In this episode of the Structure Talk podcast, Ruben Saltzman and Tessa Murry are joined by Michael Bartus. They discuss the recent legal settlement involving the National Association of Realtors and its impact on the real estate industry. The conversation explores the challenges of navigating the new regulations and provides advice for buyers and sellers in this evolving landscape. The discussion covers topics such as the role of the National Association of Realtors (NAR) in setting commission rates, the potential changes in the industry, and the challenges faced by real estate agents. The conversation also touches on the importance of standard forms and the potential for alternative MLS systems to emerge. The hosts discuss the possibility of a sliding scale for commissions based on the price of the property and the potential impact of technology on the industry.
Check the links below for the following topics:
What the NAR Settlement Means for Home Buyers and Sellers:
(https://www.nar.realtor/the-facts/what-the-nar-settlement-means-for-home-buyers-and-sellers)
CAARE – Consumer Advocates in American Real Estate.. Empowering real estate consumers since 2008 (https://www.caare.org/)
Takeaways
The legal settlement requires real estate brokerages to separate the commissions paid by sellers and buyers.
Realtors need to educate themselves and their clients about the new regulations and negotiate compensation agreements.
Buyers and sellers should carefully review contracts and agreements to ensure they understand the terms and avoid potential pitfalls.
The real estate industry is experiencing significant changes, and it is important for all parties involved to adapt and communicate effectively. The antitrust lawsuit against NAR could lead to changes in the real estate industry and give buyers and sellers more power to negotiate commission rates.
The role of NAR in setting commission rates and controlling aspects of the real estate industry has been challenged by the lawsuit.
Alternative MLS systems may emerge as a result of the lawsuit, potentially leading to a more fragmented industry.
The conversation highlights the importance of standard forms and compliance in the real estate industry.
There is a discussion about the potential for a sliding scale for commissions based on the price of the property.
The impact of technology on the real estate industry is also explored, with the possibility of a shift towards online platforms and reduced reliance on traditional real estate agents.
Chapters
00:00 Introduction and Recap of Previous Episode
02:57 Discussion on the Legal Settlement and its Impact
04:13 Introduction of Guest and Past Topics
05:44 Explanation of the Legal Settlement
09:19 Challenges and Concerns Raised by the Settlement
13:49 Navigating the New Regulations
18:18 Advice for Buyers and Sellers
20:07 Clarification on Commission Arrangements
23:25 Additional Steps and Considerations for Realtors
23:58 Introduction to the antitrust lawsuit against NAR
26:15 The impact of the lawsuit on the real estate industry
28:09 The role of NAR in setting commission rates
29:06 The potential for alternative MLS systems
35:39 The possibility of sellers negotiating lower commissions
45:28 The influence of technology on the real estate industry
TRANSCRIPTION
The following is a transcription from an audio recording. Although the transcription is largely accurate, in some cases it may be slightly incomplete or contain minor inaccuracies due to inaudible passages or transcription errors.
Reuben Saltzman: Welcome to my house. Welcome to the Structure Talk Podcast, a production of structure tech home inspections. My name is Reuben Saltzman, I’m your host, alongside building science geek, Tessa Murry. We help home inspectors up their game through education, and we help homeowners to be better stewards of their houses. We’ve been keeping it real on this podcast since 2019, and we are also the number one home inspection podcast in the world, according to my mom. Welcome back to the Structure Talk Podcast. Tessa, great to see you. I had to record a show last week all by my lonesome, Tess.
Tessa Murry: I am so sorry I had to leave you Reuben and I was so excited about that topic and the guests that you had on, and I haven’t listened to it yet, but for anyone that missed it, you were talking about Stucco and the new technology with… I guess ways to paint it, is that correct?
RS: Yeah. Yeah. And, and it’s not even called a paint now. I don’t even remember what it’s called. [laughter] It’s like a concrete and masonry coating or something like that. But nowhere on the package does it say paint, but, yeah, really cool product. Check that out.
TM: Interesting.
RS: You have options. You don’t paint Stucco, but there is a way to make it look painted and the house looks bright and shiny and new. I had family over the other day for dinner and everybody was like, whoa, what did you do? It looks new. And I was like, yes.
TM: Yes.
RS: Thank goodness.
[laughter]
TM: That’s awesome.
RS: Glad somebody noticed ’cause it was a big project.
TM: Yeah. Cool.
RS: Alright, so welcome back Tess, glad to have you here.
TM: Thank you.
RS: It was a short show by the way. I didn’t… I don’t know when you’re on, you’ve just got better questions than I do. I had all the questions kind of laid out that I wanted to ask. We got through all the questions and I was like, alright, that’s a show. 23 minutes. [laughter] We’re done. [laughter]
TM: Well, you’re being kind, Reuben. I don’t know about better questions, but let’s just say more questions. I have a lot of questions.
