The Real Estate Market is About to Change Dramatically

[PokerPacker]

14 minutes ago, tshile said:

Yes. The expense is still out of pocket so it’s not really on the other hand, they go together. 

Maybe I'm out on the terminology as a houseless millennial that's never gone through the home-buying experience.  Out-of-pocket, I take to mean money paid out of your savings rather than from the Bank via Mortgage.  Given a $600k house, that would need a down payment of $120k (20%) to avoid PMI.  That's $120k coming out of your pocket.  If the price of the house were reduced by what would have been the commission rate in the past, $15k (2.5%), then you're now looking at a total sale price of $585k.  20% down-payment on $585k principal would be only $117k.  That's a difference of $3k in money coming out of your pocket.

[bearrock]

47 minutes ago, PokerPacker said:

Maybe I'm out on the terminology as a houseless millennial that's never gone through the home-buying experience.  Out-of-pocket, I take to mean money paid out of your savings rather than from the Bank via Mortgage.  Given a $600k house, that would need a down payment of $120k (20%) to avoid PMI.  That's $120k coming out of your pocket.  If the price of the house were reduced by what would have been the commission rate in the past, $15k (2.5%), then you're now looking at a total sale price of $585k.  20% down-payment on $585k principal would be only $117k.  That's a difference of $3k in money coming out of your pocket.

 

I think the speculation is that some or all of the marketing/sales activity performed by the agent is still going to be performed by a third party for a fee.  Depending on the sophistication of the seller/buyer, they may still need significant assistance in the sale/purchase process.  Any direct payment to third party for services will not be rolled into the loan unless you have banks drastically change the closing process.  So a buyer who may have paid 600K in the past with 120K down with 480K loan may now look at something like (I'm gonna assume 3% saving from a 6% as I think sellers would be more conservative and simply go with the safer route of using an agent for the foreseeable future) a final price of 582K, 116.4K down with some out of pocket for contract review and potentially assistance with housing selection. 

 

Now the real risk for a buyer probably is a deal gone wrong, rather than paying enough out of pocket to lose the savings of working without an agent.  You can probably get basic contract review (especially considering that it's a check the box boilerplate for most transactions) and find enough info on house searching to go through it alone on a smooth deal without too much extra cost upfront.  The problem is when things go off the rails, the outcome may vary widely for a buyer working without an agent (from a minor hiccup to a failed deal).  It's kind of like people who do their own estate plan from legal zoom or invest without a financial advisor.  It may be fine and oftentimes may turn out fine.  But the room for error is definitely greater than working with a professional.  

[tshile]

1 hour ago, PokerPacker said:

Maybe I'm out on the terminology as a houseless millennial that's never gone through the home-buying experience.  Out-of-pocket, I take to mean money paid out of your savings rather than from the Bank via Mortgage.  Given a $600k house, that would need a down payment of $120k (20%) to avoid PMI.  That's $120k coming out of your pocket.  If the price of the house were reduced by what would have been the commission rate in the past, $15k (2.5%), then you're now looking at a total sale price of $585k.  20% down-payment on $585k principal would be only $117k.  That's a difference of $3k in money coming out of your pocket.

right. I’m not arguing ones more or less. I’m not arguing math on it. 
 

The 3% to the buyers agent is a closing cost to one party or the other. Plenty of people roll closing costs into their loan, even though you could pay out of pocket if you wanted to. 
 

the entire point of his sisters text was that the money now cannot be rolled into your loan. It must come out of pocket. It’s no longer a closing cost in buying a house that you roll into your loan, or the seller takes out of the money they’re supposed walk away with. In fact the seller won’t be paying it at all, and now it’s not a closing cost, so the only option is to come out of your pocket. Which wasn’t the way it was before. (if this takes off nationally)
 

she didn’t say anything about one costing more or less than the other. She simply discussed how it changes the options of paying it. 

 

like I original said - no idea why there’s so much confusion about this. The text was pretty straight forward. 🤷‍♂️ 

Edited November 5, 2023 by tshile

[tshile]

Add:

i went back and reread the text. I see why you all are thinking the way you are. She did say “buyers will have a higher out of pocket cost”

 

so, I immediately read that a different way. The down payments on both of my houses were 3%. And we had no pmi because when it was all said and done, our LTV was like 71%. So we didn’t need to put 20% down to avoid PMI. 
 

I also think that an argument that uses 20% down on math is absurd because most people aren’t saving up 20% to avoid PMI. They’re paying PMI until they can get under 80% due to some combination of rising prices, aggressive payments, remodels adding more value. I get some people do save that money but many many don’t. 
 

