WEBVTT - A Stunning Lawsuit Could Change How Realtors Get Paid

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<v Speaker 1>Hello, and welcome to another episode of the Odd Lots podcast.

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<v Speaker 1>I'm Jill Wisenthal and.

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<v Speaker 2>I'm Tracy Alloway.

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<v Speaker 1>Tracy, we've been doing a lot on competition stuff lately.

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<v Speaker 2>Yeah, we really have. Let's see. So we spoke with

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<v Speaker 2>Lena Kahn from the FTC recently before that, we spoke

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<v Speaker 2>to the DOJ's Jonathan Canter. So it feels like we've

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<v Speaker 2>been making the competition rounds right.

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<v Speaker 1>We've talked a little bit about chicken too in a

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<v Speaker 1>few episodes. But competition more broadly is a good lens

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<v Speaker 1>to really learn about market structure across a range of industries,

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<v Speaker 1>because every industry is different, and every industry is different

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<v Speaker 1>centers of power and people who have information, people who

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<v Speaker 1>extract rents from that information, and so just in terms

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<v Speaker 1>of I don't know sheer curiosity about how different businesses work,

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<v Speaker 1>the sort of competition lens I find to be very

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<v Speaker 1>useful for getting to know it.

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<v Speaker 2>Oh, absolutely, And it's one reason why we keep asking

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<v Speaker 2>people from the FTC and the DOJ how they actually

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<v Speaker 2>do their research learn about industries. But I would say,

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<v Speaker 2>aside from that benefit, which is a major one, it

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<v Speaker 2>does feel like there is this kind of ground swell

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<v Speaker 2>of anti trust pressure or there's more of a examination

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<v Speaker 2>of anti competitive practices nowadays. And it does feel like

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<v Speaker 2>maybe the winds are shifting a little bit towards the consumer,

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<v Speaker 2>perhaps given the macroeconomic background. You know, we've seen a

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<v Speaker 2>lot of complaints about inflation, higher prices. Obviously, feels like

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<v Speaker 2>companies are in some respects getting more savvy about what

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<v Speaker 2>they're charging people. But then you also have companies or

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<v Speaker 2>industries that have kind of been doing the same thing

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<v Speaker 2>for a long time, but now people are looking at

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<v Speaker 2>it more critically.

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<v Speaker 1>Yeah, absolutely, that's very well put. It does feel like

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<v Speaker 1>across the economy you see this a lot where something

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<v Speaker 1>has been the norm for thirty forty two hundred years

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<v Speaker 1>and then for whatever reason, maybe there's more data, maybe

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<v Speaker 1>there maybe social media, maybe something, suddenly people wake up

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<v Speaker 1>and say, wait, is this fair? Is this right? Is

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<v Speaker 1>this optimal? Is this a good system? I think we

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<v Speaker 1>see it a lot in medicine for sure, where people

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<v Speaker 1>are like, wait, this is how it works. But and again,

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<v Speaker 1>you know, I mentioned we've been doing a lot on competition.

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<v Speaker 1>We've also been doing a lot on housing. Yes, and

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<v Speaker 1>so this is going to be an episode that is

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<v Speaker 1>sort of a merger.

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<v Speaker 2>Let's put the two together.

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<v Speaker 1>Let's put the two together and talk about competition in housing.

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<v Speaker 2>Yes, so, I'm sure listeners have probably seen some headlines

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<v Speaker 2>floating around about a recent federal civil case called the

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<v Speaker 2>Sitzer Burnett case. It was basically a civil lawsuit, and

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<v Speaker 2>it found that the National Association of Realtors plus two

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<v Speaker 2>large brokerages I think they were called Keller Williams and

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<v Speaker 2>Home Services of America conspired to keep commission costs artificially high,

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<v Speaker 2>and the jury awarded Missouri home sellers something like one

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<v Speaker 2>point eight billion dollars. But I've read that a judge

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<v Speaker 2>could in theory increase that to damages of as much

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<v Speaker 2>as five point three billion. And this has kicked off

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<v Speaker 2>a huge discussion about the future of the real estate industry,

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<v Speaker 2>which has historically made its money from these commissions, at

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<v Speaker 2>least on the brokerage side.

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<v Speaker 1>You summarize that very well, that was really good, and

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<v Speaker 1>this gets to something There are many aspects of real

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<v Speaker 1>estate brokerage that I just don't really understand, and I

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<v Speaker 1>don't really get what multiple listing services are.

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<v Speaker 2>Yeah, I'd never heard of that before I knew.

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<v Speaker 1>I mean, I was familiar with these databases. I don't

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<v Speaker 1>really get who owns them. I know that access is

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<v Speaker 1>very restricted. I don't totally understand. So I know you

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<v Speaker 1>have a buyer's broker, but then also you can go

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<v Speaker 1>on Zillow and find your own house or something like that.

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<v Speaker 1>At one point when I was trying to buy a

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<v Speaker 1>house or earlier this year, found something on one of

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<v Speaker 1>the sites, maybe with zillo. But then there's this broker

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<v Speaker 1>who emerged. I don't really get how all these pieces

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<v Speaker 1>fit together, but I do understand that if you have

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<v Speaker 1>access on some level to this infrastructure that is very valuable.

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<v Speaker 2>Well, here's the thing. It's one of those costs that

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<v Speaker 2>is substantial. I think the average is something like five

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<v Speaker 2>to six percent commission on a home sale price. But

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<v Speaker 2>because it's so baked into what you know, both sellers

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<v Speaker 2>and buyers are paying, it's never really broken out, and

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<v Speaker 2>I think people don't think about it that much. It's

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<v Speaker 2>just incorporated into the overall cost of either buying or

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<v Speaker 2>selling a house. But now people are starting to examine

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<v Speaker 2>it more closely and say, well, wait a second, how

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<v Speaker 2>is this all working, What are the incentives here, and

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<v Speaker 2>why has the average Commission been so remarkably stable across

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<v Speaker 2>literally a century.

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<v Speaker 1>I think so many questions that we need answers too,

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<v Speaker 1>because setting aside this one civil case in Missouri, I

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<v Speaker 1>don't think anyone knows how it's going to change the industry.

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<v Speaker 1>If it'll change the industry, we don't know the damages.

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<v Speaker 1>They're certainly going to be Appeals for these types of

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<v Speaker 1>things last for years and years, I think, And so

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<v Speaker 1>I don't think anyone really knows where it's going. But

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<v Speaker 1>it is a good moment to maybe back up and

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<v Speaker 1>get an understanding of the market structure here and what

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<v Speaker 1>could potentially change. Yeah, let's do it, Okay, I am

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<v Speaker 1>very excited. We have the perfect guest, Andrew Ghent. She's

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<v Speaker 1>a professor of finance at the David Eccles School of

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<v Speaker 1>Business at the University of Utah, specialist in this area. So,

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<v Speaker 1>Professor Ghent, thank you so much for coming on a lot.

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<v Speaker 3>Thank you so much for having me on the show.

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<v Speaker 1>Absolutely, how do brokers get paid? I buy a house,

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<v Speaker 1>I go on Zillow, I find something. I see a

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<v Speaker 1>bid seems cool. Somehow I come to an agreement. It

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<v Speaker 1>all seems baked in. How are individuals getting paid in

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<v Speaker 1>that transaction. In just the sort of standard.

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<v Speaker 3>Case, we have the basic intuition, right, you buy a

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<v Speaker 3>house and the seller agent and the buyer's agent, they're

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<v Speaker 3>going to split the commission, and before you even approached anybody,

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<v Speaker 3>that was set in the listing contract. So it will

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<v Speaker 3>say in the listening contract five or six percent typically,

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<v Speaker 3>and that will be split evenly between the selling agent

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<v Speaker 3>and the buying agent. So it's baked into the home

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<v Speaker 3>price right now. You know, for a very long time

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<v Speaker 3>National Association of Realtors effectively instructed its agents to tell

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<v Speaker 3>buyers it was free, so you may as well work

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<v Speaker 3>with an agent because it's free. And of course I

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<v Speaker 3>think a couple of years ago they finally backed off that,

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<v Speaker 3>so it's no longer claimed to be free. But you're

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<v Speaker 3>absolutely right, Joe, it's baked into the price of the house.

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<v Speaker 2>So just before we dig in further into commission structures,

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<v Speaker 2>can you walk us through all the various lawsuits that

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<v Speaker 2>seem to be floating around at the moment, because I

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<v Speaker 2>mentioned the one that's gotten the most headlines, so the

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<v Speaker 2>Sitzer Burnett one, but there are other things out there.

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<v Speaker 2>There's a Gibson case in Missouri. I think I saw

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<v Speaker 2>a headline about apartment brokers in New York also being sued,

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<v Speaker 2>and I guess I'm curious, like why these are coming

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<v Speaker 2>up as civil lawsuits versus something more federal or you know,

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<v Speaker 2>like more targeted from the DOJ or something like that.

