two and four years to try and absolve themselves of this well, cardinal sin, which of course they're denying that they have colluded to fix pricing. But they have put in place a couple of standards of practice that are well, this is what's sending shockwaves through the industry. Standard of practice number one, that realtors can no longer offer a compensation to buyers agents in the multiple listing service. So, for those of you who are not in the industry, your realtor uses the MLS or the multiple listing service to advertise your home for sale and in every MLS listing, historically there has been an offer of compensation and the idea is is that the seller's agent is saying that buyer's agents, if you know a buyer who would like to buy my home, I will agree to pay 3% or 2.5% or 2% or 1% or whatever that field might contain. I will pay that buyer's agent that amount of money at the point of closing if you bring a buyer to this transaction.
Speaker 1:Well, the settlement says that is no longer allowed. There can be no offer of compensation made in MLS and additionally, that the MLS cannot facilitate that discussion whatsoever. So they can't. You can't put that a buyer's agent fee will be paid in the language of a listing. You can't use any integrated services to reflect that an offer of compensation might be available. That whole negotiation process or that offer process has to be removed entirely out of the MLS structure. So that's big deal number one. Big deal number two is that every buyer's agent must enter into a written contract with their buyer and that written contract has to indicate with relative precision how much they're going to get paid for their services. So no longer can a buyer be told that their services are free, that the realtor serves them complementarily to find the house. They have to be told specifically and exactly how much it's going to cost them to use that buyer's agent to help them find a house. Those are really the two giant stipulations that are being pushed down.
Speaker 2: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 on everyone's mind is okay, so what you know, it's a. This is an administrative change. We can't put the offer, compensation and MLS. But what's really going to change here? Right, I mean for years, years, decades, however long now, most most really good buyers agents have had a broker buyer agreement in place for their buyer clients, right, and if you haven't, it hasn't really been that big of a deal because you've been able to look in MLS and kind of see what your compensation might be from that particular listing.
Speaker 2:But it's varied. You know, there's been a bandwidth in which that's operated and most buyers agents have been very comfortable with that. So now what's going to happen? Is the big question, right, is the buyer going to pay the buyer's agent commission? Or is it going to continue to be something now that is paid by the seller but is now having to be negotiated on a contract by contract or deal by deal basis? Right? That's the big cloud hanging over this. Right Is will buyer's agents go away because they're not going to get paid? Right, how are we going to handle that as an industry?
Speaker 1:Yeah, it's a huge thing for the industry and it's all being presented as this big giant win for the market right that this is going to cause home prices to come way down. I mean, joe Biden even was chatting about that the other day and one of his pressers talking about the home affordability problem. He said well, for the first time ever, commissions are negotiable. Well, like many things that that's come out of the Oval Office, that wasn't factual in the slightest. Commissions have always technically been negotiable, but boy does that six percent commission price seem to ring consistent in our ears, as this is the price that it costs to sell a home 6%. And what the initial plaintiffs to this suit wanted to test was the idea that, well, that should not be what everyone thinks it costs to sell a home, that there should be real negotiation.
Speaker 1:That happens inside of a real estate transaction. And if we look at what is actually being paid out, if we look at what people are actually saying in their negotiations with buyers and sellers, what the plaintiffs determine is that, well, this looks a whole lot like price fixing. Everyone is somewhere around 6% and everyone is sharing somewhere around 3% with buyer's agents and in the narrative conversations that are being had between buyers and sellers and their agents. Although everyone's saying that things are negotiable, when push came to shove it was always falling back to these numbers 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's the case because, well, things are real expensive in the housing market right now.
Speaker 2:Yeah, that'll be the day I think. Just my opinion, obviously. But if there's room to be had in any of this, where will those funds flow? Is it going to be a rebate to the buyer and a reduction in price, or is the money going to go to the seller, or is the listing agent going to pocket it all right? In my mind, the pecking order puts the buyer at the bottom, and I don't see this affecting housing prices at all, because the big complaint here was that sellers were having to pay too much and therefore not netting enough from the sale, and so you know they're going to be looking for more. If they're looking at the details and following the suit, sellers are going to be possibly expecting to put more money in their pocket by paying lower settlement costs. Hard for me to believe that's really going to impact housing prices.