RS: Yeah, yeah. You’ve got that good natural curiosity. Alright, so we got a guest today, but before we get into the show, I wanna give a shout out to our sponsors. IEB, Inspector Empire Builder. It’s a inspector coaching and consulting group, peer-to-peer group that we joined back in 2019. Tons of super helpful information. We have four in-person… No, excuse me, two in-person Masterminds every year, and then two all day remote masterminds every year. And I always get a ton of information from those, always look forward to them. And we got weekly coaching calls. We’ve got monthly specialized calls, a call maybe on your business financials, a call on growth, calls on all different types of things. Whatever you can imagine, we got it covered. So if you wanna learn more about them and you’re a home inspection company, check it out at… Well, we’ll have a little link in the show notes. I don’t need to call it out. So thank you to our sponsors.
RS: Without any further ado, today’s topic is a, this one’s been a long time coming. We heard about this big legal settlement involving the National Association of Realtors many months ago. It was earlier on in the year. And a lot of people have been talking about how this is going to change real estate forever. I’ve been reading news headlines saying, real estate’s never gonna be the same. This is, this is a big disruptor and get ready for big changes. And then I’ve heard other stories, I’ve heard from a lot of people in the real estate profession saying, it’s gonna, it’s gonna change. We’re gonna have another box we gotta check. There’s another form people gotta fill out. Man, that’s about it. Nobody’s really gonna notice a difference.
RS: So I’ve heard both sides of the spectrum. I have no idea what is gonna happen with these changes, but they have taken effect at this point. And Tess, I didn’t wanna have anybody on the podcast to speculate and postulate and say, well, this is what I think. I thought, let’s wait until it goes into effect and let’s chat with the professional after we’ve been in this for a little bit. So today, I got Michael Bartus on the show, friend of mine, he’s a realtor, he’s been at this for what… How Michael, how long have you been doing real estate? 50 years? 60 years?
Michael Bartus: So I’m 54 and I had my real estate license when I was 21.
RS: So I’m pretty close. Okay.
MB: Yeah, pretty close. But full time for about 20 years.
RS: Okay. Alright. Awesome. Welcome to the show, Michael. Michael’s a repeat guest. Can’t even remember what we’ve had him on the show to talk about in the past, but whatever it was, it was good stuff. He’s always got good insight.
MB: I’m sad you don’t remember, but I said, don’t buy a house. Remember that?
RS: Oh my gosh. Who could forget that one, Michael?
TM: Gosh, what year was that, Michael? You remember?
MB: Boy, that was like four or five years ago.
RS: That long? Oh my gosh.
TM: Back when you used… Right when COVID hit, maybe.
MB: Yeah, it was kinda around that time.
TM: Yeah.
MB: Yeah. So maybe three years ago. But I remember that. And then I also did, tips to buy and sell during winter.
RS: Yes.
TM: Ah. Wow. Okay.
RS: Excellent.
TM: I’m so glad to have you on Michael ’cause we have been talking about this, for a long time, Reuben and I. And so we’ve got a lot of questions for you. [laughter]
MB: Yeah, yeah. Awesome.
RS: But before we get into it, Michael, can you tee it up better than I did because I just, I mean I just glossed over it. For anybody who’s been living under a rock or just isn’t involved in real estate news, what happened? Tell us the story, Michael.
MB: Sure. And I’ll be honest, I’ve kind of had my head under the sand ’cause I wanted to wait to see if it actually happened, and the settlement did happen. So I’ve had to kind of scramble to get caught up to speed on everything, but the really kind of the gist of it is that, it was decided that real estate brokerages need to decouple their commissions. Meaning historically, sellers have paid buyers, agents or buyers’ brokerages commissions, and it’s been bundled together. So let’s just say a 7% commission was collected from a seller. It would be like 4% on the listing side, and then let’s say 3% to the buyer’s side, and then on the MLS it was advertised that the buyer agent would get that 3% commission. And that’s just the way it’s been for a really, really long time. It was determined that that violated antitrust, the Sherman Act.
MB: So, a large amount of brokerages out there have settled, and the National Area Association of Realtors have settled with these lawsuits, and there’s only been a handful of other larger brokerages that have not agreed to settle. And, we won’t get into that. But, it’s changed forms. It’s changed how us realtors are gonna interact with sellers and buyers, and we really need to treat buyers and sellers as two separate entities and more so now than ever.
TM: And can I ask you too, Michael, has it been kind of a standard to, in the real estate industry that there’s kind of a set fee or set commission that’s just been assumed and that’s usually like a, maybe a 6% or in your example you said 7% and is this lawsuit kind of changing that standard too?
MB: Yeah, it’s a great question. So it’s always, commission has always been negotiable, right? So if I were to meet with you guys and say, Hey, Tessa, you are looking to sell your home. You know what? You could sell your house yourself. You don’t need to use a realtor necessarily. You could use a flat rate brokerage that charges just a flat rate to sell your house and put you on the MLS. That’s different than a 6% or 7% commission. But the large brokerages in general, over time, have been anywhere from 5% to 7%. That’s just kind of the way it’s been. Just like in your industry, you probably have a general range of what is charged for an inspection.