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<v Speaker 2>I think the DOJ did have some sort of settlement

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<v Speaker 2>with the National Association of Realtors a few years ago.

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<v Speaker 2>But like, walk us through what this landscape of ever

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<v Speaker 2>multiplying lawsuits it seems actually looks like right.

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<v Speaker 3>Now, you know, this has been going on for some time,

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<v Speaker 3>and sort of the puzzle you alluded to earlier in

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<v Speaker 3>the show about why has this stayed sticky? We've had

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<v Speaker 3>this technological advancement where you know, thirty years ago wasn't

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<v Speaker 3>super feasible for you as an individual consumer to go

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<v Speaker 3>and find a home online and effectively, you know all

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<v Speaker 3>that the technology hasn't translated to lower prices for consumers.

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<v Speaker 3>And I don't have a good answer for why now.

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<v Speaker 3>Accept that we've had this long standing affordability crisis in

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<v Speaker 3>the US that sort of came to a head with COVID.

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<v Speaker 3>So COVID because it increased residential demand so fast, we

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<v Speaker 3>saw this big increase in home prices and supply hasn't

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<v Speaker 3>had a chance to catch up, and so I think

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<v Speaker 3>that might be why there's a little bit more openness

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<v Speaker 3>to sort of thinking about this. But you brought up

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<v Speaker 3>rental agents. But the other lawsuit we're seeing is one

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<v Speaker 3>about real Page and the software for rental housing, where

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<v Speaker 3>again it's like our the landlord's colluding here by using

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<v Speaker 3>the same software and providing data to basically extract the

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<v Speaker 3>most they can from renters. So that's my best guess.

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<v Speaker 3>I think the FCC does have a lawsuit against realtors

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<v Speaker 3>as well, but that's my guess. It has been a

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<v Speaker 3>long time coming. It's you know, I have to say

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<v Speaker 3>I was very happy to see the bird at Sisser

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<v Speaker 3>case because I think it's a bit outrageous to force

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<v Speaker 3>consumers to pay this price. And I want to get

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<v Speaker 3>into another sort of maybe more hit in cost of

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<v Speaker 3>being forced to hire a realtor, which is what sort

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<v Speaker 3>of incentives they have in terms of your portfolio by

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<v Speaker 3>being forced to work with a full service broker.

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<v Speaker 2>Right, So I assume that given the way these commissions

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<v Speaker 2>are set, where like the selling agent will split the

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<v Speaker 2>commission with the buying agent. I assume that means that

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<v Speaker 2>buying agents are incentivized to push the listings that have

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<v Speaker 2>a higher fee. Right, if someone is offering them like

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<v Speaker 2>one percent instead of two point five percent, they're probably

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<v Speaker 2>not that interested. They're probably not going to be pushing

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<v Speaker 2>that property as much to buyers.

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<v Speaker 3>For sure. There's very few in practice of commissions that

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<v Speaker 3>are really, you know, in the two percent range for

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<v Speaker 3>combining the buyer and the seller. I think the more

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<v Speaker 3>concerning part to me is that a full service agent

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<v Speaker 3>has an incentive, first of all to always get you

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<v Speaker 3>to buy. That's kind of obvious because they get paid

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<v Speaker 3>as a percentage of the house. But they also have

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<v Speaker 3>an incentive to put you into the most expensive home

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<v Speaker 3>you can qualify for a mortgage for. And this is

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<v Speaker 3>actually the bigger concern to me, because having all of

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<v Speaker 3>your assets in one asset that actually has a lot

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<v Speaker 3>of kind of not diversified risk is actually not great

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<v Speaker 3>from a financial portfolio perspective. Right, So for the average household,

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<v Speaker 3>the vast majority of their wealth is in their house,

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<v Speaker 3>and you might not want to be in a house

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<v Speaker 3>that is taking up forty percent of your income to

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<v Speaker 3>pay the mortgage. And you know, maybe a smaller house

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<v Speaker 3>might be a better fit for your portfolio because then

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<v Speaker 3>you had a little bit more money to put into

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<v Speaker 3>stocks and bonds and maybe some private equity. So that's

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<v Speaker 3>actually my bigger concern with the current structure is that

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<v Speaker 3>it's very hard to get a flat rate service right

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<v Speaker 3>now with a buying agent. I want to make clear,

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<v Speaker 3>I think a lot of buyers may benefit from the

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<v Speaker 3>expertise of somebody to help them buy a house or

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<v Speaker 3>to help them sell a house. The structure, though, isn't

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<v Speaker 3>giving me the option as a consumer right now to

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<v Speaker 3>say I want to pay somebody a flat rate to

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<v Speaker 3>show me around, or I want to pay somebody, you know,

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<v Speaker 3>ten thousand dollars to show me around and do all

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<v Speaker 3>the paperwork and also look at how it fits in

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<v Speaker 3>with my overall portfolio. You know, that structure doesn't exist

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<v Speaker 3>right now. That's what concerns me most because of the

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<v Speaker 3>listing agent having it put in the contract. So how

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<v Speaker 3>the buyer agent is going to get compensated is determined

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<v Speaker 3>again before you even walk through the door.

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<v Speaker 1>So wait, let's just say Tracy and I wanted to

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<v Speaker 1>become buyers agents, buyer's brokers, and we said, you know what,

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<v Speaker 1>we're just going to charge by the hour, and it

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<v Speaker 1>doesn't matter whether you buy a two million dollar house,

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<v Speaker 1>it doesn't matter whether you buy a half a million

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<v Speaker 1>dollar house. This is our hourly fee. We'll take you around,

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<v Speaker 1>et cetera. Is that possible under the current structure? Could

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<v Speaker 1>we even enter the market with such an offering?

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<v Speaker 3>It's technically possible, But then it's almost impossible to do though,

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<v Speaker 3>because the way buyers are going to perceive it. In addition,

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<v Speaker 3>they're going to get compensated this, you know, two and

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<v Speaker 3>a half or three percent of the home value, and

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<v Speaker 3>so very few buyers are going to be willing to

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<v Speaker 3>pay that given right now, they're looking at a market

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<v Speaker 3>where they don't have to come out of pocket. And again,

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<v Speaker 3>that additional two and a half three percent is already

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<v Speaker 3>baked into the value of the house, and so I

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<v Speaker 3>think it'd be very hard to convince a buyer. We

0:12:22.600 --> 0:12:24.080
<v Speaker 3>couldn't say, like value, what if?

0:12:24.760 --> 0:12:26.640
<v Speaker 1>What if? What if we said we're going to remit

0:12:26.679 --> 0:12:28.560
<v Speaker 1>that three percent to you get cash back.

0:12:28.720 --> 0:12:31.880
<v Speaker 3>It's a good question because there is a company called

0:12:32.000 --> 0:12:35.000
<v Speaker 3>Homie here in Utah that's been trying to do that

0:12:35.720 --> 0:12:38.720
<v Speaker 3>and the Utah Association of Builders have made it very

0:12:38.760 --> 0:12:41.600
<v Speaker 3>hard for them to actually run a competitive business model

0:12:41.640 --> 0:12:44.320
<v Speaker 3>with that. There are some companies around the country that

0:12:44.360 --> 0:12:47.400
<v Speaker 3>have tried that to try to remit I think REDFID

0:12:47.440 --> 0:12:49.560
<v Speaker 3>might have that model where they're trying to remit some

0:12:49.720 --> 0:12:53.559
<v Speaker 3>of that brokerage commission to the buyer exactly to try

0:12:53.600 --> 0:12:55.640
<v Speaker 3>to so some buyers who are like I don't really

0:12:55.720 --> 0:12:58.520
<v Speaker 3>want to pay the full three percent, And it sort

0:12:58.520 --> 0:13:01.520
<v Speaker 3>of depends on how power hold of realtor's lobby is

0:13:01.920 --> 0:13:04.760
<v Speaker 3>in various states, the success these companies have had with this.

0:13:20.480 --> 0:13:26.040
<v Speaker 2>So you mentioned expertise of realtors earlier, and my understanding

0:13:26.080 --> 0:13:30.240
<v Speaker 2>that this is without being mean to the thousands of

0:13:30.280 --> 0:13:33.240
<v Speaker 2>realtors across the country, this is a point of contention,

0:13:33.480 --> 0:13:36.400
<v Speaker 2>and one of the arguments is that, well, the fee

0:13:36.520 --> 0:13:41.199
<v Speaker 2>the commission basically remains the same across all different types

0:13:41.240 --> 0:13:44.880
<v Speaker 2>of realtors of varying skills, who you know, might put

0:13:44.960 --> 0:13:49.360
<v Speaker 2>more or less time into either buying or selling your home.

0:13:49.920 --> 0:13:53.960
<v Speaker 2>So I guess the question is how valid is that criticism,

0:13:54.160 --> 0:13:57.880
<v Speaker 2>How difficult is it to buy or sell someone a house,

0:13:58.080 --> 0:13:59.360
<v Speaker 2>particularly in this market.