Speaker 1:Yeah, you know, it's kind of the inflationary market, right. I mean when you see when prices go up, right, and then raw material costs then drop. And we saw this happen across the board post COVID, right, it wasn't like sellers dropped their prices to give lower prices now back to the marketplace. They kept their prices high and they're telling us that their cost of doing business is higher than ever, and while some of them are showing by their balance sheets that really what's higher than ever is their profits and they're like having wonderful robust profits because they've been able to hold onto this higher pricing.
Speaker 1:So it's very hard for me as a seller of properties to think that now that this real estate commission becomes negotiable, I'm going to drop my price. I'm just not going to do that. But I'm going to be really happy if I don't have to pay extra money to a broker, if I can hold onto that somehow. And that's interesting, right? Because well, with all the technological improvements in the housing market over the last 20 or so years, with players like Zillow and with the automation of so many of our processes, real estate commissions have been relatively unscathed in that process and reduced fee players or flat fee players have not risen up in force to take advantage of these marketplace efficiencies and technologies so well. I wonder why that is, and that might also give a little bit of strength to the idea that the realtor lobby has played just a very strong hand and a controlling hand in the cost of their services, and now all of that is called into question.
Speaker 2:Well, you know from experience. At the end of the day, I know that realtors make deals happen right and you know, whereas you may have a listing agreement at five or 6%, if you've got to go to four to make a deal happen, because that's what the seller needs, that's what realtors do you know. And so, at the end of the day, I find most sellers looking at their net sheet. They want to know what am I going to net from this transaction? Am I going to be where I need to 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's deducted from that sale price. And after they pay off their mortgage and all of that stuff right Now, if it's tight or if it's below what they're expecting or need, then they start looking, and that's where negotiation typically already happens right.
Speaker 2:Things get moved, realtors give credits, things like that, to make a deal work, and so that's been going on behind the scenes, but I think that's something that the general public doesn't hear about and doesn't know about.
Speaker 1:Yeah, that's a great point. Now, when I looked at the, there was a great interview in the Wall Street Journal with the plaintiffs to this case and they look like humble folks bringing a lawsuit on behalf of the great unwashed masses for all the hardships done to them by realtors. Right, because what you just described there Chase of that negotiation going on behind the scenes, these plaintiffs said, is not happening. Well, and who knows. Right, I guess some juries believed them and thought that was the case, and maybe we all kind of believe them too, because isn't this what happens every now and then?
Speaker 1:Right, someone who has a mortgage on a home goes to sell a house and well, they're in distress of sorts, or they're not going to make as much on it as they thought they would.
Speaker 1:And then now they've got to pay settlement expenses to title agents and they've got to pay taxes and they've got to pay real estate commissions, and then they've got to pay off their mortgage and they're horrified when they discover they don't have as much money in their pockets as they thought they would once all those expenses are paid.
Speaker 1:And the largest single line item at all of those costs after the mortgage is usually realtor commissions. And so they're shocked when they see the settlement agreement did a great job in throwing out big numbers. They're shocked when they saw $12,000 going to pay the agents, or $20,000 going to pay the agents and they were only walking away themselves with $10,000 or $15,000, but they were paying everything the equivalent of that to buyers and sellers, agents for their services they provided, and so well. That was a wonderful optic for the plaintiffs that looks like they're being gouged and being charged way too much and that they had well no idea that it was going to happen until it was too late to negotiate and they weren't able to negotiate. That's kind of what that looked and felt like for that whole process.
Speaker 2:Yeah, you know, the rumblings of friction cost reduction in the real estate world, 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 the friction costs in real estate. Right, and that may come to fruition. I know there's a lot of people working on that right, but in a lot of ways, if you sit back and think objectively about this lawsuit and maybe some of the changes that will come out of it, it's not at all surprising. Right, we've seen this happen specifically in the stock and investment brokerage industry.
Speaker 2:Right, the advent of E-Trade, you know, 20, 25 years ago, totally upended broker commissions in the investment realm. Right, when you could go in and buy a stock, for what did it start at $4.95 or something like that. Now it's down to free. Right, buy and sell for free. Now you got Robinhood on your phone. Right, you're buying and selling for free. Right, friction costs were completely removed or drastically reduced in the investment realm. And I think that's probably what we're trying to right-size 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 mortgage payoff on your closing statement, and so you know the fact that those costs would eventually get reduced over time due to efficiency, technology trend changes and and industry changes. It makes sense to me that that's going on right now.
