Realtors reach settlement that will change how Americans buy and sell homes

https://www.wsj.com/real-estate/realtors-settlement-change-buy-sell-homes-da45eb23

by erehweb • 2 years ago

62 89 2 years ago

Does a settlement increase the chances of the status quo continuing?

djbusby• 2 years ago

Well, it (can) reduce commission fees and might make FSBO or un-assisted purchase easier. Which would change the status quo a bit.

But states have their own rules too, eg MA requires a real-estate attorney to be part of the process.

rcpt• 2 years ago

This is disappointing. I feel like the realtor cartel got off way too easy here

abeppu3• 2 years ago

I also find the realtor system to be poorly aligned with the best interests of their clients. But ... is it a cartel?

On the one hand, yes, brokering these transaction is limited to a specific group. But getting into that group seems not that hard, and lots of people do it.

jedberg6• 2 years ago

What makes it a cartel is their control over supply and demand. It's really hard to buy or sell a house without dealing with them, because inevitably one of the sides of the transactions has a contract with them, because of they way they require exclusivity.

noqc• 2 years ago

I bet you could sign up to be a drug mule with not that much effort.

MisterTea• 2 years ago

But getting into that group seems not that hard, and lots of people do it.

Getting in to the bottom floor, sure. Working your way up? Not so easy. Same for any other cartel like the mafia and so on.

malfist• 2 years ago

The MLS system they run certainly is a cartel. There's all kinds of rules that you have to play by that prevents competition if you want to be able to read MLS data.

whimsicalism6• 2 years ago

it’s a brokered market where the brokers collude. if it is not directly a cartel, it is very cartel resembling.

NAR was taught as a model case of broker collusion in my economics classes.

shepardrtc2• 2 years ago

Realtors are grifters these days. Getting paid 5 figures for a few days of busy work is an absolute scam.

Spooky23• 2 years ago

That’s the real issue. We’re capitalizing professional services at insane scale for little value.

Compensation isn’t in line with value, and the cartel nature of the business puts a lot of friction on the pricing.

This isn’t unique to real estate. A lot of sales guys are driving Porsches based on earnings of questionable value. The difference is your Oracle salesman doesn’t have a monopoly backed by state law on blowing hot air.

ohyes3• 2 years ago

A good sellers agent with experience will stage your home for sale to get you the maximum possible sale price. For sale by owner is definitely an option, but it’s kind of similar to being your own lawyer.

A good buyers agent won’t pressure you into any purchase and may end up showing you at least a dozen homes and can give you advice on bidding / actual value of the home, and can identify issues with the house before you’ve bid.

The key is that they’re prioritizing the long term network effects of being well recommended. Our buyers agent was great and I’d recommend her in a heartbeat. She definitely saved us from a couple of potential disasters, and from overbidding (likely saved us low six figures all things considered).

But obviously there are a lot of agents that prioritize turnover rather than actually helping you. You definitely have to either judge them carefully or get a positive recommendation from someone trustworthy.

pierat• 2 years ago

Well, yeah.

A real punishment would be destroying their business, returning money illegally gotten to individuals profited on, and opening up criminal proceedings on cartel and monopolization.

But no, here's your slap on the wrist. And they'll just make a 10x more convoluted plan that does the same.

Why is it allowed? Cause "they're too big to fail".

bilsbie2• 2 years ago

What are examples of outcomes that would be better?

xnx• 2 years ago

An under appreciated aspect of the "housing crisis" (define that however you want) is how illiquid the market is. A big factor in this is the 3-6% cost of each transaction. That's $11-23K for the median US house price of $387,600. Compare that to the $100 title transfer fee of a car. There would be a lot more housing transactions if it didn't cost the equivalent of a year's rent to do so.

tempsy3• 2 years ago

Are there really more transactions in other countries where the commission is much smaller?

I'm not sure that is really one of the main reasons why a seller decides to sell a home or not.

radlad• 2 years ago

Wouldn't lower fees encourage more frequent speculative trading of properties?

