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Admit it or not, we have different treatments to the buy-side of things compared to the selling side in real estate. In this episode, Joe Rand provides examples of these differences. Joe is the Chief Creative Officer of Howard Hanna Rand Realty, one of the country's largest family-owned real estate brokerages. He also discusses the vulnerabilities and not having proper assurances buyer agents face when dealing, which includes commissions. Stay tuned to learn more from Joe Rand because real estate is not just buying and selling, and it involves a lot more enclosed on those terms.
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Real Estate: The next three to five years something disruptive will happen to the buy-side commission at about 20 to 25%, which is a lot higher than a year ago.[/caption]
This happens on stage. You speak a lot around the country. It's my favorite part sitting in the audience going, “I can see it coming and happening. He's going to go off on that thing.”
I do. I get bored with myself. I'm like, “I got to level this thing up.” We had fun with that. That was a great thing. For anybody who never heard it, go back and look for them because they hold up. All the issues we talked about are still relevant. Most people have a burning question as to whether they would rather fight 100 duck-sized horses or 1 horse-sized duck, which is one of the questions we answered and what you should do if you steal stuff from a supermarket.
That was another good one. Plus, some real estate stuff that we covered but we want to have a serious one because this is a serious show. It's a real substance show, not my normal BS. I might try to play the straight answer question and see what you have to say and if I can help out people and give them some insight into what's going on.
Not so fast. I got some emails still hanging around. I thought, even though we're part of this show, I'm going to throw you an audio question. It was one of the topics I wanted to cover anyway. It works out perfectly. What do you think? Are you up for it?
Do you want to keep the format? We're doing a crossover episode. I'm going back to the 1970s when someone from Friends would show up on Seinfeld or something. Let's get those audio questions.
Here we go.
“Willie here from Melbourne. I'm a big fan and reckon you've got an opinion over this passion between NAR and the DOJ. Overall, the policy has been around for years so I'm hoping you would mind giving us your take. I liked your show and that Risser guy, he's amazing. Cheers.”
That is shameful, Risser.
What are you talking about?
[bctt tweet="It's all contingent that if you don't buy something, you pay nothing." username="billrisser"]
Risser, you can pick up on this. When we stopped doing the Randy and Raving, people stopped leaving messages. Risser didn't have any voicemails. He made himself a voicemail faking his voice with an Australian accent that he got because he hangs out all this time with all these Aussies from RateMyAgent but he still hasn't picked up a decent accent. That is horrible. That is not as clearly you teeing me up to talk about all the stuff that's going on with the NAR lawsuits and the Department of Justice. It's a fine question, Bill. I'm amazed that you had to resort to that shamefulness to incorporate an audio message that you made for yourself.
Councilor, I plead the fifth.
You don't want to incriminate yourself. I respect that. Despite the fraudulent nature of that voicemail, Bill, you trying to fake your audience and mislead them into thinking that people are still calling the Randing and Raving line, even though we both know the only people that called in were your buddy from Arizona and a bunch of Russian bots, besides the fact that it's a good question. What it does is it tees up.
We’ll separate it into two issues because two things are going on with all the lawsuits and antitrust. One is clear cooperation and the other one is the seller paid buyer agent commission. Let's talk about the latter one first, the seller paid buyer agent commission. There is a lot of concern and suspicion that both the DOJ and these lawsuits against NAR wind their way through the courts that there is some threat to the system by which sellers pay a commission to the buyer agents and the buyer agents don't have to pay their buyer agents. It gets rolled into the purchase of the home
On a fundamental level, I want to explain why I think that the whole thing is nonsense. The people think, “This is a bad thing,” and it raises prices and all that stuff. To me, it’s self-motivated reasoning from people that want to blow up the real estate industry or have the business model that they're trying to play up. That is this, the system works very well. The reason the system works is that there's an offer of cooperation out from the seller, which is usually a unilateral offer of compensation so when you're working with a buyer agent, that buyer agent can show you anything that’s in the market.
