The Real Estate Market is About to Change Dramatically

[PleaseBlitz]

On October 31, a federal jury awarded $1.785 billion in a class-action lawsuit in Missouri against the National Association of Realtors (NAR) and four major real estate franchisors after finding that the defendants conspired to inflate real estate commissions.  At issue was the NARs Participation Rule, which requires all seller agents to offer buyers’ agents a commission—and to disclose the amount of compensation being offered to the buyer’s agent—as a condition of listing a property on a Multiple Listing Service (MLS).  The plaintiffs claimed, and the jury agreed, that the Participation Rule is effectively a conspiracy between real estate brokers to force home sellers to pay a cost that, in a competitive market, would be paid by the home buyer and would be negotiable between the specific buyer and their real estate agent.  Under a regime where the buyer’s agent is paid by the seller’s agent, the seller’s agent is incentivized to offer a higher broker commission in order to attract buyers’ agents to show their property.  Under a regime where the buyer’s agent is paid by the buyer him/herself, compensation would not be set by the seller’s agent but, rather, all of the buyers’ agents in the market would have to compete with one another by offering lower commission rates. 

 

The judge in the case could, under Missouri law, TRIPLE the jury award.  

 

More here:  https://therealdeal.com/national/2023/10/31/jury-finds-nar-brokerages-guilty-in-sitzer-commissions-suit/

 

Personally, I think this is long overdue.  In the digital age, Realtors don't do ****, so paying two Realtors 3% each is crazy, especially if you are buying or selling in a higher-cost area.  If you sell a $700,000 house, you'll pay $42,000 in real estate commissions.  In exchange, you will not get much more than having two people rather than one who are able to unlock a door to show a property, and they'll fill out a few spots on a standardized contract.  

 

I bought by house without an real estate agents involved on either side.  It was not hard. 

[Fergasun]

Did you have a Real Estate lawyer involved? 

 

I don't think this will change much... but we will see.

[PleaseBlitz]

12 minutes ago, Fergasun said:

Did you have a Real Estate lawyer involved? 

 

We had to hire a title company, but that was it, and you'd have to hire one anyways. 

[TradeTheBeal!]

I’m gonna go out on a limb and suggest that not every prospective purchaser and/or seller is as confident and knowledgeable about the process as PB Attorney-at-law.  For many less experienced folks, having an engaged and reputable agent is surely a tremendous asset while they’re trying to navigate one of life’s biggest financial decisions.

[PleaseBlitz]

23 minutes ago, TradeTheBeal! said:

I’m gonna go out on a limb and suggest that not every prospective purchaser and/or seller is as confident and knowledgeable about the process as PB Attorney-at-law.  For many less experienced folks, having an engaged and reputable agent is surely a tremendous asset while they’re trying to navigate one of life’s biggest financial decisions.

 

Sure, not having a Realtor at all is not feasible for most people, but my point was that real estate agents don't do all that much given that (1) most people are computer savvy enough to do a comprehensive home search on their own and (2) most Realtors are not very competent and pretty much just provide administrative support and fill out a form contract that is idiot proof, and therefore paying a total of 6% of the sales price of a six-figure transaction is way too much for most people. 

[Corcaigh]

If your realtor sucks and you’re in a hot market then no doubt the fees are excessive.

 

I also consider it as a bribe/sweetener to get the buyers agent to close the deal with their customer and agree not to do all the dumb stuff the home inspector comes up with.

 

Our selling agent did a fair amount of work with staging/prep, photos, staffing an open house and helping with negotiation.

 

I’d rather not pay as much but if it’s going to make a real difference in getting the transaction done in a timely manner I’m OK with sucking it up once every 25+ years.

[PleaseBlitz]

I'll also note that paying both real estate agents as a percentage of the sales price greatly incentivizes BOTH agents to arrive at the highest possible price that the buyer will accept.  

[Corcaigh]

When we sold our house the buyer and their agent would have conversations outside the home in earshot of the ring camera. The agent was telling all sorts of stories to get the deal closed and collect his commission. 🤣

[PleaseBlitz]

10 minutes ago, Corcaigh said:

Our selling agent did a fair amount of work with staging/prep, photos, staffing an open house and helping with negotiation.

 

This isn't me arguing, I'm honestly just curious:

 

If you were to assign a fair market value to the staging/prep, a few hours taking photos and presumably filling out the form to list the home on the MLS, 3 hours staffing an open house, and helping with a negotiation (where, as noted above, the buyer agent has no incentive to fight all that hard), and then compare that to whatever the agent actually got paid based on the flat, pre-determined fee model (on the Corcaigh Estate), does it come out roughly even?

[Corcaigh]

I think it depends on your comfort level with the whole process and what the impact on your life would be of a significant delay. I’m sure I could have done it myself if there was no other option, but we had other priorities in life.

 

When we sold it was no longer a hot market, we had done more upgrades than immediate neighbors and so pricing wasn’t easy. Fortunately we sold quickly but only received one offer. If they hadn’t worked out it would have been a significant pain in the ass. We had already signed a contract on our new place and wanted the equity to help fund that, rather than use investments and incur capital gains etc, or go through the hassle of getting a mortgage when we are not employed.