0:13:59.640 --> 0:14:03.280
<v Speaker 3>I think the answer is that there's huge variation in

0:14:03.320 --> 0:14:07.640
<v Speaker 3>the quality of realtors and what services do you want

0:14:07.640 --> 0:14:10.360
<v Speaker 3>as a home buyer. You can't unbundle them right now.

0:14:10.880 --> 0:14:13.520
<v Speaker 3>I know in my own case, I basically have the

0:14:13.559 --> 0:14:16.000
<v Speaker 3>house picked out by the time I go to it,

0:14:16.200 --> 0:14:19.440
<v Speaker 3>like with the realtor, and I basically having to pay

0:14:19.480 --> 0:14:21.640
<v Speaker 3>somebody a huge amount of money to fill it some

0:14:21.640 --> 0:14:23.560
<v Speaker 3>paperwork I could have hired. I could have either done

0:14:23.560 --> 0:14:26.520
<v Speaker 3>the paperwork myself or hired a real estate attorney for

0:14:27.280 --> 0:14:29.960
<v Speaker 3>you know, a couple thousand dollars. You know, typically they're

0:14:29.960 --> 0:14:32.040
<v Speaker 3>going to put a second year associate or something that

0:14:32.160 --> 0:14:35.600
<v Speaker 3>it's not complicated paperwork for most you know, residential real

0:14:35.680 --> 0:14:38.320
<v Speaker 3>estate transactions. And I do think it's very costly to

0:14:38.360 --> 0:14:41.880
<v Speaker 3>get a bad realtor because again, these are ones that

0:14:41.960 --> 0:14:46.400
<v Speaker 3>are especially unlikely to understand the risks of the home.

0:14:46.920 --> 0:14:49.320
<v Speaker 3>The home ownership is really really risky, and I think

0:14:49.320 --> 0:14:53.240
<v Speaker 3>people underestimate that, maybe especially with recency bias. You know,

0:14:53.280 --> 0:14:55.280
<v Speaker 3>you if you bought a home in the last five years,

0:14:55.280 --> 0:14:58.760
<v Speaker 3>you've done phenomenally well, and people somehow have forgotten what

0:14:58.840 --> 0:15:00.600
<v Speaker 3>happened if you bought a home in two and five

0:15:00.680 --> 0:15:03.720
<v Speaker 3>in Florida. So home prices do go down, and individual

0:15:03.800 --> 0:15:07.480
<v Speaker 3>homes often have you know, every home has defects. But

0:15:07.480 --> 0:15:09.520
<v Speaker 3>what does it take to be a realtor? In most

0:15:09.520 --> 0:15:12.320
<v Speaker 3>states you have to have a college degree in some field,

0:15:12.720 --> 0:15:15.760
<v Speaker 3>some sort of college degree, and either you know, somewhere

0:15:15.760 --> 0:15:19.520
<v Speaker 3>between fifty seventy maybe even one hundred hours of online training.

0:15:19.560 --> 0:15:23.120
<v Speaker 3>But half the online trading tends to be like propaganda

0:15:23.200 --> 0:15:27.360
<v Speaker 3>for the National Association of Realtors on why it's terrible

0:15:27.400 --> 0:15:31.120
<v Speaker 3>to work without a realtor. You know. So, I do

0:15:31.160 --> 0:15:33.840
<v Speaker 3>think there are nuances of buying a home and it

0:15:34.240 --> 0:15:37.320
<v Speaker 3>seems scary, I think, especially for first time home buyers.

0:15:37.400 --> 0:15:39.040
<v Speaker 3>Right there's this huge sense of like what if it

0:15:39.080 --> 0:15:41.920
<v Speaker 3>goes down? And what if I miss like a leak

0:15:41.920 --> 0:15:43.960
<v Speaker 3>in the ceiling and there's you know, I think when

0:15:44.000 --> 0:15:46.280
<v Speaker 3>you've done it a few times, you're like, oh, yeah,

0:15:46.320 --> 0:15:47.720
<v Speaker 3>old houses have leaks.

0:15:47.480 --> 0:15:50.000
<v Speaker 2>Old houses like you tell me about it.

0:15:50.480 --> 0:15:52.720
<v Speaker 3>That is just part of the deal. That there's a

0:15:52.720 --> 0:15:54.880
<v Speaker 3>lot of maidens costs that you won't foresee. But it

0:15:54.960 --> 0:15:57.760
<v Speaker 3>is scary, and I do think there are some downside

0:15:57.840 --> 0:16:02.080
<v Speaker 3>risks that working with a realtor. You know, a good

0:16:02.120 --> 0:16:06.120
<v Speaker 3>realtor can help with, and good realtors also you know,

0:16:06.160 --> 0:16:09.000
<v Speaker 3>they view their customers more as sort of a long

0:16:09.080 --> 0:16:11.440
<v Speaker 3>term relationship, and they know they're going to get business

0:16:11.440 --> 0:16:12.840
<v Speaker 3>from word of mouth, and they'll help you with a

0:16:12.880 --> 0:16:15.920
<v Speaker 3>lot of little things. But what I would say, Tracy

0:16:16.160 --> 0:16:18.560
<v Speaker 3>is it's not hard to get your realtor's license. That

0:16:18.720 --> 0:16:21.520
<v Speaker 3>is a true statement. How hard it is? Does Ella

0:16:21.600 --> 0:16:24.480
<v Speaker 3>house that or by a has that? That is a

0:16:24.520 --> 0:16:27.840
<v Speaker 3>sort of It varies by agent, and it varies by

0:16:27.880 --> 0:16:29.080
<v Speaker 3>individual consumer as well.

0:16:29.280 --> 0:16:31.560
<v Speaker 1>So I want to talk more about why it is

0:16:31.600 --> 0:16:34.680
<v Speaker 1>that the rise of sites like Zillow, redfin etc. Haven't

0:16:34.800 --> 0:16:38.280
<v Speaker 1>actually had the effect of cutting out the brokers who

0:16:38.360 --> 0:16:40.120
<v Speaker 1>make a lot of money. But before we do, can

0:16:40.160 --> 0:16:43.400
<v Speaker 1>we just talk about for a minute the specifics of

0:16:43.440 --> 0:16:48.480
<v Speaker 1>the Sitzer Burnett claim. What was actually alleged here in

0:16:48.560 --> 0:16:52.880
<v Speaker 1>terms of what the plaintiffs deemed to be anti competitive

0:16:52.920 --> 0:16:55.600
<v Speaker 1>or unfair about how the market is structured. And I

0:16:55.680 --> 0:16:58.960
<v Speaker 1>think also a couple of the brokerages had already settled

0:16:59.000 --> 0:17:01.200
<v Speaker 1>out of court and word of affected. But just walk

0:17:01.280 --> 0:17:04.760
<v Speaker 1>those through. Well, really this was about yeah.

0:17:04.560 --> 0:17:08.800
<v Speaker 3>So this is a group of individual home sellers, Okay, okay,

0:17:09.000 --> 0:17:10.280
<v Speaker 3>and what they are alleging.

0:17:10.359 --> 0:17:13.120
<v Speaker 2>Can I just tack on I don't understand why damages

0:17:13.160 --> 0:17:16.000
<v Speaker 2>were awarded just to the sellers and not to the

0:17:16.040 --> 0:17:18.560
<v Speaker 2>buyers as well. Who would be I mean, they're paying

0:17:18.600 --> 0:17:21.240
<v Speaker 2>the sellers by paying for the house, and the cost

0:17:21.280 --> 0:17:22.920
<v Speaker 2>is incorporated in the purchase price.

0:17:23.920 --> 0:17:25.840
<v Speaker 3>Yeah, so it's a good question. The buyers were not

0:17:25.880 --> 0:17:28.119
<v Speaker 3>part of the suit, right, So this is a class

0:17:28.160 --> 0:17:30.440
<v Speaker 3>action suit and the buyers are not part of the

0:17:30.480 --> 0:17:32.480
<v Speaker 3>party to suit, so I think they don't have standing,

0:17:32.560 --> 0:17:36.159
<v Speaker 3>if Tracy, that would be my understanding. And technically, in

0:17:36.240 --> 0:17:38.720
<v Speaker 3>terms of the actual bikiniary cost, it is sellers that

0:17:38.760 --> 0:17:41.919
<v Speaker 3>are paying it. You're right, who actually paid for the

0:17:42.119 --> 0:17:44.879
<v Speaker 3>higher house price to compensate the sellers? It's the buyers, right,

0:17:44.920 --> 0:17:46.160
<v Speaker 3>They're not party to the suit.

0:17:46.200 --> 0:17:48.640
<v Speaker 2>As far as I understand, I feel more class action

0:17:48.840 --> 0:17:50.919
<v Speaker 2>lawsuits might be coming. I'm bad to.