Most homeowners are not jumping houses every year or so.

smileysteve2• 2 years ago

Many speculators get their license specifically to avoid these fees; so the professional speculators can speculate for less marginal overhead than an individual that intends to live in the home.

whimsicalism6• 2 years ago

Most housing that is “speculated” on is still rented out. Encouraging price discovery lets us provide cheaper housing in areas of high demand before it becomes a major problem.

whimsicalism6• 2 years ago

Debt financing has a lot more to do with illiquidity.

BenFranklin1003• 2 years ago

Three are two housing crises. The first is a market-rate housing crisis which is caused by government zoning that limits the construction of new homes and thus leads to supply shortages and high prices. Zoning reform will fix this crisis. The second housing crisis is one of people who can’t afford housing no matter the price. These people need govt assistance, preferably in the form of vouchers.

The transactional costs from realtor fees does reduce liquidity, but it is a secondary factor compared to zoning.

whimsicalism6• 2 years ago

More than just vouchers, these people need services provisioned in places other than those with the most expensive housing costs in the country.

The quality of services offered by NYC and SF to the homeless is unparalleled but it simply is not economical/borderline absurd to try to house them in the economic agglomeration centers of the US.

vladgur3• 2 years ago

From [1]

"The settlement includes many significant rule changes. It bans N.A.R. from establishing any sort of rules that would allow a seller’s agent to set compensation for a buyer’s agent, a practice that critics say has long led to “steering,” in which buyers’ agents direct their clients to pricier homes in a bid to collect a bigger commission check."

To me this reads that a transaction cost of selling a house will come down drastically from where its at now -- 6%.

[1] https://archive.is/1O8Mh

vladgur3• 2 years ago

P.S. I havent read the actual settlement, this NYTimes comment reads like buyers agents will now compete for their compensation, but it doesnt tell me if I would still have to pay 3% to the seller agent and whether that compensation will be open to market forces now

jedberg6• 2 years ago

A good real estate agent does add value.

A good sellers agent will know better than you how to prep your home for sale, how to market it, where to find qualified leads, what price to set it to, where to get contractors to make repairs, what kind of repairs are worth making, and when you get to the deal phase, how to negotiate and what paperwork is necessary, and how to deal with contingencies.

A good buyers agent will have deep knowledge of the neighborhood you're looking at (or can take your requirements and find you a good one), will have strong knowledge of the local schools, local demographics, local issues that can affect homeowners, what to look for in a home that could be a problem after purchase, red flags, and can help you negotiate the best deal and extract the most concessions from a seller.

But in both cases, I don't see why the value they provide changes based on the value of the home. Some of them might change based on the size of the home or property, but not the home value.

I don't see why we don't push for fixed fee based services, perhaps with an adjustment for local cost of living and size of the home/property? I know the Realtor cartel doesn't want that, but how can we citizens make that change happen?

onlyrealcuzzo2• 2 years ago

But in both cases, I don't see why the value they provide changes based on the value of the home.

In both cases, the value they provide is relative to the value of the house being transacted.

A seller's agent definitely makes sense to take some percentage of the purchase.

The services they render - for say a $20M home in the Beverly Hills - are completely different than when selling a $1M house in San Jose or a $200k condo in Chicago.

I disagree in how valuable buyer's agents are, though. The value they provide is mainly for people who are completely clueless about real estate - which I guess could be a lot of buyers.

vladgur3• 2 years ago

what are those differences in services and what prevents them from being itemized?

jedberg6• 2 years ago

In both cases, the value they provide is relative to the value of the house being transacted.

No, they do more for more expensive homes because they are harder to sell, but there is no reason "renting staging furniture" and "an extra open house with champagne and cookies" can't be itemized.

com2kid• 2 years ago

I disagree in how valuable buyer's agents are, though. The value they provide is mainly for people who are completely clueless about real estate - which I guess could be a lot of buyers.