 

We know people who didn’t get the pricing right and were on the market for many months and each time a buyer was interested they would have to get out of the house, stop working, remove the dogs, tidy up etc.

 

My instinct also is that most people have an agent when buying to help find properties that meet their criteria and of course because they don’t pay the cost, and most buying agents might be wary of wasting time dealing with a homeowner who might not know what they are doing.

 

I pay someone to do my taxes even though the aggregate cost of that over time ain’t cheap, because sometimes it’s not trivial and I am happy to have someone else worry about it.

 

In contrast I am interested and educated in investing and wouldn’t consider paying a financial advisor 1% of my net worth every year to manage our portfolio when I can handle it in 30 minutes a quarter, and actually enjoy it.

 

And not that it changes the fundamental argument but we did pay 5% total rather than 6%. This appears to be more common in higher valuation areas.

 

Edited November 3, 2023 by Corcaigh

[PleaseBlitz]

1 hour ago, Corcaigh said:

I think it depends on your comfort level with the whole process and what the impact on your life would be of a significant delay. I’m sure I could have done it myself if there was no other option, but we had other priorities in life.

 

I just meant like, if you were to pay someone a reasonable hourly wage for the work they actually did, considering the expertise required to do such work, what would that come to in your opinion?

 

[I'm going to skip the stuff dealing with your specific circumstances, because everyone has their own specific circumstances]

 

1 hour ago, Corcaigh said:

My instinct also is that most people have an agent when buying to help find properties that meet their criteria and of course because they don’t pay the cost, and most buying agents might be wary of wasting time dealing with a homeowner who might not know what they are doing.

 

The first part of this is why the jury found the current pricing model to be a conspiracy among the agents.  The buyer doesn't care what they pay because they are told they aren't paying for it, and they aren't directly paying for it, but somebody is paying for it and so it gets worked into the sales price.* But the real estate industry set the commission model up this way (by instituting the Participation Rule) in order to keep buying agent commissions artificially high.   

 

*In my very specific circumstances when I bought my house, I told the seller that of the 3% they would have theoretically have had to pay to the buyer's agent for any other buyer, they had to give me 2%, plus, since they were a FSBO and didn't have their own agent, it was great for them to sell to a lawyer that could handle everything. I could have easily have just asked them to reduce the sales price by the 2%, but it made more sense for them to give it to me as a seller credit which paid for the vast majority of my closing costs. 

 

1 hour ago, Corcaigh said:

 

I pay someone to do my taxes even though the aggregate cost of that over time ain’t cheap, because sometimes it’s not trivial and I am happy to have someone else worry about it.

 

Sure, but the amount you pay your CPA isn't set by some third-party and therefore has no relation to the value of the services your CPA is performing for you.  

 

1 hour ago, Corcaigh said:

 

And not that it changes the fundamental argument but we did pay 5% total rather than 6%. This appears to be more common in higher valuation areas.

 

 

It's a bit different from the listing side, but what the court case is ultimately going to do is remove the buying agent's part from the agreement between the seller and the seller's agent and make it so buyer's hire their own agent and pay them what they negotiate, which is expected to dramatically lower homebuying costs for everyone.  

 

But the fact that you paid 5% is entirely relevant to my question, which is whether whatever you actually paid the agent is roughly in line with the value of the services they actually performed for you.  Or, stated another way, if your agent said "I am going to do X, Y and Z for you" would you have negotiated to pay them a different amount than what the NAR dictates everyone charge (i.e., a cartel)?

Edited November 3, 2023 by PleaseBlitz

[Corcaigh]

The issue here is collusion.

 

In many walks of life there is no relationship between price and effort/cost/value. Financial advisors being an obvious case from my perspective. Realtor fees from yours.

[Simmsy]

I agree, there is a reason why so many agents only dabble or use it as a side gig. Its not very hard and most don't do what little is asked of them anyways.

[bearrock]

Collusion amongst the agents is indefensible and definitely needs to change.  As to whether real estate agents can justify their fee, like most professionals, it depends.  Some are worth it, some are not.  Not all attorneys are worth their hourly rate either, but that doesn't mean all attorneys aren't worth it.

[TheGreatBuzz]

I asked my sister for her thoughts.  She is a pretty successful realtor with an office in Annapolis and St Augustine FWIW.

[Ball Security]

17 minutes ago, TheGreatBuzz said:

I asked my sister for her thoughts.  She is a pretty successful realtor with an office in Annapolis and St Augustine FWIW.

Ask her if now is a good time to buy.