Speaker 1:Yeah, well, and let's talk about this enormousness in terms of raw numbers. Okay, so, chase, let's say hypothetically, you're going to go sell your million dollar home and 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 agents to sell your million dollar home. Now, at the same time, I'm going to go sell my $500,000 home and I've also negotiated 6%. Well, I'm going to pay $30,000 to buyers and sellers agents if I've negotiated that same 6% commission price.
Speaker 1:And so there we have a bunch of discrepancies that we need to contend with. Did the agents involved in your deal versus my deal deserve twice the commissions because your house was sold versus mine? Did they work twice as hard? Did they bring twice the value? Did they bring $60,000 of value at all? How do you quantify the value that an agent brought to that deal when what they did was put your house on the market and took pictures and helped you set the price which, by the way, you pretty much had a really good idea of anyway without them? So what value are they bringing? And are they bringing value commensurate to that giant sticker price that you pay at the end of the transaction. This is the devil's advocate conversation, right? I mean, defend your exorbitant expenses to me.
Speaker 2:Well, you know you did some analysis and I think one interesting point that came out of that was that 90% of sales transactions involve a buyer's agent. Right, and I think when we talk about commissions and the biggest value that a seller is getting for whatever price they pay to a real estate broker, it's been access to the MLS. Right, mls has been the chief primary database by which all homes are bought and sold now for decades, right, and so we know if you're a listing agent when you put your house on MLS here in Hillsborough County, it's going to be seen or be accessible to tens of thousands of real estate agents right, that may or may not have a buyer that they're working with, that's looking for the exact home that you have. It's one of the most efficient marketplaces in the world from that standpoint because it's got access to all the information. Now Zillow, I believe, has put a huge dent in this competitive advantage over the past few years that they're going to make an even more competitive play going forward, because what they've accumulated now in terms of database and ability to market and present properties to the general public, both for sale and for rent, has become very effective and highly used by the general public. So that advantage that realtors used to have that was a highly valued competitive advantage may have been worth that $60,000 price tag on a million-dollar home in the past. Not so sure it's going to be worth that going forward Now. You can factor into that.
Speaker 2:Beyond technology.
Speaker 2:Realtors know the laws, they know the documents, they know the legalities, they know the inspectors, they know the photographers, they know the title companies and the lenders and all this stuff and they know how to get a deal done and we know there's a lot of value in that expertise about how to get a house sold, the condition it should be in, repairs that you should probably make before listing.
Speaker 2:All of these little kind of nuance industry expert type things that a good realtor possesses are extremely important and there should be a price paid for that value. But if you as a homeowner wanna go it alone and throw your house on Zillow and maybe offer a small 1% fee to a buyer's agent who may bring you a buyer and help facilitate the transaction, you know that may be a viable option for you. You'll do it without all that expertise and advice. But my fear is, as a licensed realtor, that going forward technological advances are going to put that once naive seller in a much more favorable position, because they can get expert advice and become much more knowledgeable about the process and what they should do to sell their home effectively by using something like chat GPT.
Speaker 1:Yeah, so AI is the one to punch right Zillow, plus, the continued evolution of quality information from our AI systems is going to give us, say, a body of knowledge that's going to well rival the competitive advantage that realtors once had through their training. And, of course, they'll all revolt to hear us say that Full disclosure, we are realtors, right, because they've gone to school. And how can you say that a person 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 all need to have a little bit of introspection on the quality of the real estate licensing programs too. Well, that's not an exceptionally high bar, and it hasn't been for a long time. I mean, we all know people who've taken that licensing test dozens, you know nine times to get it, to get it passed. And once they get it passed, they're kind of in and they don't need a high degree of professional knowledge. In order to get the license in the first place, you've got to go through some law study, which is done in online formats, and as long as you pass the test, you are a realtor. So can we easily compete with that with any kind of strong knowledge base. I think you can.
Speaker 1:I don't know if that's necessarily a strong, lasting competitive advantage, but you did talk about the deals that realtors do, the way a realtor works to make deals happen. And I did that data research. I looked at all the transactions that happened just last month in one county, which is the Hillsborough County marketplace, and that's where Tampa Bay sits, and I wanted to look at how transactions went when a buyer's and a seller's agent were involved versus how they went when just a seller's agent were involved. And all that data was available in MLS for us. Now what that does not include is, let's say, a transaction that happened without any kind of agent at all, a FISBO, a for sale by owner. Mls doesn't reflect that, but MLS shows me if an agent was involved. What does that transaction look like?