0:17:51.000 --> 0:17:54.480
<v Speaker 3>Buyers, yeah, I mean, I'm actually really happy these It's

0:17:54.600 --> 0:17:57.520
<v Speaker 3>hard to imagine spending this much time on a case,

0:17:57.720 --> 0:18:01.000
<v Speaker 3>right when it's twenty thirty thousand or something. It's not

0:18:01.080 --> 0:18:03.240
<v Speaker 3>a huge amount of money, and it's a lot of

0:18:03.280 --> 0:18:06.080
<v Speaker 3>time in the seller's lives. But what they're saying is

0:18:06.080 --> 0:18:08.720
<v Speaker 3>they're claiming it's a restraint of trade. It's a collusion

0:18:09.040 --> 0:18:14.760
<v Speaker 3>to set the price specifically for the buyer's commission, so

0:18:14.800 --> 0:18:17.040
<v Speaker 3>the senses you can negotiate over the overall, you know,

0:18:17.119 --> 0:18:19.560
<v Speaker 3>five or six percent, there's not a ton of negotiating

0:18:19.600 --> 0:18:23.160
<v Speaker 3>room because oftentimes, because again this propaganda and the realtor's course,

0:18:23.200 --> 0:18:24.720
<v Speaker 3>they'll say, no, I'm not going to even take it

0:18:24.760 --> 0:18:28.040
<v Speaker 3>if it's a three percent commission overall, Like that's how

0:18:28.080 --> 0:18:31.640
<v Speaker 3>they're sort of taught. But it's specifically. We haven't heard

0:18:31.640 --> 0:18:35.360
<v Speaker 3>what the remedies are, and I'm excited to see what

0:18:35.400 --> 0:18:38.520
<v Speaker 3>the court comes up with with the remedies, but my

0:18:38.720 --> 0:18:41.160
<v Speaker 3>guess is they're no longer going to be able to

0:18:41.280 --> 0:18:44.520
<v Speaker 3>mandate in the listing agreements. So basically the deal what

0:18:44.560 --> 0:18:47.600
<v Speaker 3>these home sellers were faced with was if I want

0:18:47.640 --> 0:18:49.560
<v Speaker 3>to work with a realtor, and the only way you

0:18:49.600 --> 0:18:51.919
<v Speaker 3>get your house on the multiple listing service is you

0:18:51.960 --> 0:18:54.240
<v Speaker 3>work with a realtor. That's sort of a requirement to

0:18:54.320 --> 0:18:56.840
<v Speaker 3>get your house. So if you can't get your house

0:18:56.840 --> 0:18:58.200
<v Speaker 3>on the multiple, so this is your key.

0:18:58.480 --> 0:19:01.480
<v Speaker 1>You just as explain this the role of the multiple

0:19:01.520 --> 0:19:03.920
<v Speaker 1>listing services within the market infrastructure.

0:19:04.440 --> 0:19:08.520
<v Speaker 3>It's almost impossible to sell a house without I don't

0:19:08.520 --> 0:19:10.960
<v Speaker 3>want to say impossible, but you'd be taking a huge

0:19:10.960 --> 0:19:14.480
<v Speaker 3>discount because buyers won't even see your house even when

0:19:14.520 --> 0:19:17.400
<v Speaker 3>you go to Zillow or redfin or some of these.

0:19:17.400 --> 0:19:20.400
<v Speaker 3>So Zilo does have a for sale by buyer option,

0:19:21.240 --> 0:19:23.520
<v Speaker 3>but it's actually shown differently if you look at the

0:19:23.560 --> 0:19:27.639
<v Speaker 3>fine print, it's actually shown differently than any contract that

0:19:27.720 --> 0:19:30.399
<v Speaker 3>is on the multiple listings. So this is basically information

0:19:30.480 --> 0:19:34.040
<v Speaker 3>that realtors share with one another. In disclosure states, which

0:19:34.040 --> 0:19:36.359
<v Speaker 3>is the majority of US states, you can see the

0:19:36.359 --> 0:19:39.159
<v Speaker 3>transaction prices and you can see the listing prices, and

0:19:39.200 --> 0:19:42.480
<v Speaker 3>that is a matter of public record. It's actually harder

0:19:42.560 --> 0:19:45.840
<v Speaker 3>in states like the one I'm in in Utah or Texas,

0:19:45.920 --> 0:19:48.159
<v Speaker 3>some of these other what we call it non disclosure states.

0:19:48.800 --> 0:19:52.960
<v Speaker 3>In non disclosure states, sales prices of real estate are

0:19:53.000 --> 0:19:56.199
<v Speaker 3>not a matter of public record. What that means is

0:19:56.200 --> 0:19:59.639
<v Speaker 3>that the only people that have access to that information

0:20:00.240 --> 0:20:03.159
<v Speaker 3>are realtors through the multiple listing service. So it's not

0:20:03.200 --> 0:20:05.240
<v Speaker 3>a matter of public record. What's on the MLS is

0:20:05.320 --> 0:20:09.520
<v Speaker 3>not public record. And so part of the reason that

0:20:09.640 --> 0:20:14.040
<v Speaker 3>realtors in states like Utah and Texas have resisted going

0:20:14.080 --> 0:20:17.560
<v Speaker 3>to a disclosure regime is that it takes away their

0:20:17.600 --> 0:20:20.640
<v Speaker 3>informational advantage, if that makes sense. So right now, even

0:20:20.640 --> 0:20:24.480
<v Speaker 3>if I could hire a realtor piecemeal to either sell

0:20:24.560 --> 0:20:26.000
<v Speaker 3>or buy a house so I didn't have to pay

0:20:26.000 --> 0:20:29.440
<v Speaker 3>it through this commission structure, it still make it pretty

0:20:29.480 --> 0:20:33.240
<v Speaker 3>difficult for me, as an individual buyer seller to figure

0:20:33.240 --> 0:20:36.399
<v Speaker 3>out the fair market value of my house either that

0:20:36.400 --> 0:20:39.719
<v Speaker 3>I'm buying or selling, because I don't have the information,

0:20:40.240 --> 0:20:42.960
<v Speaker 3>but the realtors do through the MLS.

0:20:43.440 --> 0:20:47.200
<v Speaker 2>Got it. So there's obviously been a lot of reaction

0:20:47.680 --> 0:20:51.480
<v Speaker 2>to this decision on the case, and I've seen so

0:20:51.640 --> 0:20:55.960
<v Speaker 2>many commentary pieces about what this means for realtors for

0:20:56.080 --> 0:20:59.440
<v Speaker 2>the housing market in general. And I suppose you could

0:20:59.440 --> 0:21:03.720
<v Speaker 2>summit all up by nothing good for realtors, but a

0:21:03.760 --> 0:21:06.640
<v Speaker 2>lot of it seems to be going in various directions.

0:21:06.640 --> 0:21:09.439
<v Speaker 2>So why don't I just ask you the top line question?

0:21:09.600 --> 0:21:13.840
<v Speaker 2>But what does this mean for the real estate broker industry?

0:21:14.359 --> 0:21:17.479
<v Speaker 3>So it's a good question. My hope would be is

0:21:17.520 --> 0:21:19.960
<v Speaker 3>that it forces out some of these very part time

0:21:20.000 --> 0:21:22.800
<v Speaker 3>realtors that do a couple transactions a year that I

0:21:22.840 --> 0:21:28.240
<v Speaker 3>think are really not helping home buyers or sellers, because

0:21:28.280 --> 0:21:30.320
<v Speaker 3>I think those folks are just sort of waiting for

0:21:30.440 --> 0:21:32.480
<v Speaker 3>good luck, a windfall. That's how they can stay in

0:21:32.480 --> 0:21:34.399
<v Speaker 3>the industry even though they're not they don't have a

0:21:34.400 --> 0:21:37.920
<v Speaker 3>ton of expertise. I do think you'll see commissions come down,

0:21:37.960 --> 0:21:41.720
<v Speaker 3>and I hope you'll see more piecemeal services. The other

0:21:41.920 --> 0:21:45.480
<v Speaker 3>thing I suspect we really need to know what the

0:21:45.560 --> 0:21:49.439
<v Speaker 3>court decrees as remedies, because that's what we haven't seen yet.

0:21:49.600 --> 0:21:53.280
<v Speaker 3>The hope is that the remedies will be you cannot

0:21:53.440 --> 0:21:56.639
<v Speaker 3>it cannot be the seller that's compensating the buyer's agent,

0:21:56.720 --> 0:21:59.280
<v Speaker 3>at least not as a commission. People do have worries

0:21:59.359 --> 0:22:01.960
<v Speaker 3>about that, butarticularly for first time home buyers who are

0:22:02.280 --> 0:22:05.440
<v Speaker 3>credit constrained, right, they have limited cash, and asking them

0:22:05.440 --> 0:22:07.720
<v Speaker 3>to come up with another ten or fifteen or even

0:22:07.760 --> 0:22:11.240
<v Speaker 3>twenty thousand dollars to compensate a broker, that's hard. But

0:22:11.359 --> 0:22:13.760
<v Speaker 3>that I suspect is going to be the remedy because

0:22:13.760 --> 0:22:17.520
<v Speaker 3>the particularly anti competitive part of the case that the

0:22:17.560 --> 0:22:21.840
<v Speaker 3>allegations are that you're setting the price in advance with

0:22:21.920 --> 0:22:24.440
<v Speaker 3>no opportunity for the buyer and negotiate. Right.