TM: Yeah.
MB: So it’s always been negotiable. But what this lawsuit has kind of said is, you know what, you really didn’t make it negotiable. You kind of forced the hand of the seller to pay the buyer’s agent commission. So it’s kind of like, I’ve been trying to figure out, okay, how do I make sense of this outside of my industry or our industry? It’d be kind of like a plaintiff paying for a defendant’s court or legal fees.
TM: Yeah.
MB: Why would you pay someone to negotiate against me? Does that make sense?
RS: Yep. Yep.
MB: ‘Cause the seller is paying a buyer’s agent. Right? So why do I wanna pay you so you can beat me up on my sales price?
TM: Yeah, yeah. That doesn’t make any sense.
MB: That’s the lawsuit essentially, and it was deemed that real estate brokerages are overcharging people because of this. And that’s where everyone gets upset. I’ve been reading a lot online about, some of the attorneys involved in this, and then the realtors lashing out saying, well, what did you charge for the lawsuit? Did you guys charge 6% or did you have a 40% legal fee of the settlement. So is that overcharging people, you know? So it’s all what someone’s willing to pay and we probably, as realtors probably should have done a better job explaining some of these things to our clients, both on the buyer side and the selling side. But like we’ve had a crazy real estate market, right, over the last few years. And buyers don’t wanna lose out on houses.
MB: So things are moving really, really quickly. And maybe you don’t have all the time to explain to people every little word in a contract, which we should be doing and we should be setting down with people. But with the internet, it’s made everything so fast, with the real estate portals that we set our clients up with and being able to do digital documents and, I’m doing deals at 10 o’clock at night and people are half asleep, just to try to get them a house. But what these lawsuits are gonna do is it’s gonna really slow everything down, which I think is really good for the industry. People really should know what they’re doing, what they’re signing. And I can give some examples of, just something I ran into recently. I had someone call me on one of my listings, right? I’ve been hired by my seller to sell their house. Right?
MB: So if a buyer calls me off the internet or a sign and says, I wanna… Can I see your listing? Can I see your property? Of course you can. I’d love you to see it, I’d love to sell it ’cause my sellers want to sell. You maybe wanna buy. So let’s get you into that house right away. Okay. That’s the old mindset. Now I have to go, I have to say time out, Michael. Nope. You can’t quite do that. Now you need to explain a little bit more that they need to have a buyer representation agreement before I can show any house, including my own listing.
MB: So I call that person back and say, I know you don’t know me. I don’t know you either, but we need a buyer rep agreement in place before I can show you my listing. And it got so convoluted to try to explain this over the phone. They ended up not doing it and I didn’t show the house. So my sellers missed out on an opportunity to maybe sell their house. Now I don’t know if this was a plant, maybe it wasn’t really a buyer. I don’t know. I don’t know who this person was.
RS: Oh, someone just like testing you to make sure you’re following the rules.
MB: Yeah. I’ve heard that there’s federal agents in town that are posing as buyers to try to trip us realtors up, to make sure we’re doing our job with explaining agency and dual agency, and that you need a form ’cause there’s fines involved. You can, I don’t know all, all what the consequences are, but I believe it’s a thousand dollars fine, and then probably eventually losing your real estate license. So it’s not worth losing your license or paying a thousand dollars fine to have some random person call you to show the house. So the way around it, so this is the thing we as realtors are, we’re trying to get creative here with trying to work within the parameters of the industry. Well, I could have said, Hey, Mr. Buyer, it’s 10:00 AM right now. I’m gonna do a public open house today from noon to 1:00. And if you just wanna show up during that time, it’s open to the public and you can just kind of stroll right in.
RS: Yeah. Yeah.
MB: Now, I don’t need a buyer rep agreement in that situation, from what I understand.
RS: I was just gonna ask you about that exact thing to see if you could do that. Okay. Very creative.
MB: Yeah. So the loophole. So what I try to do is, if buyers do call me about properties, I will let them know like, Hey, there is a public open house. If you have a realtor, please let me know, whatever, I wanna respect those relationships. But hey, I’m having an open house this Sunday. If you happen to be in the area, why don’t you come there? And then you don’t have to worry about, signing a contract at this point.
RS: Yeah, yeah.
TM: So this, this extra documentation that’s required, it’s basically like an agreement that a potential buyer would have to have with the seller’s agent or with their agent, buyer’s agent.
MB: Yeah. So [chuckle], it’s a little tricky. So if you are a, let’s say Tess, you’re a buyer, and you want me to represent you in a transaction. I would recommend that you and I sit down and we talk about the paperwork together, but it’s completely negotiable how you and I work together. So if you’re more comfortable paying me an hourly rate of $150 an hour, we can negotiate that. If you wanna pay me a percent of the sale, you could do that like it’s normally. But it’s usually paid by the seller.