When buying a house, I viewed around 100 houses with my agent, and he called in multiple specialists to answer various questions we had on different houses we took a look at. When it came time to buy he demonstrated excellent negotiating ability and after we had purchased he helped us prep our house for move in by recommending trusted people to do the work we wanted done.

He worked with us for over a year and he earned his commission.

jwjohnson314• 2 years ago

But where do you find a good agent? My experiences have been of sellers agents dramatically undervaluing my property hoping for a quick sale and buyers agents with none of the qualities you mention, just a desire to push me to buy at any price asap regardless of whether the property they are showing me is a decent fit or not. I have yet to experience any value added from an agent on either side of the transaction.

foobarian• 2 years ago

It's worse than that, how do you know it's a good agent without completing the transaction? It seems you pretty much need trusted word of mouth referral.

jedberg6• 2 years ago

But where do you find a good agent?

Word of mouth, or maybe Yelp reviews?

Nomadeon• 2 years ago

I had the luxury of time in my last move, which I used to go to a lot of open houses and talk to the attending realtor (which is not always the listing agent btw). Treat it like a behavioral interview and judge agreeableness and conscientiousness. Also, study basics of sales tactics so you know when they are being deployed on you. This will filter for honest, hardworking people in many situations.

marstall• 2 years ago

paying a percentage based fee gives me confidence that my agent's interests are aligned with mine. And I have two interests only. One, close a deal. Two, get the highest price.

One of the key things a realtor do is set the asking price. the higher they set it, the more work for them. of course i want it high, so i want them incented to make it as high as possible, and to push me to stage it properly, have knowledge of WHEN to sell and then CRUCIALLY help me evaluate competing offers. Because often the highest offer is a scam.

Its a wild world out there you absolutely need a seasoned professional in your corner, who knows your market, fighting for you.

ryandvm2• 2 years ago

Actually, do the math and you'll realize that a selling agent is incentivized to quickly take lower offers rather than hold out for higher offers. They more than make up the difference by increasing the volume of closings.

dalyons• 2 years ago

but with the run up in house prices, the percentage doesnt really do that anymore. For many areas in cali with a median > 1mil... The agent is getting 30k on your 1mil sale. If they push REALLY hard and get it to 1.1 mil, they get 3k extra, which is something, but not much extra incentive compared to the 30k.

What they are actually incentivized to do in expensive housing markets, is do the minimal possible effort per house, but sell more volume.

You could of course design a better incentive structure (fixed fee for median sale, tiered incentives for every % over that), and thats what i hope happens from these changes.

jedberg6• 2 years ago

When people have done studies, they have found real estate agents on average sell their own homes for 10% more than anyone else. Because think about it. If their commission is 3%, are they really gonna fight to sell for $350,000 in a week if they can sell it for $300,000 today and get a new client, when the difference to them is $1,500?

If they can get even one extra client per year for the other $9,000, it's much more worth it to do that than to hold out for a better offer.

tempsy3• 2 years ago

paying the seller's agent a percentage of the home sale makes sense still. it is more difficult to sell a very expensive home vs a cheaper one, so i wouldn't say at all the value they provide selling a $400k house vs a $4m one is the same.

it didn't make sense to pay the buyer's agent a percent of the home value which is what these lawsuits focused on. buyer's agent fees will most likely move to a fixed fee model.

khazhoux• 2 years ago

it is more difficult to sell a very expensive home vs a cheaper one

I don't know where you are, but in Bay Area this is not true. And even for mega-expensive homes that don't sell as fast, the agent can't really accelerate this much -- certainly not commensurate to the giant commission they receive.

bluGill• 2 years ago

How is a $100k house different from a $600k house. 4m is a different class of customer.

bradley13• 2 years ago

I absolutely agree that a good agent adds value. They are worth their commission.