[CousinsCowgirl84]

8 hours ago, PleaseBlitz said:

On October 31, a federal jury awarded $1.785 billion in a class-action lawsuit in Missouri against the National Association of Realtors (NAR) and four major real estate franchisors after finding that the defendants conspired to inflate real estate commissions.  At issue was the NARs Participation Rule, which requires all seller agents to offer buyers’ agents a commission—and to disclose the amount of compensation being offered to the buyer’s agent—as a condition of listing a property on a Multiple Listing Service (MLS).  The plaintiffs claimed, and the jury agreed, that the Participation Rule is effectively a conspiracy between real estate brokers to force home sellers to pay a cost that, in a competitive market, would be paid by the home buyer and would be negotiable between the specific buyer and their real estate agent.  Under a regime where the buyer’s agent is paid by the seller’s agent, the seller’s agent is incentivized to offer a higher broker commission in order to attract buyers’ agents to show their property.  Under a regime where the buyer’s agent is paid by the buyer him/herself, compensation would not be set by the seller’s agent but, rather, all of the buyers’ agents in the market would have to compete with one another by offering lower commission rates. 

 

The judge in the case could, under Missouri law, TRIPLE the jury award.  

 

More here:  https://therealdeal.com/national/2023/10/31/jury-finds-nar-brokerages-guilty-in-sitzer-commissions-suit/

 

Personally, I think this is long overdue.  In the digital age, Realtors don't do ****, so paying two Realtors 3% each is crazy, especially if you are buying or selling in a higher-cost area.  If you sell a $700,000 house, you'll pay $42,000 in real estate commissions.  In exchange, you will not get much more than having two people rather than one who are able to unlock a door to show a property, and they'll fill out a few spots on a standardized contract.  

 

I bought by house without a real estate agents involved on either side.  It was not hard. 

The realtors will still get paid, but just different people.

[China]

1 hour ago, TheGreatBuzz said:

I asked my sister for her thoughts.  She is a pretty successful realtor with an office in Annapolis and St Augustine FWIW.

 

I am curious.  She states buyers will have higher out of pocket costs, yet the idea is that buyers will now not have to pay as much as 6% to realtors.  So there seems to be a disconnect, or difference in opinion about where buyers costs come from.  Could she possibly elaborate on why she believes there will be higher costs for buyers?

[CousinsCowgirl84]

5 hours ago, PleaseBlitz said:

I'll also note that paying both real estate agents as a percentage of the sales price greatly incentivizes BOTH agents to arrive at the highest possible price that the buyer will accept.  

Yes, I thought the same thing when I has shopping for houses. I asked an agent if the comparables matched what the seller was asking and she said yes, but right before I decided to pull the trigger I decided to look it up myself and saw that there were no comparables within 100k of what the seller was asking. Thusly I found a new agent.

[TheGreatBuzz]

Just now, China said:

 

I am curious.  She states buyers will have higher out of pocket costs, yet the idea is that buyers will now not have to pay as much as 6% to realtors.  So there seems to be a disconnect, or difference in opinion about where buyers costs come from.  Could she possibly elaborate on why she believes there will be higher costs for buyers?

 

I don't like talking to my sister that much.

[CousinsCowgirl84]

4 minutes ago, China said:

 

I am curious.  She states buyers will have higher out of pocket costs, yet the idea is that buyers will now not have to pay as much as 6% to realtors.  So there seems to be a disconnect, or difference in opinion about where buyers costs come from.  Could she possibly elaborate on why she believes there will be higher costs for buyers?

Because now the agent who helps a buyer buy a home will charge money for showings instead of the taking in the three percent they get from the seller. 
 

right now the 3 percent for the buying and selling agents comes from the sales price, eg from the seller, not the buyer. If the buyers agent isn’t getting that three percent from the seller they gotta get it from somewhere.

Edited November 3, 2023 by CousinsCowgirl84

[CousinsCowgirl84]

4 hours ago, PleaseBlitz said:

 

It's a bit different from the listing side, but what the court case is ultimately going to do is remove the buying agent's part from the agreement between the seller and the seller's agent and make it so buyer's hire their own agent and pay them what they negotiate, which is expected to dramatically lower homebuying costs for everyone.  

 

so the buyers agent is gonna just take a pay cut and be happy? They will find a way to make their money.

 

Like streaming was gonna break up cables monopoly and dramatically lower costs. They always find away to make their money.

 

 

[China]

11 minutes ago, TheGreatBuzz said:

 

I don't like talking to my sister that much.

 

That's fine.  I will relay recent experience.  My wife recently bought a house in Kentucky (hence why I was in Kentucky recently).  Her real estate agent did a lot of work.  A lot more than just signing a few things the way PB presented things.  And, she continued to help even after the sale.  There were a number of things the inspector found, some of which the seller fixed before the purchase and some which my wife arrange do have done after.  The real estate agent was active in providing known contractors in the area that could handle the work, and followed up with them as well (again, continuing after the sale).  So it seems that what you get out of your realtor can vary.  I would say she got her money's worth.

Edited November 3, 2023 by China

[LD0506]

25 minutes ago, TheGreatBuzz said:

 

I don't like talking to my sister that much.

 

I completely understand this

[hail2skins]

The real estate market is seriously out of whack

 

https://www.yahoo.com/finance/news/40-old-dad-bought-sold-100000927.html