TM: Wow. Right.
MB: So there’s, it’s basically all negotiable.
TM: Wow.
MB: So everything’s negotiable now on the seller side and the buyer side. So, in a way it’s kind of fun, but it’s kind of the wild west. And so trying to navigate this, and I’m still navigating it. I don’t consider myself an expert. I just got this kind of dumped on me and I’m trying to figure it out too. So, you know what I’m saying hopefully is accurate. I’m still learning everything about it. But the bottom line is that we need to slow down. We need to talk openly to our buyers and sellers about how compensation is being handled. Yeah.
TM: Right. And you have to figure out that commission percentage or hourly rate or whatever it is before you even go look at a house with a client.
MB: Yeah. And that’s what’s tricky is, you don’t go on a first date and marry the person, right? I mean… [laughter]
TM: Let’s sign the screen up here.
[laughter]
MB: Yeah. Unless it’s a prearranged marriage or something like that. But that’s, that violates, antitrust if you get [0:16:51.3] ____. So anyway… Yes, Reuben.
RS: Well, so what exactly are they signing? What does this say?
MB: A buyer representation agreement.
RS: But just help me understand what does that mean? I mean, does that mean that if they buy a house anytime within the next x number of years that they are agreeing that you are going to represent them? I mean, how do they get out of it? How long is it for? What are the… Tell me more.
MB: Yeah, it’s all negotiable. So, if you’re like, Michael, I don’t really know you and I don’t really know them, and we just wanna do a onetime showing agreement. So like in the case where that person called me on the phone. I explain to them that we could just do a onetime showing agreement. So, if we meet each other at the house and you like the house, you wanna make an offer, you would agree to pay x, some compensation. But, again we didn’t sit down to negotiate that. So I don’t even know, what that would’ve been. But let’s just say we did, we could negotiate how the terms, any of the terms are negotiable. So length of contract, how much I get paid, our broker gets paid, that sort of thing. So…
TM: This seems very, I mean, this just seems like a… This is really gonna be a challenge for the real estate industry, I think trying to navigate this. It sounds like you’re, I mean, you’ve been in this industry a long time and you’re still trying to wrap your head around it and figure out what’s going on and how to handle it and how to… The tough part is how to educate the buyer or the seller around all these things too. And do you have any advice for a potential buyer in this market of what you’d recommend? How they handle it? Like what are some, I guess some information you think that’d be helpful for someone looking to buy a house right now?
MB: Well, you can definitely go to the Consumer Advocates in American Real Estate website. You can also go to the National Area Association, national Area Association of Realtors website. Those are both two good resources, as a consumer to go to and kind of find out about what’s going on and kind of what your rights are and what’s negotiable, what’s not. But here’s the thing, and this is where, I’m kind of struggling too, is, I’m used to a certain range of commissions and getting paid a certain kind of way. What I wanna do might be different than the next realtor. So I would just say find a realtor that is willing to do what you wanna do. ’cause you’re not holding the gun in anyone’s head. If you wanna work with me, this is what I’m willing to do and what I’m willing to work for. But you might have another agent who’s willing to maybe, let’s say, work for less.
MB: That’s, if that’s important to you. I feel like, my years of experience and my dad being a builder and realtor, I think I have a lot of high value in what I offer, but you might have a brand new realtor that doesn’t have the experience that might be willing to work for a flat rate or whatever. That’s up to you, the consumer, to negotiate that.
RS: So, Michael, help me, just let me explain it and correct me where I’m wrong here. The way it used to work is you’d have a listing and there would be information hidden in the agent notes that nobody except for agency. And it says, if you bring a buyer to this house, you get 3% commission. It’s already set up and it comes out of, it comes from the person selling the house.
MB: Correct.
RS: They’re the ones who pay both sides.
MB: Correct.
RS: The way it’s set up now is that you have an agent make an arrangement with the seller that says, I’m gonna sell your house for this much money, this much commission, whatever they make, they make an arrangement. And then there is no predetermined arrangement for what the buyer’s agent gets, and all of that is up in the air.
MB: That’s not necessarily true.
RS: Okay. Alright.
MB: So in the new listing agreement, exclusive right to represent sellers, you can kind of choose your own adventure. So you can do the way that we used to do it, which would be the seller basically says to the listing agent, I wanna do it the old way. I want your brokerage to pay the buyer’s agent brokerage directly and take it out of net proceeds. Okay? Or they can say, I wanna pay, I the seller wanna pay the buyer’s brokerage directly and allow the buyer to negotiate in the offer how compensation is handled. So we added a new line in the purchase agreement that talks about how that gets handled.
