What if the new National Association of Realtors (NAR) ruling could completely reshape how you approach buying a home?
Join us as we unravel the significant impacts of this bold move on agents, investors, and traditional brokerages alike. Discover how this change fosters greater transparency and negotiation power in real estate transactions and why common misconceptions remain among sellers.
We don't stop at residential impacts. Our discussion extends into the investment-grade real estate market, focusing on single-family homes and the role of seasoned investors, such as REITs and fix-and-flip entities. Are we on the brink of tighter inventory and rising prices due to market confusion? With historical context reaching back to the 2008 financial crisis and current interest rates, we weigh in on the predictions and realities facing today's market.
Tune in for a nuanced, expert-driven look at the uncertain yet evolving landscape shaped by the NAR's recent decision.
For more content, follow our socials below:
Instagram.com/real_tytalk
Suzanne Seini:
Facebook.com/suzanneseini
Instagram.com/suzanneseini
Paul Hanson:
Instagram.com/paulrhanson
Stephen Couig:
Instagram.com/stephencouig
What if the new National Association of Realtors (NAR) ruling could completely reshape how you approach buying a home?
Join us as we unravel the significant impacts of this bold move on agents, investors, and traditional brokerages alike. Discover how this change fosters greater transparency and negotiation power in real estate transactions and why common misconceptions remain among sellers.
We don't stop at residential impacts. Our discussion extends into the investment-grade real estate market, focusing on single-family homes and the role of seasoned investors, such as REITs and fix-and-flip entities. Are we on the brink of tighter inventory and rising prices due to market confusion? With historical context reaching back to the 2008 financial crisis and current interest rates, we weigh in on the predictions and realities facing today's market.
Tune in for a nuanced, expert-driven look at the uncertain yet evolving landscape shaped by the NAR's recent decision.
For more content, follow our socials below:
Instagram.com/real_tytalk
Suzanne Seini:
Facebook.com/suzanneseini
Instagram.com/suzanneseini
Paul Hanson:
Instagram.com/paulrhanson
Stephen Couig:
Instagram.com/stephencouig
Headlines make things sound a little scarier than what they actually are. You don't?
Speaker 2:have to hire an agent that's not mandatory to trade single family real estate in the United States.
Speaker 1:While this is nothing that is necessarily new, it is different the way we're talking about it.
Speaker 2:In this week's episode we're going to talk about the NAR ruling, how it affects an investor, how it affects the traditional brokerage and overall market dynamics. Let's jump into it. Okay, welcome back to your favorite podcast, the Realty Talks podcast. Episode number two, we have the queen of the closing table, suzanne Sini, and the lending king, stephen Kuig, and I'm your host, Paul Hanson. Today we are excited to talk about this new NAR ruling.
Speaker 2:There's a lot of buzz in the residential real estate space. I'm going to do just a quick recap. Preparing, I did a little bit of research. I didn't know this, but NAR was initially founded in 1908, for those of you that don't know, today they have over 1.5 million members and originally they were founded as the National Association of Real Estate Exchanges. They changed their name in 1974. You know the history of NAR is that they've been involved in state, local and national policies and regulation. You know their statements they make are that they advocate homeownership and you know they're working towards homeownership. You know an increased number of that. So I mean let's just jump straight in. I mean, what are our initial thoughts? Like Suzanne, what do you? I mean.
Speaker 2:I know we've been hearing the chatter for a long time. What's your take so far?
Speaker 1:Yeah, I think from an agent perspective, I think that while this is nothing that is necessarily new, it is different the way we're talking about it. So I think agents in general are a little uneasy about it. So that has, you know, affected us at the brokerage a little bit, to just talk through and really educate our agents on what all of this actually means. Because, if you drill down into it, not a whole lot has changed. Commissions have always been negotiable and I think that headlines make things sound a little scarier than what they actually are.
Speaker 2:Yeah, so the actual ruling basically states that a buyer has to select the buyer's agent and negotiate compensation before they start shopping. Is that accurate? So, technically, the buyer's agent and negotiate compensation before they start shopping. Is that accurate?