It's not like buying anything else or a car. If you want to buy a car, you have to go to fifteen different lots. If we didn't have cooperation, you'd have to go to fifteen different brokers because every broker would have only their properties to show you. Instead, you go to one agent and that agent represents you as your fiduciary and they can show you anything in the market. You don't have to come out of pocket for those services at all.
It's all contingent that if you don't buy something, you pay nothing. It's not a bad deal for the buyers. This idea if everyone's getting screwed by the system, the buyers get a good service out of it. The sellers get a good service because they pay one commission, which covers the entire transaction and essentially, gets rolled into the price anyway. The idea if the seller pays the commission is paid out of the proceeds of the sale.
The money is coming from the buyer. The buyer gives the money to the seller. The seller takes a piece of it and gives it to the agents, including the buyer agent. The best part about it is that the buyer pays it off for 30 years. They don't have to pay for it upfront, have to come out of pocket for it, worry about degrading from their down payments or anything like that. It's a good system that works well. Prices and real estate have done very well in the United States under this system.
Some people are concerned about it and I understand the concerns. The concern is that the buyer ends up hiring a buyer agent but doesn't have any ability to be able to negotiate their fee with that buyer agent because the fee is set by the seller and the listing agent by the offer of compensation. That is partly true but also partly nonsense because there are brokers, including Redfin that says to you as a buyer agent, “We will rebate to you what we get as a buyer commission.” This means that the buy-side is negotiable. You can negotiate the buy-side.
[caption id="attachment_4264" align="aligncenter" width="600"]
Real Estate: If they got rid of the seller paid buy-side commission, that is absolutely something that every real estate broker in the country should be preparing for.[/caption]
If you want to go to a buyer agent, say, “If you get an offer of compensation that's more than 2%, I don't want to get whatever is above 2%, 1.5% or 3%, whatever the prevailing commission rate is. I don't want to get on to antitrust problems because of this dumb show. Whatever the number is, that's the number. Anything above that number, you rebate back to me or you rebate back to me a hard number like $2,500, regardless of whatever it is.” That's all negotiable. This idea that buyer agents can't negotiate is nonsense.
Flip it around. This cartel of the real estate industry keeps commissions high because sellers have to pay two sides, the listing side and the buy-side and they don't have the ability to negotiate the commission is a crazy idea. Bill, there was nothing more negotiable than a real estate commission. They're all over the place. I can't turn on CNN without seeing an ad for Ideal Agent, Homelite or any of these companies that promote the idea that you're going to be able to get a discount from your listing agent.
What they're doing is interjecting themselves and pretending that they're going to connect you to an agent, take your referral fee and then force the agent to take a discounted commission, which that business model itself is objectionable from my perspective. The larger point is that everything is negotiable. There are tons of discount companies out there.
The guy from REX, Jack Ryan, is always talking about how the cartels restricting his business. Do you know what's restricting his business? It’s his business model. He says, “I'm going to charge you less,” but all he’s charging is the listing side. He doesn't pay a buy-side so he's not getting the biggest exposure. Buyer agents don’t want to work for nothing and they are not very good at negotiating with their buyers to get a buyer-side commission. He's saying, “They're holding me back,” but he's out there with millions of dollars of advertising to advertise this 2% commission like a bunch of other people. Everyone knows they can negotiate the commission.
The other piece of that is this argument that it's compulsory that if you want to be an MLS, you have to offer a buy-side. You can offer $0.50. They don't say what the number is. NAR is so dumb about so many things. One of the things they're dumb about is why don't the MLS get rid of the idea that you have to offer a buy-side commission? Eliminate that you have to make an offer of compensation as a requirement. You get rid of a lot of these concerns.