0:22:24.680 --> 0:22:26.919
<v Speaker 2>So, just on this note, I mean, could the National

0:22:26.960 --> 0:22:31.320
<v Speaker 2>Association of Realtors agree to some sort of settlement where

0:22:31.320 --> 0:22:33.840
<v Speaker 2>they do decide to make some changes.

0:22:34.560 --> 0:22:36.280
<v Speaker 3>Yeah, they've said they're going to fight it, right, so

0:22:36.320 --> 0:22:39.480
<v Speaker 3>they're going to appeal. They're appealing. I'm interested to see

0:22:39.480 --> 0:22:41.800
<v Speaker 3>what's in that appeal. They could settle, but I suspect

0:22:41.840 --> 0:22:45.360
<v Speaker 3>what they're going to claim is that these laws are

0:22:45.480 --> 0:22:48.000
<v Speaker 3>largely set at the state level, and they're going to

0:22:48.000 --> 0:22:49.800
<v Speaker 3>say it has nothing to do with the National Association

0:22:49.880 --> 0:22:52.240
<v Speaker 3>of Furnitures. I don't know this for a fact. I'm

0:22:52.240 --> 0:22:55.320
<v Speaker 3>speculating the CORE has been asked to come up with

0:22:55.400 --> 0:22:58.720
<v Speaker 3>remedies specifically, and so the settlement doesn't really deal with

0:22:58.760 --> 0:23:03.680
<v Speaker 3>the remedies unless NAR would agree to its various member organizations,

0:23:03.720 --> 0:23:06.399
<v Speaker 3>these state level realtor's boards. You know, that might be

0:23:06.440 --> 0:23:08.959
<v Speaker 3>an option, but we have to see remedies. We have

0:23:09.040 --> 0:23:10.720
<v Speaker 3>to see we are no longer going to engage in

0:23:10.760 --> 0:23:15.320
<v Speaker 3>this practice that has been identified as restraint of trade.

0:23:15.520 --> 0:23:17.640
<v Speaker 2>And then the other thing I was wondering, just from

0:23:17.680 --> 0:23:21.320
<v Speaker 2>a legal strategy perspective, but you know, there are multiple

0:23:21.480 --> 0:23:26.359
<v Speaker 2>brokers involved in multiple lawsuits at this point. Could you

0:23:26.440 --> 0:23:29.800
<v Speaker 2>start to see some sort of like fracturing of the

0:23:29.840 --> 0:23:34.639
<v Speaker 2>industry where individual companies try to argue that they're not

0:23:34.920 --> 0:23:39.840
<v Speaker 2>like the other brokerages that are price fixing that you know,

0:23:39.920 --> 0:23:42.840
<v Speaker 2>maybe they deserve a carve out from some of these

0:23:42.920 --> 0:23:45.320
<v Speaker 2>lawsuits or something like that. Could you kind of see

0:23:45.640 --> 0:23:47.680
<v Speaker 2>intra industry fighting.

0:23:48.040 --> 0:23:52.120
<v Speaker 3>I doubt it, with the exception of some of these

0:23:52.160 --> 0:23:55.400
<v Speaker 3>flat raid or you know, low commission services, and those

0:23:55.440 --> 0:23:57.480
<v Speaker 3>do exist, and you have seen more of those pop

0:23:57.560 --> 0:24:00.199
<v Speaker 3>up in the last ten years or so. Again, some

0:24:00.280 --> 0:24:05.159
<v Speaker 3>states make it feasible in some states try to extinguish

0:24:05.160 --> 0:24:09.119
<v Speaker 3>this business model. I think anybody who's operating on this

0:24:09.359 --> 0:24:15.120
<v Speaker 3>structure where the buyer's agents compensated explicitly in the listic agreement,

0:24:15.280 --> 0:24:17.800
<v Speaker 3>I can't see that surviving. And so I think if

0:24:17.800 --> 0:24:20.000
<v Speaker 3>that's your business model, which is the business model of

0:24:20.040 --> 0:24:24.440
<v Speaker 3>the vast majority of these large brokerages, I cannot see

0:24:24.440 --> 0:24:27.600
<v Speaker 3>how they could claim they're doing something fundamentally different.

0:24:42.760 --> 0:24:45.840
<v Speaker 1>One reason why there's a lot of anxiety and concern

0:24:45.920 --> 0:24:47.879
<v Speaker 1>and interest in the space right now is because the

0:24:47.920 --> 0:24:51.040
<v Speaker 1>housing affordability problem. We've been talking about it on the

0:24:51.040 --> 0:24:55.240
<v Speaker 1>show a lot. By some measures, the least affordable housing market. Ever,

0:24:55.840 --> 0:24:58.199
<v Speaker 1>I don't know, just to put on your sort of

0:24:58.440 --> 0:25:01.720
<v Speaker 1>academic professor of fine nance hat for a second. You know,

0:25:01.760 --> 0:25:04.360
<v Speaker 1>if you take out the broker, do houses actually get

0:25:04.400 --> 0:25:08.400
<v Speaker 1>cheaper or does it just mean that the seller pockets

0:25:08.440 --> 0:25:10.520
<v Speaker 1>more of the money. If I see a house that's

0:25:10.560 --> 0:25:14.520
<v Speaker 1>listed for a million dollars and we take out six percent,

0:25:14.560 --> 0:25:17.520
<v Speaker 1>I guess that's take out sixty thousand. Does that mean

0:25:17.600 --> 0:25:19.760
<v Speaker 1>that if that goes away, maybe it goes down to

0:25:19.800 --> 0:25:22.240
<v Speaker 1>twenty thousand. Does that mean that the house gets forty

0:25:22.280 --> 0:25:24.159
<v Speaker 1>thousand dollars cheaper or does it just mean that the

0:25:24.200 --> 0:25:26.520
<v Speaker 1>seller walks away with forty thousand dollars more.

0:25:27.200 --> 0:25:29.120
<v Speaker 3>I think it's a little bit of both. It's forty

0:25:29.160 --> 0:25:33.479
<v Speaker 3>thousand dollars that was previously going to the agents, and

0:25:33.560 --> 0:25:38.240
<v Speaker 3>hopefully that will be shared between the buyer in the

0:25:38.280 --> 0:25:41.960
<v Speaker 3>form of a lower home price and the seller. And

0:25:42.400 --> 0:25:45.159
<v Speaker 3>you know what weights is it fifty to fifty? It

0:25:45.240 --> 0:25:47.720
<v Speaker 3>kind of depends a little bit on the market right now,

0:25:48.000 --> 0:25:49.919
<v Speaker 3>you know, it's it's not a great time to be

0:25:49.920 --> 0:25:52.879
<v Speaker 3>a seller. So I suspect that the potential buyers that

0:25:52.920 --> 0:25:56.720
<v Speaker 3>are willing to buy existing homes rather than new construction,

0:25:57.359 --> 0:25:59.480
<v Speaker 3>I suspect that the buyer's wait a little bit more,

0:25:59.520 --> 0:26:01.800
<v Speaker 3>so you will a little more softening at home prices.

0:26:02.200 --> 0:26:04.720
<v Speaker 3>So it's a little bit of both. Right, it's surplus

0:26:04.760 --> 0:26:07.959
<v Speaker 3>that is now available to be shared between the buyer

0:26:08.400 --> 0:26:08.960
<v Speaker 3>and the seller.

0:26:09.920 --> 0:26:13.919
<v Speaker 2>How does the US commission system and the rates, the

0:26:13.920 --> 0:26:16.360
<v Speaker 2>average rates that we're paying five or six percent, how

0:26:16.400 --> 0:26:19.200
<v Speaker 2>do those stack up against other countries? Because I feel

0:26:19.240 --> 0:26:22.119
<v Speaker 2>like those sort of interracuntry comparisons are really useful in

0:26:22.160 --> 0:26:26.399
<v Speaker 2>helping us understand how unusual or different the American system

0:26:26.480 --> 0:26:26.840
<v Speaker 2>might be.

0:26:27.520 --> 0:26:31.040
<v Speaker 3>Absolutely, the US system is very unique. You don't see

0:26:31.040 --> 0:26:32.119
<v Speaker 3>this overseas.

0:26:32.400 --> 0:26:34.600
<v Speaker 2>American exceptionalism strikes again.