Speaker 1:So technically, it doesn't necessarily mean that the buyer has to pay compensation it could still come from the seller. It just means that the buyer's agent needs to be very clear with what their commission is. They now have to have that agreement prior to showing, which, from an agent perspective, is great. That's one thing. That, as a real estate agent working with buyers, historically you don't always have an agreement in place, so you can show hundreds of properties to a client and then they decide they want to work with the listing agent on a property and that's the end of it. So it's actually a huge positive for the buyer agent to get in front of their client, talk through what their expectations are, how they get compensated, so that everybody understands, and let them know we're going to talk about this with the seller and we're going to request two and a half percent for my commission. That's what I'm going to get paid. So whether that comes from the seller, whether that comes from you, you know, whether it's a combination of both, that is my fee, you know.
Speaker 2:And just to be very clear and transparent with what that fee is yeah, I mean, it feels like, you know, sellers are just as confused as agents or buyers in the market today. You know, I've heard a sentiment that you know, sellers now think they're going to be putting three you know, two and a half or 3% back in their pocket, and that might be the case in some scenarios. But I guess, to your point, it's always been negotiable. Yeah, so you know, dating back to 1908, when NARA was formed. I mean, you know, from that point until today, you don't have to hire an agent, right? That's not mandatory to trade single family real estate in the United States, and so it's. You know, it's always been negotiable. It's just a question of you know how do you get to the table and get that negotiation complete to consummate a transaction right Right.
Speaker 2:So I guess, if you're listening and you aren't aware of this ruling a month ago, before the ruling, traditionally in certain markets, all markets in New York City you know New York City real estate agents don't? You know they're not at NAR, they don't register with the National Association of Realtors and so when you go and shop to buy an apartment or a townhome or a house in New York City it's not on the MLS.
Speaker 1:You know.
Speaker 2:So there are certain markets in the United States that don't actively work with the MLS. You know, obviously, when you are on the MLS it provides some transparency and we think there's speed, you know, with those transactions. But I guess the point of all that is that you know a month ago if you were a seller, you would have the negotiation with your seller's agent. Here's how much we're going to offer. It might be 5% or it might be 6%, and you decide how much that listing agent is going to receive and then how much you're going to advertise to the buyer's agent.
Speaker 2:And that would actually be posted on the MLS.
Speaker 1:Right.
Speaker 2:If you go to Redfin or Zillow or any of those online deals, there would be very visibly with all the characteristics hey, this home is sold for, listed for X. Here are the characteristics a three bedroom, two bathroom, 1500 square foot house. The listing agent is XYZ and we're offering two and a half or 3% to the buyer's agent. So the change now is that that's just not going to be there.
Speaker 1:That's just not there. But that doesn't mean that that conversation isn't still had. It's just not written anywhere and it is part of the negotiation when a buyer's agent is submitting an offer For me personally, I mean I love negotiating my own commission. If I'm representing a buyer, I want to be the one saying, hey, maybe I need 4% on this one. I love negotiating that and being my own advocate versus leaving that up to a listing agent. Anyway, I think it gives buyers agents even more opportunity. If they're showing their value, I think that's the big thing. And if they're proving their worth and you know making it make sense for everyone there, then you know the ball's in their court.
Speaker 2:Yeah, so a lot of it too is is about you know where value creation lies, and part of the argument in the lawsuit was that you know, maybe, maybe agents on certain sides of a transaction aren't really providing a ton of value, and so forcing the consumer to negotiate that and understand what they're paying is a component of it. So that's an interesting one, and I pivot to that data point of 1.5 million members of NAR. I mean that's a lot of real estate agents in the United.
Speaker 2:States. Personally, I think one of the major impacts is that a number of those people aren't going to be working anymore is that a number of those people aren't going to be working anymore. So if you're an agent that hasn't traditionally been very good and you're just kind of getting friends and family business because they know you're an agent, that probably stops and it goes to somebody that has a little bit more experience and can demand value because they do a good job.
Speaker 1:Right, and I think that just comes down to education, which I'm a huge component of, or advocate of for real estate agents, because I think that if you know what to do in a transaction from start to finish, you are showing your value. You know, and I think so many agents don't do that because they get into real estate, because they think it's fast money and they can do it on the side, but they don't become an expert in their craft and it gives all real estate agents a bad name, honestly. So that's why I'm very big on making sure that you are doing your job to the best of your abilities at all time, and then you know there's really not a question of what you should be paid. I mean, I have had clients that when I was showing property that we didn't transact right away and they were, you know, offering me gift cards and wanting to pay me just because they felt that value, even before the transaction closed.
