Latest / Real Investor Radio Podcast / Mini Episode #1: NAR Settlement Unpacked
Transcript
- Craig Fuhr (00:12) hey, everyone, welcome back to real investor radio. I'm Craig Fuhr joined again by Jack BeVier. Jack, how are you today? While I'm excited for today's guest, and we got a couple of news stories that I'd like to cover quickly. So we'll just go ahead and jump in for the listeners. So Jack, the NAR settlement, man, everyone's talking about it. All my Jack BeVier (00:12) Doing great this morning, Craig. How you doing, man? Kris Garin (00:17) you Craig Fuhr (00:36) Facebook investor friends seeing a lot on social media. We're getting calls from borrowers who are specifically asking what our feelings are on it. So pulled up just a couple you know, there's no lack of news stories about it. But quickly, there was a lawsuit against the NAR and several brokerages. And there was a settlement. And so under the settlement was $1 .8 billion. Jack BeVier (00:42) Mm -hmm. Craig Fuhr (01:05) commissions will be subject to more negotiation. So no longer Jack can we can a broker just throw a 6 % commission into the MLS as part of the listing agreement. And this report from NPR, which could it states that commissions could lower the this new settlement will lower the cost of buying and selling a home for for buyers and sellers. It could also drive some real estate agents out of business, Jack. And so, you know, NAR is one of the most powerful lobbying groups in DC, have been for many years. And I'm sure that this lawsuit, I don't think it came as a surprise to them as I think, you know, they've been a target for a while. However, I can imagine where a lot of real estate agents are feeling a little sold out right now. So I'd love to get your take on that as well as our guest take who we'll introduce in a bit. Jack BeVier (02:01) Yeah. So, um, so NAR negotiated this, like you said, the NAR negotiated the settlement, I think it was $441 million for them specifically. They left the 90 top real estate brokerages kind of still hanging in the wind with them having the option to kind of buy into the settlement terms on a pro rata basis. But if you were, I think it was over $2 billion of commissions annually or more, uh, you weren't covered by this settlement. So it was just NAR kind of getting the little brokerages in itself. Craig Fuhr (02:15) Mm hmm. Jack BeVier (02:31) out of, out of the fire, uh, you know, out of the line of fire. And, um, yeah, as you mentioned, the, um, the days of listing agents going in and saying, Hey, we're going to sell six, you know, we're going to make 6 % available for commissions. And yes, there's a, a co -op for buyers agents. And here's how much it is. That seems to that's going to be going by the wayside. Um, there's tons of spec. So when you get, you know, what that mechanically means is that when you go into the MLS. There's not going to be a spot for the buyer's agent Commission that's going to be negotiated now Yeah, and so now the what the buyer's agent is going to get paid is going to be negotiated between the buyer and the buyer's agent and now it doesn't preclude the seller from Offering seller help in order to help pay the buyer's Commission Craig Fuhr (03:05) All right, which essentially locks the buyer into a commission structure that they didn't necessarily agree to. That's sort of what was the crux of the lawsuit. Jack BeVier (03:31) but that's going to be an individually negotiated thing. And it may be, it's going to be more often the case that the buyer that the buyer's agent has to have a, you know, somewhat awkward, somewhat, you know, more confrontational than they've been used to conversation with their, with their client. So the impetus on the buyer's agent to, to explain their value proposition is a much, is it a higher bar now? You know, before it was the case that the seller paid. Craig Fuhr (03:35) Mm Jack BeVier (03:59) you know, was going to pay for the buyer's agent. And so if you're a buyer, you weren't price sensitive because the industry was kind of forcing a standard number. And frankly, you know, and, and in those cases where it was in the buyer's agent had an easy go of it, subsidizing, uh, the other side of the table. And so if you're a buyer though, in that environment, there's been absolutely no incentive to negotiate that. And frankly, your incentive has been to find the best highest service buyer's agent out there because the seller is going to pay it and the seller is putting enough money up there for you to be able to demand a super high level of service from your buyer's agent. So you got buyer's agents doing showings on nights and weekends, you can call them at 11 o 'clock and write your offer. And that's all just been like, exactly. And that's all just been like taken for granted. But now that the now that now that the seller is not Craig Fuhr (04:46) houses. Jack BeVier (04:55) just have, you know, standing there with their wallet open and you actually have to have a commercial conversation with your, uh, between buyer and buyer's agent. I think there's, there's lots of speculation that a lot of other models may emerge to, you know, to fill the various, you know, different levels of service that a buyer may need. Right. So. Craig Fuhr (05:13) Yeah. Well, let's talk quick. I mean, the thing that I think is interesting about most buyers now, I think are finding these houses as they sit at work. I get on, I'm sitting at work, I'm looking for a house, I jump on one of the online services, Redfin Zillow, pick yours. And I see several houses that I want. That's a departure, obviously, from meet with a buyer's broker, realtor, and they set up a search for me in the MLS and I start getting houses. Kris Garin (05:32) Okay. Craig Fuhr (05:54) I think that model has probably changed almost 180, Jack, over the last 10 years, let's say, and specifically of late as those services, online services, become far more robust. And so I wonder about the traditional role of a buyer's agent at this point and how that's really gonna change the landscape. Kris Garin (05:57) you you Jack BeVier (06:17) Yeah, I could now there's there's folks who are there's buyers agents who are like, Hey, yeah, increased competition, no sweat, my value proposition super solid, like bring, you know, bring it on. And then there's folks who were like, you know, and frankly, probably a lot of the part timers who liked being the person who had access, you know, they'd get a call from some friends when they wanted to see something, they'd go at seven o 'clock at night after work and after their day job and show open the door, show them some houses, write up a contract. Craig Fuhr (06:33) Thank you. Right. Jack BeVier (06:45) And boom, get a $15 ,000 commission, you know, on, on, you know, for their, for their friends and like pull in an extra 30, 40, 50 grand a year, just kind of doing little side hustle work at nights. And that's going to be, but now the buyer, you know, with, with that not being like definitely paid for by the seller and that being like real money all of a sudden, right. Uh, yeah, that that's going to be a harder gig to, to keep going. You know, you're going to have to get buyers are not going to want to show seller. I'm sorry. Buyers agents. Kris Garin (06:51) you you Craig Fuhr (06:59) All right. Jack BeVier (07:15) are not going to want to show buyers houses without an exclusive right or I'm sorry, exclusive buyers representation agreement signed because they don't know that the seller is going to be willing to pay their commission or what that might what their contribution might be. Good. Kris Garin (07:15) you you Craig Fuhr (07:30) Yeah, you know, Chris, and you feel free to jump in here. One of the things that any settlement like this does is it sort of opens the door for an additional lawsuit or perhaps, you know, a different way of looking at the model. And traditionally, the seller, you know, is the person sitting there with the money, right? hopefully the equity and the property that pays the 6 % commission. And I'm wondering, you know, if this opens the door to a model where the buyer is essentially going to foot the bill for their side, and where that's going to come from with buyers who traditionally are coming to the table with 3%, you know, and don't really have a whole lot of cash laying around to pay a $15 ,000 commission. Kris Garin (08:21) Well, this is a little bit off of our core business. And let me say, we really appreciate a good broker. We have lots of intermediaries in our lives and they all create a lot of value and we love paying them because usually it's because something good is happening for our business. I guess it occurs to me here that I don't know that the seller was ever really paying for it. It was just, it's sort of like, you know, is this happening to me or is this just happening? I mean, the fact that it's on the seller's side of the settlement statement, it's cost in the deal and it's showing up in the overall price and it's going somewhere. And I think whether you say it's a seller's cost or a buyer's cost, it's transactional friction. And I think Jack's point is there's going to be more pressure to justify that value creation and what that does to pricing and where that shows up. I've heard a few. Craig Fuhr (08:53) Hmm. Thank you. Kris Garin (09:19) strongly held and mutually exclusive arguments about how it's going to go. So I guess we'll just see. Jack BeVier (09:27) It's definitely going much more a model towards a model of what of how commercial real estate is transacted right now, which is, you know, the agency agreements are are negotiated on a case by case basis on even a deal by deal basis. So it's definitely, you know, where the standardization across the industry is moving much more towards the commercial, you know, much more commercial kind of environment on a going forward basis. So I think it's ultimately. like, you know, hey, selfishly, I think it's ultimately good for consumers in that I think that it's important that anyone who causes friction in doing business justifies their existence like explicitly, and that there's not some just like, you know, custom that everyone goes along with because you don't want to, you know, ruffle feathers or upset, you know, upset the apple cart. That's not it's not our mo. So I'm, I guess, you know, I think it's gonna be generally good. I think it's gonna not. be good for everyone the same though. Right. So I could see, you know, higher end buyers that want to, um, that are