0:26:35.960 --> 0:26:39.960
<v Speaker 3>Yeah, you don't see this in Australia. You don't see

0:26:39.960 --> 0:26:41.880
<v Speaker 3>this in the UK, and the UK is like one

0:26:42.000 --> 0:26:44.960
<v Speaker 3>one and a half at most two percent, And so

0:26:45.040 --> 0:26:47.119
<v Speaker 3>you do have to ask what is it about the

0:26:47.280 --> 0:26:49.880
<v Speaker 3>US that is different? Because we largely have the same

0:26:49.920 --> 0:26:53.240
<v Speaker 3>legal structure, right, these are both sort of common law countries.

0:26:53.680 --> 0:26:58.000
<v Speaker 3>Property markets aren't that different, especially looking at Australia, and

0:26:58.040 --> 0:26:59.640
<v Speaker 3>so I do think you have to sort of say,

0:26:59.680 --> 0:27:03.480
<v Speaker 3>why are we special? Is there something that's especially difficult

0:27:03.520 --> 0:27:07.400
<v Speaker 3>and time consuming about buying and selling residential real estate

0:27:07.440 --> 0:27:09.359
<v Speaker 3>in US? And I think the answer is probably no.

0:27:10.040 --> 0:27:15.720
<v Speaker 1>Can you explain further the impediments that states or realtors

0:27:15.800 --> 0:27:20.879
<v Speaker 1>in those states put up to thwart alternative broker models,

0:27:20.920 --> 0:27:23.800
<v Speaker 1>because you mentioned, yes, some of these do actually exist,

0:27:23.800 --> 0:27:26.040
<v Speaker 1>and that there are companies that will remit part of

0:27:26.080 --> 0:27:29.080
<v Speaker 1>their the broker fe back to the buyer, et cetera,

0:27:29.160 --> 0:27:32.480
<v Speaker 1>but that the realtors put up roadblocks and make those

0:27:32.520 --> 0:27:34.920
<v Speaker 1>business models hard. What makes them.

0:27:34.840 --> 0:27:39.719
<v Speaker 3>Hard, I think that they sometimes almost will kind of

0:27:39.800 --> 0:27:42.960
<v Speaker 3>blacklist you or take away your license if you're operating

0:27:43.000 --> 0:27:46.800
<v Speaker 3>under certain business models. I don't know all the individual

0:27:47.000 --> 0:27:50.320
<v Speaker 3>states exactly, but I do know having bought a home

0:27:50.400 --> 0:27:53.720
<v Speaker 3>and let's see four states. Now, there's a lot of heterogeneity,

0:27:54.040 --> 0:27:58.120
<v Speaker 3>and i'd say that the non disclosure states are especially

0:27:58.240 --> 0:28:01.199
<v Speaker 3>challenging for these other business model. And part of the

0:28:01.320 --> 0:28:03.199
<v Speaker 3>value of a good realtor is that they have an

0:28:03.200 --> 0:28:06.720
<v Speaker 3>informational advantage. They're doing a lot of transactions, They're spending

0:28:06.760 --> 0:28:09.119
<v Speaker 3>a lot of time thinking about the market and learning

0:28:09.160 --> 0:28:11.440
<v Speaker 3>about what's on the market, and they may know off

0:28:11.480 --> 0:28:14.000
<v Speaker 3>market deals that haven't come to market yet and those

0:28:14.160 --> 0:28:16.359
<v Speaker 3>that's a huge value. So that's the sort of value

0:28:16.400 --> 0:28:19.280
<v Speaker 3>I think a good realtor can provide. Where I sort

0:28:19.320 --> 0:28:22.479
<v Speaker 3>of have more problems is when they're actually restricting who

0:28:22.520 --> 0:28:25.040
<v Speaker 3>has access to the information. They're not just using the

0:28:25.080 --> 0:28:29.000
<v Speaker 3>information they're gathering through having multiple deals. They're saying only

0:28:29.040 --> 0:28:32.040
<v Speaker 3>a licensed realtor kind of access to this information, and

0:28:32.080 --> 0:28:36.639
<v Speaker 3>they're putting up roadblocks, certainly to disclose this information. You know,

0:28:36.760 --> 0:28:39.440
<v Speaker 3>Zillow has sued multiple times trying to get access to

0:28:39.480 --> 0:28:43.320
<v Speaker 3>this information in non disclosure states. So I don't know exactly.

0:28:43.360 --> 0:28:45.760
<v Speaker 3>It's more through I think, threatening to lose your license

0:28:45.760 --> 0:28:48.840
<v Speaker 3>if you're not operating on a certain business model. You know.

0:28:48.880 --> 0:28:52.280
<v Speaker 2>When I think about the potential macro impacts of all

0:28:52.320 --> 0:28:55.960
<v Speaker 2>of this, obviously the effects on the residential real estate

0:28:56.000 --> 0:28:59.880
<v Speaker 2>market are a huge one given its size and position

0:29:00.040 --> 0:29:02.360
<v Speaker 2>in the US economy. But the other one I kind

0:29:02.400 --> 0:29:06.000
<v Speaker 2>of think about is just from a pure labor perspective,

0:29:06.080 --> 0:29:09.000
<v Speaker 2>because there are a lot of real estate brokers in

0:29:09.040 --> 0:29:12.640
<v Speaker 2>the US, and I think there's some disagreement about what

0:29:12.720 --> 0:29:16.680
<v Speaker 2>this might mean for those jobs. I've seen some people

0:29:17.600 --> 0:29:20.880
<v Speaker 2>arguing that, like, maybe it means if commissions are coming down,

0:29:20.920 --> 0:29:23.200
<v Speaker 2>you're not making as much money. Maybe it means more

0:29:23.240 --> 0:29:26.520
<v Speaker 2>people are doing it part time. You know, On the side,

0:29:26.560 --> 0:29:28.480
<v Speaker 2>it's a little bit of a bonus that you might

0:29:28.520 --> 0:29:32.200
<v Speaker 2>make in addition to your normal day job. But then

0:29:32.200 --> 0:29:34.800
<v Speaker 2>I've seen other people arguing that actually, this is going

0:29:34.880 --> 0:29:39.400
<v Speaker 2>to mean fewer part timers. Expertise, as you were mentioning before,

0:29:39.520 --> 0:29:42.640
<v Speaker 2>becomes more important and so you're going to see more

0:29:42.840 --> 0:29:46.320
<v Speaker 2>full time agents. So I'm curious where you land in

0:29:46.520 --> 0:29:47.280
<v Speaker 2>that discussion.

0:29:47.800 --> 0:29:51.000
<v Speaker 3>Yeah, it's a good question, and I don't know definitively,

0:29:51.080 --> 0:29:55.600
<v Speaker 3>but my I would lean towards fewer overall agents and

0:29:55.720 --> 0:29:59.360
<v Speaker 3>more full time agents because I think you're going to

0:29:59.400 --> 0:30:02.120
<v Speaker 3>want to do more volume of transactions, right, and you're

0:30:02.160 --> 0:30:04.400
<v Speaker 3>going to treat a little bit more like a commodity

0:30:04.960 --> 0:30:08.400
<v Speaker 3>because you can't be compensated, you know, these huge sums

0:30:08.440 --> 0:30:10.360
<v Speaker 3>of money. I mean, I don't think we're going to

0:30:10.400 --> 0:30:13.160
<v Speaker 3>get rid of the commission structure altogether. I do think

0:30:13.200 --> 0:30:15.800
<v Speaker 3>you'll see fewer part times because basically, those part time

0:30:15.840 --> 0:30:18.480
<v Speaker 3>agents that were selling one or two houses a year,

0:30:19.160 --> 0:30:21.320
<v Speaker 3>they were just waiting to kind of get lucky, right

0:30:21.840 --> 0:30:25.440
<v Speaker 3>that somebody would come to them. And now I suppose

0:30:25.480 --> 0:30:29.200
<v Speaker 3>the commission comes down to four percent between the seller

0:30:29.200 --> 0:30:31.200
<v Speaker 3>and the buyer. I'm just throwing out a number there

0:30:31.560 --> 0:30:33.400
<v Speaker 3>that mass starts to look worse.

0:30:34.480 --> 0:30:36.400
<v Speaker 1>You know, you mentioned I think you were a little

0:30:36.440 --> 0:30:40.600
<v Speaker 1>bit skeptical of the effect of buyers brokers or buyers

0:30:40.640 --> 0:30:44.920
<v Speaker 1>agents steering people to houses based on the percent that

0:30:44.960 --> 0:30:47.280
<v Speaker 1>you do think that there was a lot of action

0:30:47.400 --> 0:30:50.400
<v Speaker 1>towards steering people to the most expensive home that people

0:30:50.440 --> 0:30:53.680
<v Speaker 1>could afford. But why don't sellers' agents just say knocking

0:30:53.760 --> 0:30:56.440
<v Speaker 1>down to two percent or one percent? I mean, why

0:30:56.440 --> 0:30:58.040
<v Speaker 1>isn't there more competition on that?