3% down payment, seller pays the 3% on your agent, roll your closing costs into your loan, and what you’re coming out of pocket with isn’t that much. Shifting 3% to you to is doubling your obligation. 
 

I guess part of the problem with the original post/article for me is my brain went immediately to the idea that the whole model of being a buyers agent will change. They probably won’t want to accept 1/3 if a paycut to 2%. certainly not a 2/3 cut to 1%.  So my brain went immediately to ideas like - you pay your agent as you go and there’s a fee for producing the contract. Someone mentioned charging per showing. 
 

if the only change is that the 3% number moves from the sellers column to the buyers column on the closing sheet, then none of this really matters. But if the title of the thread says “change dramatically”. I’m sort of expecting it to mean the pricing model for buyers agents is going to completely change. 
 

and if it does, then for most people yes that is more out of pocket. 
 

I have done 3 real estate transactions so far, and privy to the details of dozens upon dozens (us homeowners like to talk about how we acquired our homes 🤷‍♂️), and while everyone would put a different number on the multiplier, I can sat $’s is closing is worth way more than $’s on sale price. 

Edited November 5, 2023 by tshile

[CousinsCowgirl84]

7 hours ago, TheGreatBuzz said:

 

Much like the disappearance of the typewriter repairman. 

He’s just been replaced by the pc repairman. Who is/was more expensive to hire do you think? 😉

[PokerPacker]

17 minutes ago, CousinsCowgirl84 said:

He’s just been replaced by the pc repairman. Who is/was more expensive to hire do you think? 😉

Probably the typewriter guy.  I'm guessing it's more intricate work.  High Schoolers are probably your typical PC repair guy these days making maybe $15/hr.

[TheGreatBuzz]

59 minutes ago, CousinsCowgirl84 said:

He’s just been replaced by the pc repairman. Who is/was more expensive to hire do you think? 😉

 

I actually have a friend who restores old typewriters.  Looks like a lot of work.  I'm guessing not cheap.

[CousinsCowgirl84]

God damn y’all. I’m not talking about the one specialty antique restorer I’m talking about the type writer guys you claimed disappeared and whether or they got paid more than pc repairman.

 

but either way, I guess you made my point for me.
 

Something happened to cause fewer typewriter repairman

something happened to cause fewer real estate agents

 

the cost of type writer repair went up

the cost of a real estate agent (and thus cost of buying a home) went up.

 

 

 

???

 

 

profit.

Edited November 5, 2023 by CousinsCowgirl84

[PleaseBlitz]

11 hours ago, tshile said:

the entire point of his sisters text was that the money now cannot be rolled into your loan. It must come out of pocket. It’s no longer a closing cost in buying a house that you roll into your loan, or the seller takes out of the money they’re supposed walk away with. In fact the seller won’t be paying it at all, and now it’s not a closing cost, so the only option is to come out of your pocket. Which wasn’t the way it was before. (if this takes off nationally)

It will still totally be able to be rolled into the loan, and is definitely still a closing cost. 

[PleaseBlitz]

11 hours ago, tshile said:

if the only change is that the 3% number moves from the sellers column to the buyers column on the closing sheet, then none of this really matters. But if the title of the thread says “change dramatically”. I’m sort of expecting it to mean the pricing model for buyers agents is going to completely change. 

The change is that the 3% figure (1] moves to the buyers column AND (2) becomes negotiable between the buyer and their agent since it isn’t predetermined by the seller. Because it is now negotiable, buyers fees are expected to decrease dramatically, possibly from 3% to like 1%. 

Edited November 5, 2023 by PleaseBlitz

[TradeTheBeal!]

[TheGreatBuzz]

8 hours ago, CousinsCowgirl84 said:

God damn y’all. I’m not talking about the one specialty antique restorer I’m talking about the type writer guys you claimed disappeared and whether or they got paid more than pc repairman.

 

Have you considered the possibility that we know what you're talking about but we just don't consider you or your posts worth real discussion?

[CousinsCowgirl84]

9 hours ago, TheGreatBuzz said:

 

Have you considered the possibility that we know what you're talking about but we just don't consider you or your posts worth real discussion?

Nah, I just think y’all getting a little senile in your old age.

[Captain Wiggles]

[skinsmarydu]

^^^ Did you do that to make me go "Awwwww"????

[Captain Wiggles]

3 minutes ago, skinsmarydu said:

^^^ Did you do that to make me go "Awwwww"????

 

Maybe.

 

More so just to make fun of a absurd conversation about typewriters and those that repair them. What no love for the coachman of yesteryear? 🤣

[CousinsCowgirl84]

36 minutes ago, Captain Wiggles said:

 

Maybe.