like, Hey, I'm, I'm educated. I know the houses that I know what I'm looking for. I'm aware of, you know, technology and can go find them. I just need someone to open the door for me, prepare the contract and like review the home inspection and then them to make sure that I don't screw something up. Um, and they just want some guidance and I could see them going more towards a like, pay, you know, pay for time, you know, pay pay a junior agent to open doors and pay a senior agent to, you know, hourly and pay a senior agent to prepare contract and walk them through the process and pay that out of pocket, right and be like, hey, I'm seven grand in fees out of pocket to my buyer's agent. But that would have been a $20 ,000 commission to you know, a year ago. Now, the low end of the market can't afford that idea, though. So Craig Fuhr (10:57) you Thank you. Jack BeVier (11:19) Are they going to get, you know, is there going to be a disparate impact issue here where like the low end of the market is now like less represented than they already were right? Like frankly, 2 % a 2 % buyer side on $180 ,000 listing barely puts gas in the car. Right? So like buyers agents in the low end of the market are already kind of suck and wind in terms of like, you know, a justifiable, you know, hourly billing rate. And now you're going to put more pressure on that segment. They may just get, you know, more. Craig Fuhr (11:43) Hmm. Jack BeVier (11:49) more more underserved than they already were. So I think there's going to be lots of kind of like different impacts across different segments of the market as well. Kris Garin (11:58) Well, 10, 15 years ago, maybe a little longer now, I think it was widely expected that there'd be no such thing as a travel agent anymore. And now there still are, but they're concentrated in the areas where there's somebody in the equation that really puts a value on what they're doing. You don't need a travel agent to book a plane ticket, but there are whole industries out there. Cruise ship industry is one. You know, and I understand this is the equivalent of the seller side here, but you know, they've said, Hey, our whole sales effort, we're going to outsource to travel agents. We don't want to be in that business at all. We'll market and we'll let travel agents do all of our selling. And there's a lot of travel agents out there, you know, doing very well, but that landscape is very different than it was 10, 15 years ago. And I think there's going to be a major disruption for sure, but where it all settles out. Craig Fuhr (12:49) Yeah. Kris Garin (12:55) I never think these markets, particularly on the lower end, are as efficient as people like to say they are. But over time, I do think the gravity will be where there's value being created. And people vote with their feet, and they'll pay for it. Jack BeVier (13:17) Hey, one last, one last point because I want to hop into the conversation here with Chris about his business. I'm really excited to have him on today, but one last point that I wanted to make that I thought was an interesting one. Uh, so I want to make sure we bring it up is, uh, that more, this could also have a really interesting change in the role on mortgage loan officers because before buyers agents were, you know, scouring the market for, for buyers or, you know, paying for Zillow and Redfin leads, you know, you're searching on there and you click on the thing and click on the link and. Kris Garin (13:35) you Jack BeVier (13:47) They get, you get put in touch with an agent who will go open the door for you. But now if that becomes less prevalent because it's frankly just a harder business model, like there's, you know, there's, there's just more challenges from the buyer's agent side of things. When you're going to shop for a house, you still need a pre -qual letter. Let me know. Nothing's changing about that. And so the mortgage loan officer may be the first point of contact on a, on a higher percentage basis, uh, going forward. And so there's an opportunity there. you know, for them to also negate and also given that like the full service is not now it may not now be the standard may not be what's expected of all all the time. Maybe mortgage loan officers are in a position where they've got a very low cost of acquisition of a customer, and they can provide a la carte services to buyers and pick up some additional revenue, you know, with that single point of contact. it's, I'm not aware of like every state's laws, but it is, you know, not usually the case where there's a prohibition between rep being both the licensed mortgage loan officer as well as the licensed real estate agent on the same transaction. And so for, for licensed LOs, especially those who have like a big, you know, a big social presence, there may be an opportunity for them to put pressure on the buyer's agency side of things as well. So, I thought that could be an interesting dynamic. It was an argument that I thought, you know, held some water. So be interesting to see as it plays out, as you guys have said. Craig Fuhr (15:14) Certainly a landmark decision indeed. Chris, thank you for jumping in on the conversation there. You are, congratulations, the first guest who ever jumped in before we formally introduced you.