MB: Now, and what’s tricky, and I don’t have it handy on me, but it basically says, so let’s just say you’re a seller, and let’s say we agreed on 7% commission and it’s 4% on the listing side, it’s 3% on the buyer rep side. And the seller says, yep, I like that. That’s how I want to handle it. If a purchase agreement comes in, and let’s say the realtor wrote in additional compensation in the offer… We’re hearing stories of sellers on the hook for 10% commission because it says, in addition to what’s been agreed to in the listing contract. So if I’m talking 7%, and in the offer you wrote 3%, depending on how you wrote it, sellers could be on the hook for even more. Now, the way it all trickles down, they probably wouldn’t be, but contractually they might be.
MB: So, you just have to be super duper careful. Again, it’s, you gotta slow down, explain things, read things, make sure you check the right boxes. Don’t be sloppy. The days of just writing a purchase agreement in five minutes, are over [laughter] you really gotta slow down, and make sure. So now what’s happening is, if I’m gonna show a listing, I have to have the buyer rep agreement in place. I also have to now contact the listing broker if I wanna know if there’s gonna be any compensation paid to our brokerage directly, and then we sign a cooperating brokerage agreement between each other for compensation to make sure that I’ll get paid, our brokerage will get paid from the seller directly. If they say, no, the seller isn’t offering a fixed commission or anything like that, then I have to negotiate that in the purchase agreement. So it’s requiring another step for the realtor if they wanna figure out what they make.
RS: And then you gotta go back to the person who would be potentially buying the house and you gotta say, Hey, look, the seller isn’t gonna pay me anything, but this is what I charge, so now you’re gonna have to pay me, right?
MB: Exactly. And that’s kind of, historically we’ve always kind of known, like I could go on the MLS and like you said earlier, I could look on the MLS and say, Wow, okay, this is a national builder, they’re paying me a flat rate of 2%, let’s say, whereas an existing home might be paying me 3%. So, now that’s over. We cannot advertise any commissions on our MLS anymore. We can advertise, from what I understand, we can advertise seller concessions, which could be like our closing costs paid by the seller.
TM: Okay. You know, it’s kind of my understanding then, so NAR is this gigantic organization, National Association of Realtors, that’s kind of been setting the rules for like a hundred years in this country. And they basically own MLS and they control a lot of different aspects of this whole real estate industry. And a huge percentage of, real estate agents are members of NAR and it, I mean, it gives you access to the lockbox and MLS and all these things. So it’s been really hard, I think in this industry as a real estate agent to be a real estate agent, be successful, and not be a member of NAR. Correct?
MB: Right.
TM: So, most agents have been, and they kind of just set these rules of like, this is how it’s gonna work, and this is like this kind of standard commission that sellers will pay out, and it’s just kind of, this deal is done. And so this lawsuit really, it was like, okay, well NAR, you’ve kind of been this monopoly that’s found guilty of price fixing, and we’re gonna break up that monopoly now and give the power back to the people to negotiate their own payouts, I guess to the real estate agents. And how do you think that’s gonna change this real estate industry? What’s it gonna look like in the next five, 10 years?
RS: Yeah. A great question.
MB: Yeah, that’s a great question. And that’s where the antitrust thing kind of came about, right? Because they’re basically accusing NAR of creating the environment or the framework for, in which realtors operate under, and that the sellers just pay the buyer’s agent commission, and that’s just the way it is. When we… I remember a million years ago when I went to real estate school, we used to talk about the real estate commission, and it’s like, well, how does this all work? And one of the instructors said, well, it’s kind of like the real estate commission is up in the attic. To kind of create a visual. And that the money is just kind of up there, as commission. And then when the house sells, the money kind of comes out of the attic and it gets all divvied up and it’s just kind of built into the price of the home. It’s kind of like a Prego sauce, Italian sauce. It’s in there.
[laughter]
MB: So for us, for the younger viewers at home, that joke doesn’t work, but…
[laughter]
MB: So that’s what’s the basis of the lawsuit really is that they’ve created this framework, but if it’s always been that way, then I’m just a realtor operating within that environment. So am I guilty of a crime if I’m operating within the parameters which have been created. I mean, the last time I checked, lawyers are writing our purchase agreements and our listing contracts, so it’s been run by lawyers. So it all seems legit. As a realtor it seems like, okay, this is the way it’s always been, so I guess it’s right. And we’re just operating within the environment that was created for us. So that’s what’s kind of tricky, is now that’s all disrupted. So now it’s like, well, do I even trust who created the parameters, which I’m working in NAR and so I’ve been hearing about alternative MLS systems forming.
TM: Wow.
MB: To kind of create their own empires, if you will. And it, to me, it feels like this could go backwards where, the beauty of NAR was if you’re a real, if you’re an individual, like a consumer looking in Ohio and you live in Minnesota, you can go to realtor.com and you can look at houses for sale in Ohio, ’cause they have all the national local MLS’s in their system. Right? Yeah. So that’s always been a really cool thing. Now, what might happen is you might have the state of Minnesota say, you know what, we don’t want to be part of NAR. We don’t want to be part of any national anything. We’re gonna create our own little kingdom and we’re gonna go back to the phone books with the printouts of the houses in there, and you’re gonna have to come back and get the keys from our brokerage, and we’re gonna make it real difficult, and whatever brokerages have the most listings will win.