You effectively have that and the worst of all worlds. People do take listings, put them on MLS and put them out for $0.50 but, at the same time, you're getting all the regulatory and legal scrutiny because you are saying that they have to make an offer of compensation. They have to offer a penny. They can offer anything. It's all stupid and dumb. The system works well. How is this sold for what they're worth? It's a perfectly transparent and fluid market. What makes it work is that someone is working for the listing side and buy-side. It's an adversarial system. Every lawyer understands that the adversarial system is the best way to elicit the truth in legal proceedings but they immediately say, “They don't need it in real estate sales,” which is ridiculous.
Joe, I love you. I'm going to say that honestly. That is that's amazing. I guarantee you that no other show that doesn't have you on it got that excitement, energy and honesty. What is going to be a massive change in the business if the decision goes a certain way? Let's say cooperation goes away. Do lenders then get involved heavily and start trying to roll the buyer's fee to the agent into the loan? In escrow, we're paying out a commission from the proceeds of the loan. How will this work? Most people can't pay the buyer's agent.
Everything I've said so far was me saying what I can't understand why people think that getting rid of the seller-paid buy-sell would be a good thing and these arguments that the Antitrust Institute is putting out. I understand why the plaintiffs are putting it out. They're trying to make money. It's a class-action lawsuit. The lawyers are trying to get money. I get that but I don't understand the DOJ’s perspective or the antitrust division’s position on this much.
I spoke at American Antitrust Institute with the Jack Ryan guy from REX, who got to speak for an hour and rail against the real estate industry. They gave twenty minutes to me and James Dwiggins from NextHome to give the pro. It was very much not an equal time type of thing because the American Antitrust Institute see antitrust everywhere they look. They thought there was an antitrust issue. I don't buy any of that.
[bctt tweet="There are tons of discount companies out there." username="billrisser"]
I can't get three brokers to agree to do anything. The idea that we're acting as a cartel is amazing to me if you knew anything about how brokers work with each other. That's why I think it's nonsense but there is a real possibility that the seller-paid buy-side to go with. What do we do if that happens? Do I think that's likely? No. Do I think it's possible? Yes. I would put it within the next years of something disruptive happening to the buy-side commission at about 20 to 25%, which is a lot higher than I had it in 2021.
It's not as high as Rob Hahn has it. Rob has at about 105%. Likely that's going to happen. I love Robin but he has a very pessimistic view of this whole process and how it's going to play out. It's possible. Even if you peg it at 5%, it would be such a disruptive event if they got rid of the seller-paid buy-side commission. That is something that every real estate broker in the country should be preparing for. I don't see enough of that happening.
I've been speaking about it at Inman at a virtual session I did. I've been talking about it on shows like this and when I talk to people. We need to be prepared for the possibility. If I were to say to a broker, “Let's say tomorrow, you could no longer get paid your buy-side commission by the seller. You have to get the buyer to pay it. Are you prepared to be able to do that?” Nobody is prepared to do that. If we want buyers to pay it, a couple of things have to happen.
Number one, we should start institutionalizing buyer-side representation agreements. Why don't we have buy-side representation agreements? Why won't we work with a seller without an exclusive right to represent but we'll work with a buyer who’s like, “Call me up and I'll meet you at the house?” What are we doing here? Why do you still meet people in the house? If a buyer calls you that wants to see the house, you're not doing your job if go meet them.
If I'm a doctor and someone calls me up and says, “I have a heart attack.” “Come on in. Let's go meet at the emergency room.” “I want you to come to my house to treat me.” “I'm not going to treat you in your house. I’m not doing you a service if I'm going to visit you. I have to be where the equipment is.” You're a buyer agent. You need to know whether they can afford that house because you're wasting their time and yours if you go see a house and you haven't pre-qualified that buyer for that house. You got to know a little bit about what they like.
Maybe they want to see that house. They don't even know the house is under a bunch of high wires and you know they're not going to like it when they see it. They're asking you questions and you're like, “There are three other houses like it. We should go see 4 houses if we're going to go see 1.” That's your job and what you do. You're not doing your job if you say, “Let me drive over and I'll meet you at the front step.”
The reason they do it is that they're so insecure about these agents. They’re...
