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Winners & Losers of the NAR Settlement (Plus what I think about it)

by John Rice

Let’s get this out of the way first thing. Contrary to what the media and even President Biden has said after waking up from what looked like a great nap, real estate commissions have ALWAYS been negotiable.

Don’t believe the things you are reading in the media. Remember, their goal is to sensationalize news so you will read their article. The journalists assigned the task of telling you about changes in the real estate industry know little about it. They are only experts on the english language and shouldn’t postulate on much beyond that.

Okay, let’s begin with a brief history of how we coupled the commission for both the Listing Realtor and the Buyer’s Realtor.

Back in the olden days, you as a seller would hire a real estate agent to sell your house. They were tasked with finding you a buyer. They didn’t just put it on the market and wait for a buyer’s agent to show it like today. They had to literally procure a buyer for you. I don’t know who is responsible for this revelation, but somebody along the way figured out that some real estate agents had people wanting to buy a house. Just like the old Reese Cup commercials where somebody eating peanut butter crashed into somebody eating chocolate, it was discovered that the process of selling a house went faster if the agent with the house split the commission they charged with the agent who had the buyer. Voila! (Did you see what I said there? The entire commission was paid from the seller to the listing agent. It was the listing agent who agreed to split the commission THEY CHARGED with the buyer’s agent. It was NEVER the seller paying the buyer’s agent commission. It was the listing agent paying the buyer’s agent.)

Over time, this stuck. Early on, BOTH realtors worked for the seller. Even though the agent working with the buyer was helping the buyer, they owed loyalty and a fiduciary duty to the seller. Eventually that changed where we had laws to protect buyers which meant the buyer’s agent only represented the interests of the buyer. To make things easy for all, the MLS (Multi-listing Service) came into existence. We created policies and procedures to create transparency and order to the business of selling houses. One of which was to offer a commission to ANY realtor who produced the buyer for a listing. This was great because it meant the buyer’s agent knew what commission amount the listing agent was willing to offer should their buyer end up purchasing the place. While 3% in my market was the most common offered, there has always been offerings of 2%, 2.5% and even some fixed amounts.

Like all things, nothing last forever. This NAR Settlement is separating the buyer’s agent commission from that of the listing agent’s commission. We will no longer be able to post the commission amount on the MLS. That is really all that has changed.

I will point out that this is not a market driven decision. I don’t think anybody was really complaining about how the process worked. The public didn’t really understand the old way of doing things and I don’t think they will take the time to figure the new method out either. All they know is that it cost money to sell their house just as it costs money to do anything. If you are remodeling your kitchen, do you care that you are only paying your contractor who has separate deals worked out for each of the subcontractors? Why do you pay your contractor this way? Because it is easier for you and you are paying the only person you actually hired. Imagine if instead of paying just the contractor the whole amount, you paid him less but also then had to write checks to the plumber, electrician, cabinet contractor, and countertop person who worked on your house. Do you think it would be cheaper? No, it would be the same total, only you’d be writing more checks.

While I think the next year or so may be choatic, I do not think this will change all that much. We will see if I am wrong. Right now, there is a lack of organization because large brokerages, the NAR and local realtor associations are too afraid to say anything. I think they will try to leave it up to us to figure out. Currently, everybody is trying to figure out a way to benefit from the settlement. Zillow sent out an email saying they are here for us realtors. It wouldn’t surprise me if they are working on a way of creating what is effectively their own MLS. Many agents who expect a mass exodus of agents are working on setting up referrals so departing agents can still make a little money by sending their clients to active agents.

While I am sure average commission amounts might drop slightly, I don’t see that much of a change. Just like that kitchen remodel I mentioned above. In a great economy where there is a lot of work, prices are at the highest. When the economy is bad, your kitchen contractor isn’t going to work for half price. Sure, they will give you their best price. but they won’t take on the job if they can’t make a living.