MB: And I think that’s going backwards. I’m being extreme with that but you just kind of want to say, you know what, screw y’all, I just want have my own MLS and my own system, and I don’t wanna be plugged in anything if you’re not gonna protect me. You know?
RS: Yeah, yeah. And interesting point, you talk about these forms, it sounds like they’re just kind of the wild west right now with these buyer agreements and you’re saying they can be anything they want. And I gotta point out that the current purchase agreement that everybody uses, there’s a standard form, it’s put out by the, I don’t know, the Minnesota Association of Realtors or something like that.
MB: Yep.
RS: Yeah. There’s a standard form, everybody uses it. They are all identical and none of them are required. It is an optional form, but everybody has a lot of protection or at least feeling of protection if they use this. It’s kind of like, Tessa, for us as home inspectors here in Minnesota, we’re not licensed. There’s no regulation around home inspections. But if you’re gonna be doing a home inspection, you better follow a standard of practice. And there’s two of ’em. There’s ASHI and InterNACHI, they’re very similar, but if you’re doing a home inspection, you better follow that standard of practice. Otherwise you’re just making something up and you’re just doing your own thing. And it feels like, it’s kind of the same way for realtors.
RS: If you’re gonna write a purchase agreement, you’re surely gonna use the standard form that everybody else uses. It was written by attorneys, it’s vetted. Everybody knows it, everybody agrees to it. But now you got this new thing, this buyer agreement, and there is no uniformity, no standard, it’s brand new. And I mean, don’t, Michael, don’t you think a year from now we’re gonna have a pretty standard form that everybody’s using?
MB: Well, I disagree with what you said. It is standard. It’s a standard form.
RS: Is it?
MB: It’s not… So, and this is the thing we have to keep in mind. This is a state by state thing. So how I do business in Minnesota is very different than Texas and Florida, California. Minnesota’s actually been a ahead of all this for many, many years. We’ve actually had in our buyer rep agreement that the buyer could be on the hook to pay the buyer’s brokerage commission in the event that the seller doesn’t do that. I actually had a client, find a house on Craigslist. It there was no MLS, it was Craigslist. Right. I didn’t know if I was gonna get paid. And I had shown this particular buyer probably like 30, 40 homes, so it would be nice to get paid for my time.
MB: But you know what? They found this house in Craigslist, and I asked them, what do you wanna do? And they said, you know what? We feel you’re worth the standard. Like let’s say a 2.7%, 3%. They paid me like a 3% commission on the sale. And they came out of their pocket and they gladly wrote the check because they got representation, they got an inspection. In fact, you guys did the inspection. And we found some real interesting things with this particular home. But they were very happy to have me in their camp. So buyers in some cases are willing to pay this fee, and hopefully they will, but there’s gonna be cases where they can’t. And quite honestly, some of the realtors are gonna have to do some charity work in some cases and just maybe not make any money or get creative with the offer that they make and just chalk it up to community service, you know?
RS: Wow, okay.
TM: Yeah. That’s a big shift.
MB: Yeah. But it is standard. There are standard forms. Our Minnesota forms are barely any different than what they were before. There’s just a little bit of new language in there because we’ve been really ahead of the curve. I mean, our local MAR and NorthstarMLS that I’m part of, they’ve done just a wonderful job, of keeping us out of trouble. And, I think our forms are great. I use our forms. Real estate school, they say you can write an offer on a napkin, but we have a compliance officer that reviews all of our sales that we turn in. And I don’t think she’d accept an offer on a napkin. Because these forms keep us realtors out of trouble. They’re written by lawyers and they do a really good job, I think.
TM: You know what? I’m trying to kind of just understand what’s going on. I could equate it to, lots of countries don’t necessarily, like you don’t tip your waiter or you don’t tip, like you get a cup of coffee and you don’t give a tip, you just pay for it. When people come to the US they’re like, oh my gosh, I have to pay an extra 20% tip on this. Like, what is going on? And it’s kind of like, when you go to pay for something these days, a lot of times, they’ll spin machine around you put your card in it and it’ll start at like, 18%, 20% or 22% and you just click on that. And you, if you were someone who didn’t understand our process, you’d look at that and think that you had to choose 18 or 20 or 22. You didn’t realize that you could just, you could even opt out if you wanted to, or you could choose a lower percentage.