Speaker 1:And so here are a couple of really key takeaways, that kind of talk to your point a little bit. When a buyer's agent and a seller's agent are both involved in a transaction a buyer's agent and a seller's agent are both involved in a transaction last month that transaction happened in 35 and a half days on average. But when only a seller's agent was involved no buyer's agent, that transaction happened in 47 days on average. So it seems like that data points to the idea that when a buyer's agent is involved, a transaction happens in 11 and a half days faster on average, and that's a pretty big advantage. 11 and a half days is not nothing. It's a pretty quick improvement over 47. So let's speak to that a little bit. I mean we're talking about a faster transaction. So let's speak to that a little bit. I mean we're talking about a faster transaction. We're talking about, maybe, a buyer who now has professional advice through their deal and so they're getting to their inspections quicker, they're meeting their deadlines more precisely and the deal is closing faster. So all that's good.
Speaker 2:Yes, Well, yeah, you know, I mean, the average person is going to need someone to shepherd them through the contract to close process, right Even from shopping lenders to communicating with a title company, to making sure documents flow efficiently and timely. If you've got a seller who is working a full-time job, they've only got after hours and weekend time to do some of this stuff, whereas a buyer's agent is on this seven days a week pushing this process along and facilitating things and greasing the wheel to make this thing move forward faster. And obviously they have an incentive to do it, because the faster it closes, the faster they get paid. Right, it's in the seller's best interest to close it faster. It's really only in the buyer's best interest to close it on time, right, they want to close when they need to close, you know, and so that's what gets done, and it usually gets done a little faster, as you've said, with a buyer's agent involved.
Speaker 1: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, but it's not like working without a buyer's agent creates just an untenable delay. It's 47 days versus 35. That's 11 days, two weeks. I mean, how many people's lives are upended by having to wait two weeks longer for a deal to close? That's not a huge amount of time. So one can say that, well, who cares right? Like, probably there's not a major financial impact to either party by the fact that it's taking a little longer to not have a buyer's agent involved.
Speaker 2:Well, that said, how many deals have you been a part of where three, five, seven days made a huge difference? Right, Because maybe these contracts are all you know 35 day closes and 12 days later the ones without agents are finally closing with extensions because someone dropped the ball. You know, I see that a lot. You know, and we all know too, that all agents aren't created equal. You've got some buyers, agents that don't do their job very well, you know, and so their deals don't run as smoothly as the ones that are really on top of it. So, you know, it just depends, I guess, deal by deal. But if you go in with the expectation that, hey, everything's a 47 day deal, you know, no, no harm, no foul, yeah, Well, it does seem to me that there's an efficiency that's brought to play by a buyer's agent being involved.
Speaker 1:There's a speed of the deal and we might have a whole lot of challenges and obstacles that are being that a buyer is being carefully counseled through by the presence of a buyer's agent that would not be counseled at all if a buyer's agent weren't at play.
Speaker 1:A buyer's agent is getting some value through a lower stress transaction, quite possibly through just a more smooth flow. So that's a good thing, and when something happens faster, generally it's considered to be a really good thing. So well, that's one component that came out of my research. The other component that came out of my research was this one, which is a more challenging concept to comprehend so when a buyer's agent is involved in a transaction, there is, on average, a 4.9% discount that a buyer's agent is able to negotiate from the asking price. So let me give you some hard numbers. A buyer's home is being listed at $442,000. The buyer's agent is, on average, able to negotiate that closing at $420,000, which is a about 5% discount. Right, but when no buyer's agent is involved, there is a larger discount being negotiated on average.
Speaker 2:So you know, if you're a seller, you might look at it this way. It's worth it for me to pay a buyer'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 half percent more. So yeah, there's a little bit of counterintuitive thinking on that, but maybe one explanation for this is that buyers think properties are worth one thing and their buying agents suggest to them that maybe they should be willing to pay a little bit more to get the deal done, because we're in a highly competitive market. I don't know.
Speaker 1:That's a great point. In a seller's market, in a market where you have a shortage of inventory, the most important thing is often not the price. The most important thing is buying the house you want, right. And what does that usually require? Well, it requires sometimes more money and it requires sometimes a faster close. And so what we've got in the last month in Hillsborough County is that exact thing happening. We've got in the last month in Hillsborough County is that exact thing happening.