0:30:58.120 --> 0:31:01.880
<v Speaker 3>And that is because I think it's that these agents

0:31:01.920 --> 0:31:05.840
<v Speaker 3>are instructed through their education to not accept something below

0:31:05.880 --> 0:31:08.680
<v Speaker 3>five percent of the overall listing agreement, Like that's the

0:31:08.720 --> 0:31:12.800
<v Speaker 3>sort of collusion, is that they're so pushed on for

0:31:12.840 --> 0:31:16.440
<v Speaker 3>that and it's so deeply ingrained in them. Yeah, whether

0:31:16.520 --> 0:31:21.200
<v Speaker 3>that will change going forward, I don't know, but I

0:31:21.200 --> 0:31:24.480
<v Speaker 3>think the education of realtors has to change. But that

0:31:24.920 --> 0:31:26.600
<v Speaker 3>is I don't think going to be part of the

0:31:26.600 --> 0:31:29.120
<v Speaker 3>remedies in this case. To be clear, I suspect the

0:31:29.120 --> 0:31:32.280
<v Speaker 3>remedies are going to be that you can't explicitly put

0:31:32.320 --> 0:31:33.600
<v Speaker 3>in the listing agreement.

0:31:33.240 --> 0:31:36.600
<v Speaker 1>Because technically speaking it can be won the seller's agent

0:31:36.680 --> 0:31:40.040
<v Speaker 1>could it could in the listing on the MLS that

0:31:40.080 --> 0:31:42.240
<v Speaker 1>it's one percent is just basically never done.

0:31:42.320 --> 0:31:45.320
<v Speaker 3>It's basically never done. That's right. There are companies that

0:31:45.440 --> 0:31:48.080
<v Speaker 3>do this that agree. I think redfin is one of

0:31:48.120 --> 0:31:52.160
<v Speaker 3>them that do do this. Why they can't operate in

0:31:52.200 --> 0:31:54.640
<v Speaker 3>a state like Utah, I'm not sure, but there are

0:31:54.720 --> 0:31:58.040
<v Speaker 3>companies operating in some states and it's a company wide position,

0:31:58.160 --> 0:32:00.360
<v Speaker 3>if that makes sense. You know the strain. Which thing

0:32:00.440 --> 0:32:03.040
<v Speaker 3>is you mentioned? Well, would you be worried as a

0:32:03.080 --> 0:32:06.240
<v Speaker 3>seller that no buyers agents would visit you? I think

0:32:06.280 --> 0:32:09.440
<v Speaker 3>that does go on, but I think increasingly with the

0:32:09.480 --> 0:32:14.240
<v Speaker 3>information that prospective buyers have, I'm not as concerned about

0:32:14.240 --> 0:32:17.000
<v Speaker 3>that as long as it's on the MLS, because I

0:32:17.040 --> 0:32:19.680
<v Speaker 3>can just tell my agent, like, take me to this house.

0:32:19.760 --> 0:32:21.800
<v Speaker 3>I saw it online. It has two bedrooms and one

0:32:21.840 --> 0:32:24.920
<v Speaker 3>and a half pass. I want to see this house, right, Yeah,

0:32:24.960 --> 0:32:27.280
<v Speaker 3>So I don't know. One concern I have is that

0:32:27.400 --> 0:32:30.480
<v Speaker 3>consumers perceive some authority on the part of their realtors

0:32:31.000 --> 0:32:33.320
<v Speaker 3>and they don't realize they're really the ones in control,

0:32:33.880 --> 0:32:35.600
<v Speaker 3>and so they can just say I want to get

0:32:35.640 --> 0:32:38.640
<v Speaker 3>into this place. I want you to you know. So, yeah,

0:32:38.640 --> 0:32:41.080
<v Speaker 3>but it does sound like that goes on. Is that, oh, well,

0:32:41.280 --> 0:32:44.000
<v Speaker 3>then the buyer's agent won't go there. I don't see

0:32:44.040 --> 0:32:47.080
<v Speaker 3>why it should go on given the information that most

0:32:47.080 --> 0:32:49.720
<v Speaker 3>home buyers have, except that they trust the expertise of

0:32:49.760 --> 0:32:50.600
<v Speaker 3>their realtor.

0:32:51.360 --> 0:32:53.479
<v Speaker 1>I just have one last question, which is, Okay, this

0:32:53.720 --> 0:32:57.480
<v Speaker 1>was a civil suit in Missouri, As you mentioned, there

0:32:57.480 --> 0:33:00.120
<v Speaker 1>are other suits. What would it take for this to

0:33:00.160 --> 0:33:03.600
<v Speaker 1>be a national change to the industry, because does this

0:33:03.760 --> 0:33:07.040
<v Speaker 1>just affect realtors in Missouri? What or how what is

0:33:07.080 --> 0:33:09.600
<v Speaker 1>the scope of the ruling.

0:33:10.200 --> 0:33:13.560
<v Speaker 3>I think it would affect as setting a precedent. So

0:33:13.600 --> 0:33:17.120
<v Speaker 3>it may be that the scope of that case in

0:33:17.160 --> 0:33:21.760
<v Speaker 3>particular is specifically Missouri. But then there's a precedent, ok right,

0:33:21.840 --> 0:33:24.080
<v Speaker 3>And so then I know in other states, Hey, the

0:33:24.160 --> 0:33:26.160
<v Speaker 3>legwork to get you know, maybe do we have to

0:33:26.160 --> 0:33:28.040
<v Speaker 3>do the same lawsuit? Fine, we got to do it,

0:33:28.080 --> 0:33:31.560
<v Speaker 3>but there's precedent got and if that precedent holds up,

0:33:31.680 --> 0:33:33.640
<v Speaker 3>it's not a big you know, you know, the realtors

0:33:33.720 --> 0:33:34.880
<v Speaker 3>might just say we're not going to do that because

0:33:34.880 --> 0:33:36.880
<v Speaker 3>we don't want to deal with this suit because it's

0:33:36.920 --> 0:33:37.520
<v Speaker 3>the precedent.

0:33:38.200 --> 0:33:41.040
<v Speaker 2>And then there's the Gibson case which has been filed

0:33:41.120 --> 0:33:43.760
<v Speaker 2>in Missouri, like the Sitzer Burnett case, but I think

0:33:43.800 --> 0:33:48.000
<v Speaker 2>that one is for national damages and I think I've

0:33:48.040 --> 0:33:50.640
<v Speaker 2>seen a number floating around there of up to two

0:33:50.760 --> 0:33:55.160
<v Speaker 2>hundred billion dollars in damages, which is pretty sizable. But

0:33:55.280 --> 0:33:58.680
<v Speaker 2>also to Andrew's point, if there's anything I know about

0:33:58.680 --> 0:34:02.240
<v Speaker 2>class action lawyers, it's that once there's precedent, there will

0:34:02.280 --> 0:34:03.400
<v Speaker 2>be more lawsuits.

0:34:03.680 --> 0:34:06.280
<v Speaker 1>Yeah, Andrew Gan, thank you so much. That was a

0:34:06.320 --> 0:34:10.239
<v Speaker 1>great explanation, and now I have some understanding of how

0:34:10.280 --> 0:34:13.480
<v Speaker 1>this market actually works. Really appreciate you coming on oddlocks.

0:34:13.680 --> 0:34:15.799
<v Speaker 3>Thank you so much for having me. Really appreciate the time.

0:34:15.880 --> 0:34:17.520
<v Speaker 2>Thanks Sandra Joe. That was fun.

0:34:29.880 --> 0:34:31.760
<v Speaker 1>You know what sort of blows in my mind tracing

0:34:32.120 --> 0:34:34.880
<v Speaker 1>that so many real estate sales are public and you

0:34:34.920 --> 0:34:36.720
<v Speaker 1>can just see the price people paid for their houses.

0:34:36.800 --> 0:34:38.240
<v Speaker 2>Oh yeah, it is pretty weird.

0:34:38.440 --> 0:34:40.440
<v Speaker 1>It's weird, right, I mean, you think it's sort of

0:34:40.440 --> 0:34:42.759
<v Speaker 1>a personal thing and people don't really know, but it's

0:34:42.800 --> 0:34:44.719
<v Speaker 1>all right there online. It takes about two seconds to

0:34:44.800 --> 0:34:47.120
<v Speaker 1>figure out how much almost anyone paid for their huse.

0:34:47.200 --> 0:34:47.359
<v Speaker 3>Yeah.

0:34:47.400 --> 0:34:51.960
<v Speaker 2>I find housing a weirdly opaque and transparent market. At

0:34:51.960 --> 0:34:54.600
<v Speaker 2>the same time, it's like there are all these things

0:34:54.840 --> 0:34:59.160
<v Speaker 2>embedded in the house purchase process, like the commission, which

0:34:59.200 --> 0:35:02.160
<v Speaker 2>you don't necessari see broken out, but then you can

0:35:02.200 --> 0:35:07.160
<v Speaker 2>see really sensitive numbers like the overall sales price. It's weird.