One of the biggest reasons why I feel it won’t change much is because in every email I have gotten from NAR and my MLS, we have been reminded that while we cannot post an offered commission on the MLS soon, we can post a seller concession. I suspect that the commission will become similar to the way the Master Bedroom became the Primary Bedroom. It’s just a name change. The seller concession will be offered to allow buyer’s to pay their own agent. The amounts may change but the end result is unfazed. So what this might look like is that the listing agent charges a certain commission percentage and the seller offers a certain percentage as a concession to the buyer.

I am sure there will be lots of sellers who will offer no commission to the buyer’s. I am sure there will be agents who will work with these sellers. I also am sure that given enough time, both will realize that it is good to offer a commission/concession to the buyer so their agent gets paid. Why? The goal is to sell the house. How much money did you save if your house didn’t sell? Buyers want their own agent to help them make decisions and navigate the process. If no buyer’s agent can make even a penny from the sale, they simply won’t do it. Then who does the buyer’s agent tasks fall upon? The listing agent. I think in time, the listing agent will want more than their usual commission to do twice the work, which isn’t saving the seller anything.

So, let’s look at who are the Winners and Losers of the settlement:

Biggest winner: The lawyers of Cohen Milstein. Guessing they will get the usual 25-33% of the settlement. I wonder why nobody has ever filed a class action lawsuit against lawyers? They all seem to take the same percentage of a settlement or judgement. Sounds like collusion to me?????

Biggest loser: The National Association of Realtors. I don’t mean loser in the sense of they lost. I meant it more as a pronoun. They let us down. Regardless of whether anybody thinks real estate commissions are too high or not, the fact is that commissions have always been negotiable. They did a poor job of proving that and they are currently doing a pathetic job of helping realtors figure out how to help our sellers and buyers during this crazy time.

Let me add that if the NAR and local realtor associations are not going to help us right now, I see no need for their existence. I can post my listings on zillow, I can get documents from the Kentucky Real Estate Commission and I am sure I can figure out how to keep my lockboxes working. Provide leadership or you become as useful to us as Conferderate era coins.

Winner: Sellers. Not because of anything having to do with the settlement. Sellers have been winning the real estate game for years due to a shortage of houses for sale. Do remember though that nothing lasts forever. I have been in this business for so long that I remember sellers offering bonuses and even as much as 4% commission to the buyer’s agent. See, commissions have always been negotiable…..not everybody realizes that in a bad market the commission could go higher!

Loser: Buyers. You have been thrown under the bus. If you think you might be able to get a house for cheaper now, you will be surprised. You will not. If a seller has a $400k house, they are not going to list it for 97% of that because they want you to benefit. No, they will still sell it for $400k. How do I know? I have worked with several For Sale By Owners over the years. None have offered to sell for less since there is only one realtor to pay.

Loser: Realtors. We now have to figure out how to work for our clients without any organization or direction. We can’t discuss anything in a group or it is considered collusion.

I am anxious to see how all this goes. My predictions may be right. They may be wrong. I am sure I will be blogging about this in the near future as it develops.

Know this though. Regardless of what, it anything, changes. I am still here for my friends and clients. I only work with 3 group of people: Those who are past clients, those who have been referred to me by past clients and friends, and those who find this blog. I’m not really worried how I get paid or how much. If I really wanted to, I could liquidate a few assets and comfortably retire. This month marks my 19th year as a realtor. I plan to keep doing it as long as you all need me.

Guess how long I’ve been a Realtor

by John Rice

N I N E T E E N

Y E A R S

That’s how long I’ve been a realtor. March 2005. It’s kind of hard for me to believe. One day I’m the new kid in town fresh with enthusiasm. Then all the sudden all this time passes. Now I’m the old dude with all the wisdom and experience that one only gains with time.

I was going to write about all the changes in real estate over the course of my career. I was going to say that while there have been changes in execution, pretty much everything is still the same. I even had some analogy about how whether you had a YETI or a Stanley Cup, what you put inside is the same and they both serve the same purpose.

But I will skip all that. Maybe next year.