Speaker 1:Buyers agents are negotiating, are paying more money for homes than a home that does not involve a buyer's agent, but it's happening faster. Maybe that's why 90% of all deals are involving buyer's agents right now. Maybe it's that exact dynamic the fact that, in order to get a home sold right now, a seller wants the most money and the sort of shortest amount of time, and that is what a buyer's agent is accomplishing those two things they're making that happen quickly. But, yes, if you're the buyer, you're like well, hang on, you're supposed to be negotiating the best price for me, and now I find out that when you're involved, I'm actually paying one and a half percent more because you're involved, and that could be a little bit of a bitter pill for a buyer to swallow. I think it's probably some of what fueled the plaintiff's lawsuit, because buyers were realizing that a buyer's agent doesn't necessarily bring me the best price.
Speaker 2:Yeah, and the ironic thing is right, I don't think buyers are even included in this suit, right? The? The webinar we were on the other day is talking about how there may be another suit that comes representing buyers. Yeah, right, this one was just for the sellers, evidently. You know, which is something I hadn't really realized until I heard that the other day um, thankfully, this settlement probably will wipe out the ability of a lot of those buyers to bring any suit. But you're right, it's like with the average home price right now in Tampa Bay, an extra one and a half percent results in what? About six to $8,000 more that you're going to pay for the home, and so you could look at that as a buyer and say, well, all right, I'm going to pay this extra money for the home, but I got all this help with the deal. Was that worth it? I don't know. There's value there. Is it $6,000 to $8,000 on average? Is it 1.5%? Not sure. Everybody's got their own hourly rate and they do their own calculation.
Speaker 1:Yeah, right, all right. So let's wrap up this section with a quick summary of why do realtors actually exist? Why do they benefit the marketplace, and I think the data shows this. They benefit the marketplace because the seller, when a seller's agent is involved or a buyer's agent is involved, is going to get a price that's about 1.5% closer to his asking price. When a buyer's agent is involved, that's a good thing for the seller and a seller gets a faster transaction. That's a great thing by 11 and a half days. And the seller possibly gets a more trouble-free transaction.
Speaker 1:When a professional is involved who's done this before, that's a great thing for the seller and the buyer. Well, the buyer is going to pay closer to asking price. Well, that might not sound like a great thing for the buyer at first, but it actually probably helps the buyer win the home. So that's a good thing for the buyer in one sense. And they receive transactional support right. They've got someone in their court who's advising them through that process. And they receive confidence and marketplace knowledge right, so they're not going blind into a negotiation situation, or at least vision impaired right, which you do when you're going without counsel, right?
Speaker 1:Oh, by the way, my sense of all this is, if you choose to go without realtor counsel and you go in with different kinds of counsel, you build a representative team that includes an attorney to review your contract, an inspector to help you evaluate the home, different kinds of professionals to fill the gaps of what the realtor has been doing for you. I don't I'm not convinced that that price is way off or way short of what the price is right now for a realtor, but that remains to be seen because we don't know yet what impact this is going to have on the use of buyers and sellers. Agents and I guess that's where we're going right now is so like okay, so what? What's the huge impact that's going to happen across the board to all the stakeholders?
Speaker 2:Well, you know one thing regarding that and regarding buyers and sellers the reason that the real estate industry has been able to keep its pricing the way it has for decades now, in my mind, is primarily because the average person has fear of the unknown, and there is a large amount of uncertainty and doubt involved in selling a very expensive asset.
Speaker 2:Right, you don't want to mess it up. Right, you don't want to do something that's going to get you legally in trouble. You don't want to leave money on the table, you don't want to do the wrong thing. And there's so many scams and all the media out there on the internet social media talking about all these things that can go wrong with your house and real estate and getting scammed. That leaves a ton of uncertainty and doubt in the minds of people, and I think they're buying an insurance policy when they hire an agent. Right, and yeah, it's not cheap, but it puts peace of mind in the deal for so many people and I think that's why they've signed up for it. They've paid the fees and, at the end of the day, when their net turns out where they need it to be, they've been very happy with that.
Speaker 1:Yeah, that's right. People are paying for advice and they're hoping it's good advice. But good advice is not cheap. Right and well that's. We all know that by experience when we haven't paid for good advice and we have a loss to show for it, so well, that's something to think about. So talk with us. Let's talk through the different stakeholders who are going to be affected by the outcome of this deal. We certainly have realtors that's the National Association of Realtors, the Florida Association of Realtors. In our area, it's the Greater Tampa Association of Realtors but there's millions of realtors who are going to be affected by this deal. What do you think this looks like for them?