 

More so just to make fun of a absurd conversation about typewriters and those that repair them. What no love for the coachman of yesteryear? 🤣

Coachman or Uber driver? Who gets paid more in 2023 dollars?

[TradeTheBeal!]

These dudes make BANK.

 

 

[TheGreatBuzz]

On 11/5/2023 at 1:08 AM, CousinsCowgirl84 said:

God damn y’all. I’m not talking about the one specialty antique restorer I’m talking about the type writer guys you claimed disappeared and whether or they got paid more than pc repairman.

 

So I just talked to a friend who restores old typewriters (that's what put the thought in my head).  He says there are only like six professional level typewriter repairmen in the country.  And he is by far the youngest at 40 years old.  And he confirmed they make a ****load of money.

[CousinsCowgirl84]

2 hours ago, TheGreatBuzz said:

 

So I just talked to a friend who restores old typewriters (that's what put the thought in my head).  He says there are only like six professional level typewriter repairmen in the country.  And he is by far the youngest at 40 years old.  And he confirmed they make a ****load of money.

I imagine they do. Did you ask him about the coachman?

Edited November 7, 2023 by CousinsCowgirl84

[Captain Wiggles]

I imagine the typewriter repairman, coachman, Lamplighters, knocker uppers, leech collectors, Gandy dancers, and scribes all get together regularly to discuss their salaries and how to overcharge the rubes. I bet they have some antiquated clubhouse where they meet weekly. 🤣

[mcsluggo]

https://www.economist.com/leaders/2023/11/08/time-to-take-a-wrecking-ball-to-realtors-fees-in-america 

 

Quote

Leaders | Property wrongs

Time to take a wrecking ball to realtors’ fees in America

A court case is a first step to ending a racket

Nov 8th 2023

 

Death, taxes and extortionate realtors’ fees: for decades these have been the three grim certainties of American life, and one of them is avoidable. Every time a home changes hands, realtors (known as estate agents in Britain) charge a staggering 5-6% of its value, two or three times more than they can get away with in any other rich country. As the internet has allowed would-be buyers to browse properties from a sofa, agents’ fees have tumbled elsewhere—but not in America, where they have been set in concrete for nearly a century. Why?

On October 31st a court in Missouri gave the obvious answer: because of anticompetitive practices. Ruling on a class-action lawsuit, a jury found the National Association of Realtors (nar) and a handful of large real-estate brokers guilty of conspiring to keep commissions high. They awarded homesellers $1.8bn in damages. It’s a start.

A similar class-action suit in Illinois will probably be decided next year. America’s Department of Justice is investigating the industry. The plaintiffs in the Missouri suit have already filed another suit against another group of brokers. More copycat suits are likely to follow. Analysts think damages could reach $400bn. Share prices of listed real-estate brokers have dropped sharply. Bob Goldberg, the boss of the nar, said he would retire early.

The current rip-off works like this. The nar has long insisted that any agent who lists a home for sale on a database called a “multiple listing service” must offer to split the commission equally with the agent who brings the eventual buyer to the property. Sellers are often told that if they do not offer the going rate, of 2.5-3% for the buyer’s agent, no one will show up. They have a point: academics have found evidence that buyers’ agents “steer” them away from low-commission properties. Buyers are told they need not worry about the fee paid to their agent, because the other guy is paying it. This is nonsense. Either the fat fee inflates the house price, or the buyer ends up paying a similar fee when he or she sells.

In other industries technology has eliminated middlemen (when did you last call a travel agent?) or squeezed their fees (think of tracker funds for stocks). In American property excess profits have attracted excess workers. America has roughly 1.5m realtors, about as many as it has primary-school teachers. They sell 6m homes a year. Relative to the number of deals, Britain has a fifth as many estate agents.

Previous attempts to shake things up have hit a brick wall. Firms like Zillow, an online platform which lists homes for sale, once feuded with the nar over access to information. At times Zillow and other real-estate tech platforms looked like threats to the status quo. But ultimately they found it more lucrative to become part of the existing arrangements. Zillow now makes most of its revenues from fees paid by agents who get referrals from its platform.

The judge in Missouri has yet to rule on specific anticompetitive practices that might be banned in light of the jury’s finding, but he could set standards nationwide. Commissions could be “unbundled”, with buyers and sellers each paying their own agents, as early as next year. Keefe, Bruyette & Woods, a research group, estimates that this would cut 30% off agents’ $100bn-a-year commissions pool.