Speaker 2:So yeah, that's a good point. So, the king of lending, how does this affect investment grade transactions? I mean, I think in our first episode we talked a little bit about single family. We think that maybe 20 or 30 percent of single family transactions in the United States, you know, end up with an investor, whether that's a big REIT that's going to hold it as a rental, or whether that's you know something that's going to fix it up and sell it.
Speaker 3:Yeah, I mean I sort of look at this ruling as more just defining, I guess, providing more specificity as far as who's going to get paid what, and so people that are in this industry, who are transacting frequently. Nothing really is going to change for them, I don't think, because they already are negotiating how much they're paying a listing agent, negotiating how much they're paying a listing agent if they're selling something, how much?
Speaker 3:a buying agent is going to get and, quite frankly, what services they actually want to compensate somebody for. If you're not in the space and you're buying a house three or four times in your life you may not know all the nuances, and so I think that that part of the market will change to a certain degree, but for the frequent users of real estate services, I don't think much is going to change, if anything.
Speaker 2:Yeah, I mean that's a good point. So if it's really 20% or 30%, if that data point's accurate investment-grade transactions, whether it's an investor buying to fix up and sell or it's a big company that's going to buy it and hold it as a single-family rental, that bottom 20% to 30% of the market unchanged. If it is a fix and flip investor, when they bring it back to market and list it, likely still unchanged because they're sophisticated and they understand they're going to build that in. I mean it makes me think a lot about the way that home builders price new inventory. Today, where we sit, interest rates are just below 7% and the national home builders have been crushing it for the last 18 months because they're able to buy those rates down, you know with bulk, and so they don't really compete with infill rehab because they're out at market now in the fives right. So they're 2%, you know, more attractive in the interest rate, you know world, than a reseller, and so the argument is probably the same right, it's like the sophisticated investors really won't be affected at all.
Speaker 3:Yeah, I agree wholeheartedly.
Speaker 2:I think there's an argument too on the luxury side, I mean, if you're a sophisticated buyer of real estate, meaning it's not your business but you're successful. I mean, you know, we live here in Southern California, we watch the market really closely. Every time something down on the water trades, you know I don't know every time, but the vast majority of the time it seems like it's double ended. You know, or at least in the same brokerage, which indicates right, that you know smart buyers go to the person that's in control of the transaction, right, and so you know it might not affect as many people as we think, but that's, I mean the bottom 20 or 30 percent, and then a sophisticated buyer.
Speaker 2:So, it's really the average consumer that this affects.
Speaker 3:Yeah, I mean, I think one thing that people that aren't in the space don't appreciate is how much sunk costs there are in transactions. As Suzanne had mentioned, you could have somebody showing somebody a house they could show somebody, spend all of the time to go show them 100 or 200 homes and they're not assured of actually getting paid anything. So you actually could see the market. And there's been lots of alternative business models that have been tried, none of which have gained much traction, and I don't know of anybody that's actually still in the space as far as from a prop tech that was trying to disrupt the existing marketplace. So I think it will be interesting for people that are utilizing a lot of people's time that they will actually have to start paying for that, versus sort of getting a free rider effect, which is what was possible in the past. So some people might pay more, some people will likely pay less.
Speaker 2:Yeah, I think it's important to note. You know, when we talk about these things on the podcast, we're simply giving our perspective and I think for everybody that listens, it's really important to talk about all of the news out there. And so the last two weeks I've read a lot of crazy stuff. I mean there are people saying that the MLS or NAR is just going to go away, that it's irrelevant at this point.
Speaker 1:I heard a lot of the 6%. Commission is gone, is dead. That's like the first thing that everyone's saying.
Speaker 3:What about? Home prices are going to go down. I'm not sure how this affects home prices the cost of transacting. Possibly this isn't going to do anything to decrease home prices. I don't think.
Speaker 2:I think there's actually a fair argument that indicates they go up. I mean, I think when sellers or buyers are confused and they're not clear, transaction volume goes down. What we know in the United States is that we still have an inventory issue that was created in 2008, 2009, 2010. And that's not really getting better, the major data point being that we're still at a 7% interest rate. So if you refinanced your house in 2021 or 2022 and you're a 3%, or not selling.
Speaker 1:You can't afford to right.