Speaker 2:Well, worst case scenario, the forecast I've seen is that nationally we'll lose over a million licensed real estate agents, and that's bad for NAR, bad for all these associations. That means less revenue coming into their pockets right, less lobby power, less prevalence as an industry, but at the same time, some reduction in the number of agents just leads to that efficiency quotient that I think the industry is going to cycle through over the next few years. We don't need how many realtors. We have three, four million realtors in the US right now. I mean, do we really need that many, is the question. And I know some of them are part-time, some of them are partially retired, voluntary and active. Maybe we lose some of the ones on the fringe and the ones that really know what they're doing stick with it, and so we've got a higher quality agent on the street and not just your friend next door or your aunt or your cousin that may have a license your friend next door or your aunt or your cousin that may have a license.
Speaker 1:Right, the average age of a realtor has always exceeded the average age of many other licensed professionals, which could indicate a population of service providers that are on the cusp of retirement, ought to retire and this might move them into early retirement, especially as these tech changes are going to come up behind them and they may not be positioned to take advantage of them.
Speaker 1:So certainly big losses in realtor potential.
Speaker 1:I wonder also if we're not going to see a diminishment, a substantial diminishment, in the value of the multiple listing service right, so we've talked about that already.
Speaker 1:If the multiple listing service is no longer really needed to communicate an offer of compensation and property details with the marketplace, and if buyers, if sellers of homes can list their homes on Zillow and are doing so with near ubiquity almost every home that's listed for sale is also listed on Zillow then what marketplace advantage does the MLS offer anymore, especially if the searching features for those who use it are inferior their marketplace, their customer-facing website and realtorcom. You have to benchmark realtorcom versus Zillow. There is an absolute difference in the usability of those two interfaces and I think you would find one of them to be far more favorable and have a far more robust service offering attached to it than the other, one of them to be far more favorable and have a far more robust service offering attached to it than the other. And so will it be that the MLS does no longer offer a competitive and defendable value against marketplace alternatives.
Speaker 2:Yeah, really, right now. The only big competitive advantage I see going forward for the MLS or for realtorcom for that matter, which I believe is owned by some kind of cooperative with the MLS and realtors and National Association of Realtors is that once a property sells, realtorcom and MLS still retain all the photos and all the information for that property, whereas right now with Zillow, because of a lawsuit that happened several years ago with Zillow, because of a lawsuit that happened several years ago, all the photos disappeared. So if they've been syndicated through MLS now, if sellers going forward decide to directly list with Zillow, meaning the origin of the listing is Zillow and it's not syndicated through another platform like MLS, then Zillow will now start to retain all those qualities as well on their site. But right now there's a syndication agreement whereby Zillow basically flushes the photos and the details once a property sells, which is not advantageous to the market, and I think that one change may even bolster Zillow even more.
Speaker 1:Yeah right. Well, it will be interesting to see what kind of product offerings then Zillow brings more. Yeah right, well, it will be interesting to see what kind of product offerings then Zillow brings along to help fill in the gaps. I suppose the third parties who are connected to this opportunity or maybe disconnected from the opportunity and boy, we've talked privately. I wonder who's funded this case. Because the people who stand to win the most from this outcome are players like Zillow, because if the marketplace, competitiveness and the control that realtors had over information continues to be eroded, then I think the advantage goes to players like Zillow. So let's talk about that a little bit. What will Zillow see as an advantage from all this? How about mortgage lenders? How about loan officers? How will they be affected by the change in this dynamic? What will we see their lives and their roles within the transaction process evolve to?
Speaker 2:Well, we know historically that in deals where there's no buyer's agent, more heavy lifting has to be done by mortgage lenders, loan officers, title agents, people like that right, Because they're all incentivized to get the deal closed and so they want to help and do as much as they can to shepherd through a non-represented buyer and we see this all the time. So they may need to assess that and figure out are they willing and what kind of mechanism will they put in place to assist maybe a growing number of non-represented buyers that could come to the marketplace? The other thing going on right now with the mortgage industry is the Mortgage Brokers Association is now lobbying Fannie and Freddie to try and get realtor commissions for buyers' agents allowed to be paid out of loan proceeds. That's something that hasn't been allowed up until now, but also the buyer has never really paid those fees. That's something that hasn't been allowed up until now, but also the buyer has never really paid those fees.
Speaker 2:It's always been paid by the seller, and so if the buyers now are going to have to start paying their buying agent in the deal, how will they do that? Especially if it is two, 3% of the purchase price. That's a big chunk of money, sometimes as much as their down payment, so they're going to want it or need to roll that in to their loan. Will that actually happen? Will Fannie and Freddie sign up for that?