The problem is: the vast majority of agents are useless. As seller agents, they cannot put together a decent portfolio, they know little or nothing about house construction and repair, and they will show the house to literally anyone - not just qualified and suitable buyers.

As buyers agents, they don't listen to your requirements. They show you what they want to sell, not what you want to buy. Plus the lack of knowledge mentioned above.

If commissions fall, maybe at least some of the incompetents will find something else to do...

voisin• 2 years ago

They are worth their commission.

It is really a big jump from “they add value” to “worth their commission”. When you see the amount of time and effort that goes into them adding value and compare to other parties that add value to a house, like trades building a new washroom or kitchen or garage for ballpark the same dollar values, and the effort required there, it shows how absurd the agent commission really is.

abeppu3• 2 years ago

red flags, can help you negotiate the best deal and extract the most concessions from a seller

... but under the current system, the buyer's agent is also incentivized to get the buyer to pay as much as possible, to maximize their commission.

I agree we should push for a fixed fee model, including if no sale occurs, because while the buyer agent _could_ add value in a lot of these ways, there is not always reason for them to do so today.

ohyes3• 2 years ago

But in both cases, I don't see why the value they provide changes based on the value of the home. Some of them might change based on the size of the home or property, but not the home value.

It’s pretty simple, more expensive homes are less liquid and take significantly longer to sell, because there are fewer people with deep enough pockets to buy them. This equates to more effort in actually finding a buyer. A $20 million dollar home may be on the market for years before it gets sold.

I’m guessing that if just one side of the deal was getting a % of the value, there would be a significant imbalance between the sellers and buyers agents, in terms of effort, which is something that you don’t want as a buyer.

nojvek2• 2 years ago

Seller’s agent sure. Buyer’s agent no so much. So far I have yet to find a buyer’s agent that is worth the price they are charging.

Happy to pay them a few $100 for offer writing.

But most have little ideas about neighborhoods, builds etc. you have to do soooooo much of your own diligence.

ryandvm2• 2 years ago

Couldn't have happened to a better rent seeker.

ChrisArchitect• 2 years ago

[dupe]

Some more discussion over here: https://news.ycombinator.com/item?id=39715511

EngCanMan• 2 years ago

The conflict of interest on a buyers real estate agent is crazy:

the person you are entrusting to get you the best value is compensated on the opposite.

blacksqr8• 2 years ago

I suppose at this point most people don't remember that in the 20th century the Multiple Listing Service was a private database that only registered agents could access. So your average buyer had to hire an agent just to get a good idea of what was on the market. The upside of this is that the MLS did a lot to make the housing market rational, with more accurate and consistent pricing. So a house became a better investment. A lot of people thought that was worth the commissions. YMMV.

In the early 2000's the NAR made a bet that they could make MLS listings accessible to the public via the internet and maintain their business model. For decades the bet paid off, and people got the convenience of being able to do their own real estate shopping. But time seems to have run out on the payoff.

The smart move for the NAR at this point would simply be to take the MLS private again. Then buyer's agents would have leverage to contract for a minimum commission regardless of what sellers were offering. If sellers decided to offer little to no buyer's agent commission, then a lot of deals would fall apart when buyers realized how much they'd have to cough up in cash to cover the buyer's commission at closing. The alternative would be either for sellers to offer competitive buyer's commissions, or for the buyer's and seller's agents to make a side deal to roll the buyer's commission into the mortgage financing agreement.

The net result would be the same as the current situation, less buyer's money going to the seller -- but instead of everyone seeing the commission numbers up front, the question of whether the buyers could actually afford the house would be pushed later into the deal process, more money would go to lawyers to sort things out, and more time wasted by all parties in busted deals.

If the DOJ forbids taking the MLS private, then the NAR would simply have no incentive to maintain it. Without it, I expect the market would revert to the previous wild-west status, where it would be much harder to value a house, and financing would be more difficult and time-consuming to arrange, with many deals falling apart amid such difficulties. If this scenario were to come to pass, I expect there would eventually be public clamor for a new deal that would be equivalent to the current arrangement, except for names and who referees.