TM: It seems like that’s kind of how the real estate industry has worked for a long time. It’s just with this kind of assumed commission rate that was, just people didn’t even realize that it was technically you could negotiate it, but it never got negotiated. You would just agree to this 6% or 7% or whatever it was, and it just happened. And now this lawsuit is telling buyers and sellers like, you don’t have to pay that, you never did. Don’t you think there’s gonna be a lot of sellers that are like, I’m not paying the buyer’s agent and I’m not gonna pay my agent even 3% that if they’re selling a million dollar house, they’re like, okay, well, I’ll pay ’em 1%. Do you think that there’s gonna be a lot of people that are just gonna almost kind of revolt against the system and real estate agents will have to kind of almost start competing against each other to offer competitive pricing structures so they don’t run out of business?
MB: I mean, so far I haven’t had any problems with getting compensated. And I guess there’ll be a day where maybe I won’t, I don’t know. But no, I don’t really think it’s gonna impact us that greatly. There probably need to be another wave of lawsuits probably is what’s gonna happen. And they’re gonna keep tightening things up because people are gonna figure out ways around the way that this is created. So, for example, we’re not supposed to advertise a buyer agent commission, buyer broker commission on the MLS, but I can outside of the MLS. So I just got an email before I got on this call that said, Hey, Michael, there’s a property at Yakkity Yak Street and we’re offering a 2.7% buyer’s brokerage commission.
MB: So there’s ways around the system, and so it’s just gonna create a lot of creativity for brokers, agents. And at the end of the day, a buyer or seller doesn’t have to use who they’re talking to. They can use anyone that will give them what they want. And I think, like for me, I’m expecting to make a certain amount of money and if my client doesn’t wanna pay me that, they don’t have to use me. I’m not holding a gun to their head. They do not have to use me. There’s no forced anything to use me. That’s what’s a little frustrating about the lawsuit is that commission has always been negotiable and most people have been okay with it.
MB: I mean, you guys have bought and sold real estate probably, and you’re maybe living in a house and everything is fine, right? So did you overpay a realtor for whatever you paid? I don’t know. I mean, I had a client, he just sold his place and he just paid cash for this next place. He’s happy as heck. And he paid “a regular commission.” So you know.
RS: Well, it seems like commissions are all over the place. I mean, Michael, you talk about this client where you showed them 30 to 40 houses, and they finally bought one. And let’s say they bought some $200,000 townhome and you got 3%. I don’t think you got paid well at all there. I think that’s horrible money for your time. And that’s terrible. But on the other hand, you get some other fancy buyers who find a property online and they’re like, yep, this is what we want, Michael, we want you to represent us. Can you go help us take a look? Yep. This is it. And it’s a $3 million house and you’re getting 3% commission. Like that’s great. You’re really getting paid well for your time. And then there’s everything in between. And I’ve always thought that the 3% seems a little goofy. ‘Cause I mean, it’s like, well, tell me this, maybe I’m wrong, but what would you prefer, Michael? Would you prefer 3% of a $200,000 townhome? Or would you like 1% of a $1 million house? Now…
TM: Let’s do the math.
RS: Well, with the $1 million house, you’re definitely getting paid a lot more.
MB: Let me do the math, Reuben.
RS: Well, you’re getting more.
MB: Down here and, adding and subtracting here. Okay. Continue.
RS: But you’re getting significantly more for the million dollar house, even though you’re getting a much lower commission. But the assumption, the assumption here has to be that if you’re selling a million dollar house, it’s gonna be way more work than a $200,000 house. You deserve to be paid maybe five times as much ’cause the price is five times as much. Your commission is gonna be five times as high with our traditional model of 3% flat across the board. But is it really five times as much work? If you’re selling a $5 million house, is it 15 times as much work? Or…
TM: Should it be a sliding scale?
RS: Yeah. Is it right what we’ve always done. And I mean, I don’t know. I can see cases where it works out really well and cases where it’s really horrible for you.
MB: I’ll turn it back on to you. So let’s say you’re inspecting a million dollar home and you’re inspecting a $200,000 home. Let’s say you as an inspector, dam up the tub upstairs and it floods the house. What’s gonna cost you more to take care of the problem? A million dollar house or…
RS: Oh, the expensive house for sure.
MB: Right.
RS: Much more expensive finishes, and you got people who are gonna lawyer up at the drop of a hat. And I mean, yeah, it’s way more of a hassle on those houses, but we don’t charge based on the price of the house. We only charge based on the size and age. I mean, maybe we should.
MB: Right. So my point…
RS: It’s a good argument for charging by the price.
MB: So where I’m kind of going with this is, and this is something that realtors don’t even talk about and brokers don’t talk about it and they need to talk about it is there’s an element of errors and omissions insurance that’s involved in every transaction.
RS: Okay.
MB: So if I get involved with a million dollar home, I have a million dollars more liability, compared to nothing. Right?
RS: Yeah.
MB: If something goes wrong or sideways or a easement didn’t get disclosed or an encroachment or something, me personally and my brokers were on the hook for a potential larger problem on a million dollar home than a $200,000 home. So in my opinion, that’s kind of why the compensation is there, is to cover some of that ’cause the liabilities increase. The more expensive the home, the liability can be increased more. That’s a generality, but yeah, that’s kind of some of my thinking and we don’t get into talking errors and omissions insurance to buyers and sellers and that sort of thing.