Speaker 1:Yeah, you know it's a good question, chase, and it's one that we've discussed often too, because you know, in essence the buyer is paying for that commission right Through a higher price right. It's just that that pay has come out of on the real estate closing statement, that that line item compensation to the agent has been put on the seller's side of the ledger right and it looks like it comes out 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 of paying for it through a higher price, and that's not going to go away because of this new deal. So now we're saying that a lender needs to change their underwriting guidelines to allow for that number to be moved to the buyer's side of the ledger and to be paid for by the buyer. Well, I would hope they would say it was already being done that way. Let's just agree to do it and pay it as we would any of their other closing costs.
Speaker 2:Well, the problem right now is that, technically, they're not paying higher prices, right? Would the seller reduce the price if they paid less commission? We don't know. There's really no empirical evidence to suggest that. Right, we know they're paying one and a half percent on average more with a buyer's agent. But the real issue here, right, is how banks have always approved loans, right, they're getting an appraisal done and the appraisal is not going to include the buyer's agent commission, right. And so if the bank's still going to continue only to lend on appraised value and your contract price is at appraised value or higher, there's no room to add the commission in, right, and that's the issue, right.
Speaker 2:And so how will banks handle that? Will they make a concession where up to three percent potentially could be paid to a buyer's agent from loan proceeds or not, proceeds or not, you know? And then, on the flip side of it, what we see? An increase in seller concessions to a buyer. Maybe that comes without an agent, right? So, hey, I'm not bringing an agent, so you don't have to pay anyone. But you know, give me, give me some concessions to help pay my closing costs, right? Or give me a concession so then I can pay my, my agent right, so you may see some of that as well.
Speaker 1:Well, and that's specifically outlined as an allowable item within this new MLS communication structure. A listing can indicate if a seller will offer a closing cost concession to cover things like buyer's agent commissions. Now, of course, the marketplace impact of that is VA and FHA buyers are capped in the amount of a seller concession that they can receive to do a deal. So this kind of structure, you know, as it always seems to, could have a disparately large impact on the lower end of the marketplace. These things always affect the lower end of the marketplace place, and so while plaintiffs might be patting themselves on the back for their egalitarian and win for the little man, it might be the little man who suffers most from this kind of gerrymandering.
Speaker 1:And I say that because this is a process that the marketplace has put in place and upheld for nearly a century. The kinds of negotiations, the kinds of commission fee structures that are paid to agents are not ones that were forced down upon us by the process of lawsuit or by fiat or by government. They were processes that the free market implemented and the free market adopted over the course of many, many years and over almost 90% of all transactions willingly subscribed to. So the fact that we now have some interference from third parties, from lawyers and the likes in all of this does not bode well for having a marketplace good solution emerging. So just registering that point.
Speaker 2:Yeah, no doubt.
Speaker 2:And what this does is it shifts more liability and more financial responsibility in the deal to the buyer, which has never been a good thing.
Speaker 2:You want buyers to be able to seamlessly afford and be able to buy properties, because in the absence of buyers being able to seamlessly buy houses, prices might come down because demand will diminish. Right, so we don't want to put any more roadblocks in the way of buyers. Right, we want to be able to give them full concessions that go right in their pocket and don't have to pay an agent. Right, we want to be able to help them with all kinds of assistance for their closing costs and down payment. We don't want them to have to worry about having to sign a broker buyer agreement where they're going to be obligated to pay an agent two or three percent. Right, we don't want that. Those are roadblocks in the way of buyers coming to the table and buying homes. Right, we don't want there to be an effect on demand. Right, and if these roadblocks prevent someone from qualifying, we got problems, we got to figure that out.
Speaker 1:I do think it's going to be very interesting to see when we start fully disclosing the cost to buyer's agents of what a buyer's service will cost. Well, let's look at that from what historically has been. Let's say you, as a buyer's agent, think that a 2% fee on the purchase price of a home is fully justified for the kind of value you bring. And so you tell a buyer who's buying that million dollar home that you're going to be charging them $20,000 to help them buy that deal. And they see that in black and white in front of them on an agreement and they've got to sign their name to it, right? What effect will that have? Right? What chilling effect will that have?