So what am I going to say in this post? I am going to talk about how it feels having been a realtor for this long.

It’s been a great ride overall. Remember, I was the kid who was reading the real estate section of the Sunday newspaper. I would skip school once I got my driver’s license and cruise around neighborhoods looking at houses. I had no idea that one day I would be able to check out the inside of some of the houses that caught my eye.

I also had no idea the success this would bring. Pretty much everybody I told I was going into real estate said “Oh, you’ll do great at that!” I had no idea what they meant but I appreciated the encouragement. I had no idea that I would become one of the top producing realtors when at my peak. It was a lot of fun to reach that level. LOL, I don’t know if I want to do that again though. It was so much stress. I am much happier now and think I am a better realtor only being up to my shoulders with work instead of drowning in it.

Another feeling I have is gratitude. I am smart enough to realize none of this would have happened without my family, friends and clients.

My wife would keep dinner warm on the stove all those nights I had to work. Often I would have paperwork to do and she would bring a plate up to my office. I would not have been able to have gotten into real estate if she didn’t have a good job that covered all our expenses those early years.

My parents always encouraged me to do whatever I wanted to do. They also would watch my two sons when I had to rush out to show a house…..although, haha, they benefited as much from that as I did. My dad used to be an attorney. He’s probably given me a million dollars of legal advice for free.

Then there are my friends. Many of them would watch my sons too when I had to work. Many of them trusted me for their real estate needs when I was a newbie. A lot of them sent their friends, co-workers or family to me.

And my clients. Many of you have become friends. Ultimately I have you to thank because without you, none of this would have come to fruition.

I don’t think I have done anything to deserve all the wonderful things that have happened to me over my career. That’s probably what is the most humbling part of it all……that I am blessed by the goodness of others and not as a result of anything I have done.

And I am not done yet. Here’s to another 19 years!

Are Investors ruining the market?

by John Rice

Are real estate investors who buy single family homes ruining the market for other buyers and driving up rent?

Unpopular opinion, but I say no.

Sure, many of these investors might make terrible landlords. None of us like the robocalls we get asking to sell our houses to them…..but they are not ruining the market and driving up rent. I am by no means defending them or their actions. I am just saying that they are not the root of the problem.

I spent a couple weeks in Florida recently where I read an article saying how large scale investors were ruining the market. They were outbidding other buyers. They were reducing the number of homes available for owner-occupant buyers. They were raising the rent and making housing unaffordable.

This type of logic drives me crazy. Let me pick apart a few things here:

For every house for sale, that means there is both a Buyer and a Seller. If one Buyer is outbidding another, that means there are not enough houses for sale. This is a Supply and Demand issue. Also, the never mentioned seller who is about to become a buyer is happy with the terms they got.

Are they reducing the number of homes for sale? Yes, but isn’t the same true for anybody who buys an available home? Again, the issue is the imbalance between Supply and Demand.

Are they raising rent and making housing unaffordable? This one always amazes me. We have all just survived a crazy period of inflation where the cost of everything went up. Somehow most people single out housing, as if that shouldn’t have also been affected by inflation. Like we are shocked and appalled that housing costs, whether renting or buying, went crazy at the same time when everything else did too?

What this article seems to forget is the tenants. Where would they be if all the sudden there were no properties to rent? It isn’t like investors are buying these houses and keeping them empty. There is just as much demand for single family rental homes as there are for people wanting to buy them and live in them. If rent exceeds market demand, houses will sit vacant and investors will have to lower the rent to get a tenant. Again, Supply and Demand.

Are you seeing a theme here? Supply and Demand. There is a short supply of houses for sale for investors and owner-occupants. There is a short supply of houses for rent for those who cannot afford to buy or choose not to. Having more demand than supply is the problem here.

Some say that the issue is sellers just aren’t selling these days. Okay, true. But let’s think this through. We have far more people wanting to buy AND to rent houses. If all the sudden everybody decided to move, we would still have more people than houses because everybody living in their current house would also need another house. What’s that? Supply and Demand.