The most interesting question in that scenario will be whether the new deal happens before or after a real estate market crash.

I have no idea what equivalent system if any there is be in Europe for fair and consistent pricing of houses, and listing of available units, and who pays for MLS equivalents, if they exist. I never hear that discussed in articles on this topic. I'd be interested to know more.

blacksqr8• 2 years ago

I did some searching to answer my own question about what happens in Europe, and found the following [0]:

---------------------------------------

Is there an MLS or other database of Paris apartments for sale?

The short answer: No.

The fragmented French market can make that a formidable task. The French real estate market does not operate through a Multiple Listing System, or MLS, with agents sharing all the listings of available properties (this is the system in most US markets). Rather, individual agencies only list their own properties. They can’t and won’t show you properties listed elsewhere, though sometimes properties are listed with more than one agency – which makes for even quicker sale, before you have a chance to make your move.

There are also a number of listing sites in France, each with their own property ads, each with their own search capabilities. Some agencies list on all of them, or one of them, or none of them, depending on how they choose to market the individual property. Many properties change hands without ever being publicly listed; many sellers choose not to work with agents at all.

Buyers intent on doing a comprehensive search must contact one agency after another, leaving their contact information and hoping for the best. Should you happen to walk in at the right time, you might be in luck. Good properties sell quickly, competition among buyers is fierce and agencies have no real incentive to maintain a relationship with you as a buyer.

Furthermore, France has the biggest private seller market in Europe: nearly half of the properties change hands without the use of a real estate agent. So even if you had first access to the properties listed in the 3500 real estate agencies in Paris, you would still not see all the properties on the market.

For a fairly good overview of what’s available on the market, there are a handful of major French-language listing sites worth a look. None of the sites are comprehensive, and in many cases they will have the same listings as the others. Since each site charges to list on their site, each real estate brokerage (or selling owner, if they are not using an agency to list their property) is faced with the decision as to which of the many different sites they should list their properties.

---------------------------------------

So as a nation, we're going to have to ask ourselves: is a system like the above preferable to what we have now?

[0] https://parispropertygroup.com/homes-for-sale-in-paris-franc...

Ekaros• 2 years ago

In Finland there is basically 2 big sites. Where most units are being sold and even rented.

https://oikotie.fi (159€ for private seller)

https://www.etuovi.com/ (149€ for private seller)

In addition each agency shows the available units on their sites. Then there are some in newspapers and I think there is some papers from some group of sellers.

Ofc, there are some private sellers on Facebook, and some local craigslist equivalents.

bilsbie2• 2 years ago

My rule of thumb is more information is better and gatekeepers are bad.

So I’ll pass on this.

blacksqr8• 2 years ago

more information is better

Agree.

gatekeepers are bad

Somebody has to pay to gather, store and present information in usable fashion in order for it to be of value. It doesn't just appear or self-assemble.

The alternative we face may be something like France: buyers pay in time, shoe leather and exclusion from opportunities what they would save in agent commissions.

esafak• 2 years ago

I don't understand why a company like Zillow wouldn't maintain this database?

blacksqr8• 2 years ago

Where do you think Zillow gets its listings?

They pay the MLS maintainers.

If the MLS didn't exist and we relied on private corporate sources of information, then it's likely the experience would be like in France: many competing listing services, none comprehensive.

yencabulator5• 2 years ago

The smart move for the NAR at this point would simply be to take the MLS private again.

I don't see that happening in a world with Zillow, Realtor.com, Redfin, ...

blacksqr8• 2 years ago

Zillow and Redfin get their listings from the MLS. Realtor.com is run by the NAR.

The practical effect of the MLS has been to rationalize and normalize real estate information across the market.