Speaker 2:And so if you're, if you're in that boat where you're on the fence of selling, you have a three or 4% mortgage and now this hits and you're confused Even another reason to not go and sell, right? And so I mean it could actually do the opposite of what people think, right? Sure, it could tighten inventory further and drive prices up substantially. Yeah, and I don't know if that's true. I mean I read an article recently that I thought was super interesting A consumer in today's real estate market. They'll either hire an agent to go and start shopping or they just open up their phone and they start shopping on one of the major apps.
Speaker 2:Right, it's Zillow it's Trulia, it's Redfin, it's whatever right, and so I think there is an interesting argument that consumers might do that. And so what is the MLS's value, you know, for a Zillow or a Redfin right? You know they're in discussions about. You know, could they combine forces and syndicate data together and eliminate the MLS, which I think is the opposite of what NAR was intending to do?
Speaker 1:But I think that's what Zillow's been intending to do.
Speaker 3:For sure.
Speaker 1:Yeah.
Speaker 3:I mean they control eyeballs right, so that's possible, yeah, I mean, I think, if you look at it, real estate transactions have historically been bundled and so you could see something where pieces get unbundled. Getting to your point about Zillow versus NAR, one is really providing data. The other one is trying to bridge and figure out where the biggest value add is as far as a Zillow or a Redfin and where they can make an economic impact on the industry, and then you have the traditional NAR and the traditional brokerage model, and so obviously all of those things will go through some change over time, just as they have in the past.
Speaker 2:Yeah, I mean the different components of a transaction. You know if, to your point, a traditional consumer might transact three or four times in their life, Right? So you don't remember or think about the different things that occur. Suzanne brought it up, Right. You know agents might show a buyer's agent might show hundreds of properties before an offer gets accepted. Once an offer gets accepted, their responsibility is to negotiate in good faith. And once that negotiation is completed, there is a tremendous amount of work done on disclosures natural hazard.
Speaker 1:Protecting, protecting their client. Yes, you know just like hiring an attorney. It's the same thing. You know you don't have to hire an attorney, but you should most of the time. Most people do. They're the experts.
Speaker 2:Yeah, and I mean, even a sophisticated buyer or seller of real estate is not going to want to handle disclosures, natural hazard, the actual contract itself, the legality of it, transaction escrow. They're not going to want to handle all that. I mean, it's not something you want to handle anyway. So I do think there's a possibility that we see segmentation that way. But I guess to your point early on, I think the first person to try to segment that out was Purple Bricks, I think they were an Australian-backed company. Venture capital, hundreds of millions of dollars.
Speaker 2:They said we'll get your house listed and sold for 2,000 bucks right, and ultimately you were the one doing the work to get it sold and it didn't work and so and I don't know all the intricacies of that business, but you know, hundreds of millions of dollars were lost and that's not a thing anymore.
Speaker 1:Right.
Speaker 2:I don't know. I mean I think you know status quo seems to be reasonable, with maybe just some small nuance change. So I guess another couple of questions that we that we've had have any of us bought or sold real estate without agents?
Speaker 1:involved. Well, I am an agent, so you've always done it for yourself, got it?
Speaker 2:I guess I can speak for you, no.
Speaker 2:I've actually I have used a buyer's agent even when I was licensed, so yeah, yeah, yeah, yeah, yeah, as an investor, you know the business I run Buy, buy House. We buy, fix up and sell. You know single family and we had a phase of our business cycle early in our business cycle where we advertised direct to consumer and we had a tremendous number of transactions that were done without agents on the entry. But we've never sold, you know, a completed renovation without an agent involved. You know, so I think that kind of answers that Personally, I've never bought a single piece without an agent.
Speaker 3:Yeah, yeah, nor have I. I mean, you get what you pay for. You want somebody that has expertise and is doing this day in and day out, and so I couldn't imagine making that significant of an investment without a knowledgeable person.
Speaker 2:Yeah.
Speaker 3:And then being compensated. So I think the thought that agents will go by the wayside I don't think is going to happen. I can't imagine it. Might you see an unbundling of services? Yeah, you could certainly see that. But again, people are going to have to get paid for the services that they're providing, and so the totals may be slightly different, they may be the same, they may be less, they may be more different, they may be the same, they may be less, they may be more, but I think, in general, those services are needed and the providers of those services are going to need to get compensated.
Speaker 2:Yeah, I think. I go back to the data points. I think we will see a decrease in total number of agents in the United States because this would require an agent to negotiate their split If they don't have confidence in their capacity to create value, then they're not going to do transactions.