Building more homes is the only real solution to this. It is what the writers of the article I read should be encouraging if they honestly feel like everyone should be able to afford to buy or rent a home. The demand is there. The supply is the issue. Until there is a better balance, prices for buyers and tenants will not change.

Well Played Sir, Well Played….Sort of

by John Rice

After nearly 19 years in this business, you sure learn to read the signs. Watching what people do (or don’t do) can often tell you a different story than the one they are telling you with their lips.

I had a buyer interested in a property. We made a formal offer. It was verbally countered. Verbal counters happen. They can be a way of making the negotiations move along faster. They can also be used to “Not” formally counter. See, if a Seller formally counters an offer, they can’t accept another offer without withdrawing their counter. Sometimes a verbal counter is made to keep the other parties options open.

My Buyer decided not to budge from their original offer. I assumed the deal was dead.

A couple of hours later the Seller’s realtor texted saying the Seller maaaaay accept my Buyer’s offer amount if we could close in 3 days. I immediately told the other realtor exactly what my Buyer would do in response. We could not close in 3 days but could within 10 days.

Then I hear nothing.

This is when I start getting suspicious because normally, when a Seller and Buyer agree on a price, everybody usually get really motivated to make a deal work out.

Then I ask again for a reply.

I still get radio silence.

Then out of the blue, exactly what I suspected was happening came to light. There was another offer. The other realtor said another offer had been made which was better than the one my Buyer had made.

So here is what really happened:

  1. By verbally countering our offer, this agent kept our offer alive and could legitimately tell the other Buyer’s realtor that there was another offer on the table. This used our offer as leverage to get the best terms for the Seller from the other Buyer.
  2. By not replying to us in a timely fashion, it hedged the Seller’s bets because if the other offer didn’t work out, they had us as a backup plan.

Was there anything wrong in doing this? Yes and no.

I am not at all upset about the other agent trying to get the best results for his client. I do the same for mine. Kudos to him for this part of his actions.

The only thing I am salty about is that he made a counter and then ghosted me for almost two full days. I think he should have told me in a reasonable amount of time that there was another offer, or that his Seller was either accepting/rejecting/countering the revised terms I had proposed.

What’s 2024 Going to be Like?

by John Rice

I do these type of posts every year. Not to brag, but I am usually spot on. Why is that? I think it is because I don’t concern myself with short term knee jerk reactions to market fluxuation like the media does. I don’t view “Demand” like most people. I think there is always demand because everybody loves real estate and everybody ultimately wants to own their home. How many people are out there buying at this exact moment can vary, but there is always demand.

I think 2024 will be a better year for buyers and a still great year for sellers. We have all been on a roller coaster the past few years:

2020-We thought we were all going to catch COVID and die, or didn’t think it existed at all. We were too busy fighting over everything early on to bother with buying or selling houses….until later in the year when rates got so low.

2021-We partied like it was 1999. We chatted daily about how much our crypto went up. We got a better house, an airbnb or refinanced what we already had like crazy.

2022-We continued to party like it was 1999 but we knew the ball was about to drop. Just like inflation was eroding our purchasing power, we could no longer afford the cost to maintain our enthusiasm.

2023-Was like “Will there be a recession?”, “Are we IN a recession?” and “These rates are crazy high right now!” It felt like when somebody thinks they saw a shark and everybody jumps out of the water. Was there a shark? Who knows, but nobody wants to be the first one to get back in the water.

2024 is looking like the economy has stabilized, rates are going to drop to a level that is historically average, and all those people who are on the fence will come out….just like the opening scene of Bambi. Affordability will remain an issue. Prices will at least stay stable. We will read later in the year that rent prices are dropping but that data is skewed. All the new giant apartment complexes will be competing for the same tenants. Prices for apartments will go down for sure. The single family rental market will remain strong since there are not enough single family houses for anybody in any market.

Ultimately, I think this will be the most normal market we have seen since Covid.

And I welcome it. Bring on 2024!