0:35:07.880 --> 0:35:11.560
<v Speaker 1>I remember as a kid when my parents bought a house.

0:35:11.600 --> 0:35:14.240
<v Speaker 1>I forget when or where, you know, going from house

0:35:14.280 --> 0:35:16.920
<v Speaker 1>to house to house to house in a drive and

0:35:17.000 --> 0:35:19.840
<v Speaker 1>maybe driving behind the realtor's car, going in the realtor's

0:35:19.880 --> 0:35:24.320
<v Speaker 1>car to all these different houses. It does seem crazy

0:35:24.400 --> 0:35:29.080
<v Speaker 1>to me that the commission structure hasn't changed much at all,

0:35:29.200 --> 0:35:34.520
<v Speaker 1>or if at all, despite the proliferation of these online marketplaces.

0:35:33.960 --> 0:35:37.680
<v Speaker 2>Now absolutely, because nowadays you can see a house online

0:35:37.920 --> 0:35:40.520
<v Speaker 2>on Zillow or something like that, and you just shoot

0:35:40.520 --> 0:35:43.080
<v Speaker 2>a little inquiry form over and you say I want

0:35:43.080 --> 0:35:45.719
<v Speaker 2>to see this house, and then someone lets you in

0:35:45.840 --> 0:35:49.040
<v Speaker 2>the front door. But that seems to be pretty much

0:35:49.040 --> 0:35:52.839
<v Speaker 2>the extent of realtor services sometimes, and I do think

0:35:53.000 --> 0:35:55.960
<v Speaker 2>Andrew touched on this, but I do think the argument

0:35:56.040 --> 0:35:59.680
<v Speaker 2>for unbundling more of those. So maybe you don't have

0:35:59.760 --> 0:36:03.640
<v Speaker 2>a buying agent, maybe you start to substitute a real

0:36:03.760 --> 0:36:06.240
<v Speaker 2>estate attorney for some of the things that a realtor

0:36:06.440 --> 0:36:11.160
<v Speaker 2>historically was doing. That seems like a possibility totally.

0:36:11.360 --> 0:36:14.200
<v Speaker 1>On one hand, it seems very intuitive to me that

0:36:14.920 --> 0:36:18.680
<v Speaker 1>just over time. Shouldn't there be more of these, maybe

0:36:18.680 --> 0:36:23.240
<v Speaker 1>discount brokerage models for real estate where you get remitted

0:36:23.280 --> 0:36:25.680
<v Speaker 1>back part of the three percent, just a flat fee,

0:36:26.040 --> 0:36:29.040
<v Speaker 1>pay by the hour, et cetera. But on the other hand,

0:36:29.760 --> 0:36:33.840
<v Speaker 1>as long as the fee is basically hidden to the buyer,

0:36:33.920 --> 0:36:35.520
<v Speaker 1>it's just part of the house price.

0:36:35.320 --> 0:36:37.279
<v Speaker 2>And you have no opportunity to negotiate it.

0:36:37.360 --> 0:36:40.000
<v Speaker 1>Yeah, and you have no opportunity, but also no real

0:36:40.080 --> 0:36:42.600
<v Speaker 1>reason too. It's like, oh, there's a million dollar house

0:36:42.680 --> 0:36:45.959
<v Speaker 1>for sale. I don't the buyer doesn't have to think

0:36:45.960 --> 0:36:48.800
<v Speaker 1>about the brokerage fee because it comes out of the cellar.

0:36:49.200 --> 0:36:53.560
<v Speaker 1>You could see a why alternative models don't just take

0:36:53.600 --> 0:36:56.319
<v Speaker 1>off because they're obviously appealing to the buyer who doesn't

0:36:56.320 --> 0:36:58.080
<v Speaker 1>even really think about the fee in the first place.

0:36:58.280 --> 0:37:01.200
<v Speaker 1>And b maybe that helps explain why the first lawsuits

0:37:01.239 --> 0:37:02.600
<v Speaker 1>came from the seller side.

0:37:02.760 --> 0:37:06.040
<v Speaker 2>Ah, that makes sense. And also, I mean this is

0:37:06.080 --> 0:37:09.719
<v Speaker 2>really a story of incentives, right, and the incentives that

0:37:10.000 --> 0:37:13.239
<v Speaker 2>the listing and the buying agents actually have. And I

0:37:13.280 --> 0:37:16.600
<v Speaker 2>think you can kind of also understand why, on the

0:37:16.600 --> 0:37:20.879
<v Speaker 2>one hand, this industry can appear to be competitive, like

0:37:21.040 --> 0:37:25.439
<v Speaker 2>the barriers to entry are probably not that high like, yes,

0:37:25.480 --> 0:37:27.399
<v Speaker 2>you need a college degree, but then you can take

0:37:27.760 --> 0:37:30.759
<v Speaker 2>a National Association of realchair's course and get your foot

0:37:30.760 --> 0:37:34.560
<v Speaker 2>in the door reasonably quickly. But on the other hand,

0:37:34.760 --> 0:37:39.040
<v Speaker 2>like the incentive to keep prices as high as possible,

0:37:39.640 --> 0:37:42.960
<v Speaker 2>it's there in a commission based system for obvious reasons,

0:37:43.600 --> 0:37:46.720
<v Speaker 2>and it does feel like in that sort of structure

0:37:46.760 --> 0:37:50.719
<v Speaker 2>you kind of need an external entity to affect change, right,

0:37:50.760 --> 0:37:53.319
<v Speaker 2>because otherwise no one is incentivized to do it, not

0:37:53.400 --> 0:37:57.719
<v Speaker 2>even the like new discount if you had discount brokerages

0:37:57.800 --> 0:37:58.560
<v Speaker 2>or something like that.

0:37:58.719 --> 0:38:03.040
<v Speaker 1>The existence of them uses themselves are really fascinating.

0:38:03.080 --> 0:38:05.120
<v Speaker 2>I know, I want to look at an MLS.

0:38:05.239 --> 0:38:07.319
<v Speaker 1>Yeah, they won't let you. There's no way. You can

0:38:07.560 --> 0:38:09.480
<v Speaker 1>get your real estate license then you can look at.

0:38:09.360 --> 0:38:11.840
<v Speaker 2>But no, it's like, okay, the one I will Joe.

0:38:12.000 --> 0:38:15.040
<v Speaker 1>On the one hand, it's market transparency. They're all there,

0:38:15.080 --> 0:38:17.920
<v Speaker 1>so that's good. On the other hand, only some people

0:38:18.000 --> 0:38:19.840
<v Speaker 1>can access it, and if you do access it, you

0:38:19.880 --> 0:38:24.160
<v Speaker 1>have to sort of basically enter into these byzantine commission structures.

0:38:24.440 --> 0:38:26.400
<v Speaker 1>Lots of stuff. They're related to market power.

0:38:26.560 --> 0:38:30.239
<v Speaker 2>Yeah, shout out to my realtor who fed our koyfish

0:38:30.360 --> 0:38:31.600
<v Speaker 2>until we could get to the house.

0:38:31.880 --> 0:38:34.040
<v Speaker 1>That's value. That's it's a value.

0:38:34.080 --> 0:38:36.719
<v Speaker 2>Add yeah, appreciate it all right? Shall we leave it there?

0:38:36.800 --> 0:38:37.560
<v Speaker 1>Let's leave it there.

0:38:37.880 --> 0:38:40.840
<v Speaker 2>This has been another episode of the All Thoughts podcast.

0:38:40.920 --> 0:38:44.240
<v Speaker 2>I'm Tracy Alloway. You can follow me at Tracy Alloway.

0:38:43.920 --> 0:38:46.800
<v Speaker 1>And I'm joll Wisenthal. You can follow me at the Stalwart.

0:38:46.960 --> 0:38:50.480
<v Speaker 1>Follow our producers Carmen Rodriguez at Carmen armand dash Ol

0:38:50.480 --> 0:38:54.680
<v Speaker 1>Bennett at Dashbot and kel Brooks at kel Brooks. For

0:38:54.760 --> 0:38:57.320
<v Speaker 1>more Odd Lots content, go to Bloomberg dot com slash

0:38:57.360 --> 0:39:01.040
<v Speaker 1>odd Lots, where we blog have transcripts and letter and

0:39:01.760 --> 0:39:04.279
<v Speaker 1>chat about this episode in the real estate room of

0:39:04.360 --> 0:39:09.239
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0:39:08.840 --> 0:39:11.480
<v Speaker 2>And if you enjoy odd Lots, if you like it

0:39:11.560 --> 0:39:13.800
<v Speaker 2>when we do deep dives into the structure of the

0:39:13.880 --> 0:39:17.000
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