Speaker 1:I've already heard a lot of agents say, oh, I'm going to focus more on listings, now I'm going to be a listing agent and it kills me. Why are you just throwing in the towel, that's it. I'm just going to focus on listings, now I's. I mean, you know, have faith in, in what you do and you know, know your worth.
Speaker 2:Yeah, well, I think, if you know, the last question I was going to ask is how does this affect the different businesses that we run? You know we'll talk a little bit about innovate realty right, and the brokerage that you run. I personally think it's amazing If you're an agent that does a good job that you run. I personally think it's amazing If you're an agent that does a good job.
Speaker 2:The opportunity is that the agents you know some percentage of those 1.5 million in the United States that aren't very good at their job are no longer going to be practicing, and so you know we still have a tremendous amount of demand. You know that inventory issue is not getting solved, and so it's not like homes just aren't going to trade anymore. And if you're an agent. That's good. You know the thesis, or I guess my prediction is that you know you will do more transactions because of these rules.
Speaker 1:A lot of these agents will drop out. Yeah, I mean, for us at the brokerage, it's around education, you know, because I think historically we would often meet a buyer, maybe from an online lead or someone that we don't actually know, and sometimes a buyer's agent, when they're first meeting with a buyer is foundation and now maybe doing a buyer consultation, sitting with the buyer, spending time with them, explaining what that relationship looks like. Hey, I'm going to put in 50 hours a week of work for you. This is why I am paid what I am paid. I'm going to preview homes, so you don't even have to leave your house. I'm going to go look at them first and make sure. Just things like that that I think showing that value, showcasing that value upfront and educating our agents on how to do that properly.
Speaker 3:Cool. Yeah, I think the one thing you could see also is existing agents that aren't doing a lot of transactions but they're knowledgeable, them almost opening up their own practices to provide the services for agents that are more active and are still going to require the services of somebody to go do the work that's required. I don't think.
Speaker 3:AI is going to come in and negate the need for a lot of these things, so somebody's going to have to do it. So people may pivot to being a W-2 employee of somebody that's got a lot of activity or being an independent contractor, just more on specific parts of the transaction.
Speaker 2:Yeah, I think that's a likely outcome as well. Yeah, and the investor side. I don't think it really affects us that much. I mean, if inventory goes down because people are less keen on selling, maybe that affects some of the deals that we enter. But I think that obviously helps on the resale side. So I don't see it impacting us greatly in the short term. But I do two other questions, as we've been talking through this. I would be upset if I didn't ask the questions. We get a lot of conversation about it. What's going to happen with rates? I mean, so I guess CPI is, you know, a little different than what everyone anticipated. I think early in the year everyone thought we would see interest rates coming back down already. Now it's looking like that might not be until June. What's your take on it?
Speaker 1:Yeah, same thing. I think rates right now 6.5. They dipped a little bit, they went back up, but I think for the people that are waiting for the 3rees, the fours, it's just not realistic. So when we say rates are going to come back down, I think rates are going to be maybe in the fives, maybe high fives, but it's not realistic to think that they're going to be anywhere, where they were in 2021.
Speaker 2:Yeah, and then it's an election year, right? So what's traditionally happening in that kind of a year? I mean, does that come into play? Is it the right time to buy?
Speaker 1:It's always the right time to buy when it's right for you. I think everything is relative. So I think in an election year, historically we have seen rates a little lower, but we all know that once rates dip to a certain point then it's a flood again in the market and homes are going for much more over asking than they would.
Speaker 1:So it's that balance and that trade where, if you can afford to buy a home at the interest rate where it's at, that might make more sense for you now to purchase the home at a lower purchase price versus wait until rates go down. Purchase price is now higher because more buyers are in the market and if you purchase now with a higher interest rate, you have the ability to refi when rates go down. So my answer is always going to be if it's right for you, then then you should buy it's the right time to buy.
Speaker 1:That's right.
Speaker 3:Yeah, I mean we could spend months and there's whole industries of people that are their jobs are just focused on where rates are and what they're going to be. So prices are where they are because of the supply and demand that we have now, so lots of factors going into both of those sides of that equation.
Speaker 2:Cool. Well, if there's nothing else to add, this is a unique conversation about NAR. I think the takeaway is we don't know what the takeaway is going to be. Odds are that it's going to be very similar to what we've seen for a long time. Maybe some small nuance change. But yeah, thanks for joining episode number two and we will see you on the next episode.