MB: I think maybe we should talk more about what are all the fees that we have as realtors and brokerages. I mean, we have staff that has to process all this stuff. We have a compliance officer that keeps all of us out of trouble, including buyers and sellers and realtors. So there’s a lot of expenses that go into owning a brokerage and that’s kind of part of all the commission. So it’s hard to monetize. It’s hard to monetize that and say, well, this percentage of the percentage is going towards paying our compliance office or something. It doesn’t add up like that and so it’s been just easier in our industry just to kind of keep things negotiable, but within a range that’s acceptable.
RS: So do you think that the percentage of the property price being paid to the buyer’s agent, do you think that’s gonna stick around as the norm as years go on?
MB: I don’t know. I mean, that’s, that’s a loaded question, Reuben.
RS: Okay. Alright, I’ll ask you in a year, we’ll come back to that.
MB: No, it’s negotiable forever. It could get negotiated down as houses increase in value, commissions necessarily haven’t gone down. I mean, when I first got in the business, it was pretty common to charge 7%, it’s kind of come down to 6%, but then I’ve also had, I’ve had contracts where it’s a variable commission where if I get axed, we charge this, if I find the buyers, I would charge this, so we used to have, we used to be able to do variable commissions, we can’t do that anymore either. So I talked about choose your own adventure, you can only do so much of that in the contract with the seller, they have to agree to what adventure they wanna go on, but you can’t say, this is the range of what it’s gonna be charged, it has to be very specific, this is what’s being charged.
RS: Got it.
MB: But I don’t know. The conspiracy theorist in me, it feels like some of the powers that be don’t wanna see realtors make as much compensation, they want us to move more towards a Zillow or Redfin model where you hit a button and someone shows up that’s being paid an hourly rate and they show you the house and if you wanna do a contract, it’s a flat rate deal and it’s in and out, it’s amazon.com, boom, boom and boom. And ’cause anytime there’s money, there’s someone behind the scenes trying to take it away from you and make it easier for people. And is that in the buyer’s or seller’s best interest?
MB: Maybe it could be. If you’re a real savvy buyer and you know what you’re doing, that might, that model might work great, but if you’re a first-time home buyer and you know nothing about real estate and you’re dealing with a $10 an hour showing agent potentially and they don’t know what they’re doing, I don’t know, that to me is creating a lot of liability for that buyer that, you know.
TM: Hopefully they get a good home inspection.
RS: You know they’re not gonna test, their $10 an hour agent is gonna say, hey look, I know the cheapest home inspector out there, these guys will do it for $199 any size house.
MB: Yeah, there you go. Yeah, so, but you know, that’s just what it feels like. It’s like what Amazon did to the book industry, they make it easy, you can go there, you can buy a book and it shows up on your doorstep that day, they, and so a lot of booksellers went out of business. So this, this lawsuit and as it plays out, it could impact some of the smaller brokerages. I mean, I know some lenders that have gone out of business just ’cause the business isn’t there, so, it may become more of a… There’s three or four players that run the whole industry and that’s it. It’s some of the big nationals and that’s it, but now we’re getting into antitrust stuff again, right?
MB: Now it’s an oligopoly, we have three companies running one entire industry. Right now we have a lot of boutique shops that are brokerages, we have large nationals, there’s a lot of variety, there’s a lot of options for people. I think consumers have a lot of choices right now on what to do with their selling side and buying side. It’s really up to you. What level of service do you want? It’s do you want the McDonald’s hamburger or do you want the mayonnaise steak?
TM: Yeah. We talk about that with the home inspection industry too a lot, Michael. It’s like that, there’s a variety of quality out there and so just as a consumer, what matters to you? And it sounds like it’s the same thing kind of with real estate now too. It’s, you get what you pay for potentially and it’s up to you to negotiate with your agent to get on the same page and figure out what works best for you guys.
MB: Right. Yeah. Absolutely.
TM: Wow.
RS: Cool. Well, Michael, really appreciate you coming on the show. Good insight. I feel like I’ve got a much better understanding of how all this works now. I appreciate your insights and it’d be interesting to see where we go a year from now, where the landscape changes or if it doesn’t. It could be that too. But if people wanna reach out to you directly, Michael, how can they get ahold of you?
MB: Yeah, my cell phone is 952-400-7000. And then my website is hometwincities.com.
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RS: Cool. I appreciate it. We’ll have a link to those. We’ll have that published in our show notes just in case anybody missed it or doesn’t wanna write it down or driving or something. Go to the show notes. And if you have any thoughts from me or Tessa, comments, questions, concerns, ideas for another show, whatever, please email podcast@structuretech.com. Thanks for listening. We’ll catch you next time.