The benefits of encouraging more competition would be huge. Obscene commissions gobble up families’ nest-eggs. In 2019 a paper from the Brookings Institution, a think-tank, found that realtor fees consumed a quarter of the capital gains earned in an average home sale. High fees also trap people in unsuitable housing and discourage them from moving, even when they might earn more elsewhere. This makes America less mobile, less dynamic and less rich than it otherwise would be.

For years trustbusters in America have been chasing cases against big tech, an industry where services are often free and evidence of consumer harm is hard to find. Yet they have neglected the scandal that is literally on their doorstep. It is time to take a wrecking ball to the real-estate racket.

 

Getting rid of excessive collusive profit would indeed lead to fewer real-estate leaches.  

It is absurd to think that this reduction in leaches would lead to HIGHER real estate costs..... 

[The 12th Commandment]

7 minutes ago, mcsluggo said:

https://www.economist.com/leaders/2023/11/08/time-to-take-a-wrecking-ball-to-realtors-fees-in-america 

 

 

Getting rid of excessive collusive profit would indeed lead to fewer real-estate leaches.  

It is absurd to think that this reduction in leaches would lead to HIGHER real estate costs..... 

Next up... health insurance companies.  The worlds most abusive middle men.

[mcsluggo]

the healthcare "market" in America meets none of the definitions of a market.   it is broken from aft to stern, and insurance companies are just evidence of the problem... they are kinda the vultures feeding on the copses of the crashed system.

[PleaseBlitz]

https://money.com/nar-lawsuit-housing-market-impact/

 

Here's What's Next for the Housing Market After a Massive Realtor Lawsuit

 

Quote

Change is coming to how homes are bought and sold.

 

The U.S. real estate industry was shocked last week when the jury in a class action lawsuit against the National Association of Realtors and two major brokerage firms, Keller Williams and HomeServices of America, decided they conspired to keep real estate commissions higher than needed. After a two-week trial that ended Oct. 31, jurors awarded the plaintiffs $1.78 billion in damages.

 

Now, everyone from brokerages to independent agents is trying to figure out what the future will look like once the dust has settled. The decision, says Steve deGuzman, CEO of rehavaPress, a software development company for real estate brokerages, could bring benefits “not only to consumers but to the industry all around.”

 

The lawsuit, known as Sitzer/Burnett, centered around the NAR’s participation rule and the practice of agent commission sharing. Under the rule, in order to advertise a property on a listing site, the seller’s agent must offer compensation to buyer agents. The aim is to attract more people interested in purchasing a home.

 

When it sells, the listing agent’s commission, which typically averages between 5% and 6% of the sales price and is paid from the proceeds, is split with the buyer’s agent. But the plaintiffs in the lawsuit alleged — and the jury agreed — that this practice unnecessarily increased the real estate transaction cost for sellers.

 

 

Quote

What does the NAR lawsuit ruling mean for buyers?

While the monetary outcome of the jury’s decision is unclear, the future of agent commissions is downright murky — and it all depends on what the judge decides.

 

If Bough strikes down the commission sharing rules, entirely or partially, it opens up a world of possibilities. Buyer agents would no longer be able to advertise their services as free (though they have never been free because the seller has always paid them). Instead, they’d have to be upfront about their fees, regardless of who pays them.

 

Buyers will still have the option of omitting the services of a realtor and working directly with a listing agent. But for those who want the expertise of an agent to guide them through the negotiation process, the upfront costs of buying a home could increase.

 

Ellis says some brokerages, including hers, could require clients to sign a buyer’s agreement specifying the services the agent will provide, their commission and the buyer’s responsibility to pay the fee if the seller doesn’t cover it. If the buyer has to pay their agent, it could add thousands of dollars to the cost of a home purchase — on top of the down payment and closing costs.

 

In the end, “the market is ultimately going to determine the value of that buyer agent’s services,” says Ellis.

 

What does the NAR decision mean for sellers?

Home sellers are likely to see a more immediate benefit. If commission sharing is no longer allowed, a seller would negotiate a fee with their agent, and a buyer would do the same with their representative. For sellers, this could be a positive: They would no longer have to pay another agent out of their home sale profits.

 

Indeed, some brokers are already taking steps to eliminate commission sharing from their listings, says deGuzman of rehavaPress, adding, “that’s going to immediately save the seller anywhere from 3% or more.”

 

A business model based on fixed-fee compensation, where the seller or buyer pays a flat fee for their respective representative’s services, could also emerge and help keep home selling and buying costs down for both parties.

 

There’s a lot about the Sitzer/Burnett decision that has yet to be determined. The full effects of not only this lawsuit but also others still working their way through the courts will certainly have an impact on the housing market, but the scope isn’t clear.

 

In the meantime, deGuzman says, “it’s going to be chaos for about a year.”