Speaker 1:Well, maybe it just has the effect of the buyer saying no way are you worth $20,000 to me? I'm gonna pay you a whole lot less than that I wanna pay. I think you're worth 10,000. I think you're worth 5,000. I think $1,000 is what you're worth. I mean, they've got lots of ways to measure your value, by the way, because there's all kinds of alternatives that you can benchmark that against. So that will be a very interesting thing to see where the marketplace ends up deciding once they start seeing that line item fee charged to buyers, whether they start thinking a buyer's agent is actually worth.
Speaker 2:Well, if that's the way that all this ends up going, I can almost guarantee you that buyer's agents will diminish, if not completely fall away, unless these buyers have a better mechanism to pay for that fee. If they're the ones responsible for paying, it's just not going to happen. They're not going to have the funds to do it, unless you're a cash buyer on a high-end deal and you can just write a check right now for it. No big deal, right? But the majority of transactions that happen through the FHA and the 5% down mechanisms out there that are first time home buyers, new construction, the average house price in Hillsborough County for $400,000 to $500,000, people don't have an extra two percent laying around to stroke a check, nor will they find two percent in the deal to make that happen, and so this is part of the cloud of question right now that's hanging out here about this is what will be the impact on buyers agents? What will be the impact on listing agents? Will listing agents now become the dominant players in the market where they'll substantially benefit from both sides of a commission? Potentially, will listing commissions be lowered for sellers? Will a listing agent say hey look, I used to charge five or 6%, now I'm charging three. That's what you pay me.
Speaker 2:When an offer comes in, we'll see what the buyer's agent requests for compensation and we'll negotiate that into the deal. You know, that's another aspect that I haven't really heard too many people talk about. But commissions for a buyer's agent may literally be negotiated deal or offer by offer right. So depending on the strength of your buyer's offer, your buying agent may or may not get any commission paid to them because the seller will feel like the offer is not good enough. So there's some implications there that we're unsure of. And at the end of the day, will this 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 bypassing the listing process, because the perception of the MLS value now is less than the value that Zillow can bring to the table in this new paradigm of realtor commissions?
Speaker 1:Yeah, lots of questions. We just got to wonder how this will all change things out, and you know well, there's also a possible scenario that things don't change all that much at all right over the course of the next couple of months. Does the mortgage lobby unite with the realtor lobby to craft a financing of vehicle for these commissions so that all of this can be rolled into the purchase price? And does the appraisal requirement on mortgages get to be netted up by the costs of a commission? Right, so some of these funds can still flow? We know that disclosure is going to have to happen and that's probably the right thing for the marketplace. Let's let there be transparency in the cost of real estate commissions.
Speaker 1:We've all kind of been hurt by that lack of transparency and I think we're all shocked by that. Whenever a big, bright light is shown upon what you make for an individual transaction, I think there's always a little shock that goes along with that. So transparency is probably not a bad thing. But, as in any of these things, there's often a scenario in which not a whole lot ends up changing in much of the day-to-day practices of the people in the deals.
Speaker 1:At the end of the day, there's a whole lot of people who want to buy homes. They need help buying a home because it's very complicated and there's lots of risk in it. And there's a lot of people who want to sell a home and they don't have the time or the expertise to do that without some professional representation on their part and the whole economy. It has a lot riding on a frictionless housing market. If we gum that up with bureaucracy and legislation and uncertainty, we're all affected in a negative way. So it remains to be seen what July looks like. Negative way. So it remains to be seen what July looks like. But there's a part of me that hopes that not a whole lot changes as we try to get a marketplace-driven solution that actually makes sense.
Speaker 2:Yeah, we're all kind of waiting around to see. Is this just going to be another one of those frivolous lawsuits where lawyers pocket all the money and get all the praise but nothing really happens to benefit the consumer? Or is this the beginning of this reduction of friction costs and efficiency coming to the real estate marketplace?
Speaker 1:I guess, watch this space. We'll be back in your ear in a couple of months to talk about the outcomes. It'll be a fun podcast. Yeah, it will. Until then, Chase, I hope that we can be. Well, I guess that every realtor ought to look to see how they can be a part of the solution to all of this. There is likely going to be big marketplace opportunities for those of us who play closely in this space, and we'll see what comes of all of that so well. For now, this has been a lot of fun. I'm glad we had a chance to jaw about it for a bit, and we'll see you around next week.
Speaker 2:Yeah, if you got any questions about this or want to get in touch with us, see our website, homepropcom, and we'll be glad to talk with you and answer any questions and tell you about what we can do for you as a well-versed, highly experienced experts in the real estate industry. I'll see you next time.