The downside is that people have gotten the impression that this information just appears. They may be surprised what effects the disappearance of the MLS may have on the market.

lostmsu• 2 years ago

I just sold my rather expensive house without hiring a seller agent. The most useful thing that brought buyers was using https://homecoin.com/ (not a crypto company) to make a flat $99 fee MLS listing. I got the buyer to cover their agent fee. People should just do the same - it is not that difficult.

Ajay-p• 2 years ago

This paragraph jumped out for me

It is possible that little changes for consumers in the near term because many sellers are used to including the cost of a buyer’s agent in their sale price. But over time, new brokerage business models could emerge that make it easier for buyers to choose low-cost options

"could" not "should" or will.

Except for a huge payout for the lawyers, I don't see how this ruling is going to affect home buyers, or sellers in the near future. There would have to be a law put in place, so going forward it's still an agreement between private parties to sell or buy a house.

I'm also troubled by what the Wall Street Journal claims is that this might push a lot of young realtors out of the career field. That can't be seen as a positive outcome.

Overall, I'm still unclear exactly how this is going to help anyone. Especially for the overwhelming majority of buyers and sellers who DON'T want to be their own agent, and want to hire the best realtor to do it for them. I remember when this first came out and lots of people on HN said I'll just be my own agent. Well, that's fine, but that's not an option for most people.

I think regardless there will still be plenty of realtors doing business, and they will still make bank.

ssharp• 2 years ago

This ruling helps eliminate incentives that prevented innovation in agent services. There was zero need to innovate because Realtor controlled the entire market and nobody wanted to give up the cash cow, even though the only people it was really good for was agents.

I'm also troubled by what the Wall Street Journal claims is that this might push a lot of young realtors out of the career field. That can't be seen as a positive outcome.

I guess that's one way to look at it. This was a service that provided very little value to the people needing the service but there was not really a feasible alternative. Sure some young people who find success in the field may no longer be able to but we shouldn't prop up nefarious businesses just to keep jobs going. Rather, what should be more likely to happen now is that young people will be able to move into this space and start out innovating the old practices, carve out a more impactful and scalable business model for themselves, and still do very well.

Overall, I'm still unclear exactly how this is going to help anyone. Especially for the overwhelming majority of buyers and sellers who DON'T want to be their own agent, and want to hire the best realtor to do it for them. I remember when this first came out and lots of people on HN said I'll just be my own agent. Well, that's fine, but that's not an option for most people.

This option will almost certainly still be available and will now cost less. If you ever want to hear someone spout of a truckload of B.S., just ask an agent why a 3% commission is justified on either end of the transaction. The value simply isn't there and it's a huge benefit that this initial hurdle has been toppled.

danaris• 2 years ago

I don't see how this ruling is going to affect home buyers, or sellers in the near future.

That seems obvious...?

Either the prices will drop, which benefits buyers (and, to some extent, increases the liquidity in the entire market), or they will not, which means the sellers get to keep more of the value of the home they sold (even if it's with the assistance of a seller's agent, it's still their home).

I'm also troubled by what the Wall Street Journal claims is that this might push a lot of young realtors out of the career field.

The WSJ has a very strong incentive to side with the entrenched wealthy interests here, and paint this as a bad thing.

Frankly, any realtor this pushes out of the field was likely only in it in the first place because they thought it would be easy money.

Overall, I'm still unclear exactly how this is going to help anyone.

That also seems obvious: home buyers and sellers will get the same agents as before (because it's not like the entire industry is going to dry up and blow away overnight, or be entirely replaced with worse agents), and have to pay less for the privilege of having access to the MLS (plus the other small services an agent offers).

I think regardless there will still be plenty of realtors doing business, and they will still make bank.

This seems to completely contradict your previous statement about people who want an agent.

neonate• 2 years ago

https://archive.ph/Kq5dE

nojvek2• 2 years ago

Wonderful news.

Real estate agent fees are ludicrous for the amount of work they do.

Efficient markets are better markets.

Realtors reach settlement that will change how Americans buy and sell homes

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