November Newsletter- The NAR Lawsuit

A few things of note before I dive into this month’s newsletter topic.  Kids are back into school for PPS!  If you’ve been a parent with a kid in Portland Public Schools, it’s literally been “No School” November.  Another big thing of news is mortgage Interest rates dropped by a half a percent!  We’re finally starting to see mortgage rates come down, and I expect this trend to continue throughout next year.  Oil & gas prices continue to drop, credit card balances are at an all-time high and I expect the student loan payments to continue to diminish consumer spending.  We have some good inflationary numbers today, so what the Fed has been doing is working.  The only outlier here is Christmas which might prop up spending for another month, but I think in Q1 and Q2 we’re finally going to turn that corner & we’ll see some more reasonable rates later in the year.   The other thing of note in the real estate world, is the National Association of Realtors lost its lawsuit in Missouri, and that’s what I’d like to get into this month.

I’m sure many of you have at least read a bit about the media’s chicken little’s “the sky is falling” version of all the different scenarios, and how this is going to totally disrupt the system.  A gentle reminder the media gets paid by advertisers by the amount of viewership or clicks, most of these stories are written around a few people’s opinion and conjecture.  For those who missed the news cycle, I’ll briefly summarize, NAR and a few other real estate entities got sued by the plaintiff home sellers in a class action lawsuit in the state of Missouri.  Basically, what the lawsuit was about was that the plaintiffs accused NAR and the RMLS of colluding to keep the commission rates artificially high and requiring the sellers to pay the buyer’s agent commission fee.   I’ll do my best to be unbiased and as factual as I can, but you might see some bias leak out occasionally.  

There’s always been varying ways to sell a home.  A home can be sold on RMLS through a professional realtor, it can be sold through a discount brokerage on RMLS, and it can be sold “for sale by owner”.  Some of these class action lawsuits originate with law firms and then they solicit the plaintiffs.  Through a bit of quick research, lawyers in these class action lawsuits get about 35-45% of the damages awarded.  I’m sure they found some bad actors to prove their case, and from my understanding, it didn’t help that the entire jury was non-homeowners. 

The suit was brought accusing NAR and other large brokerage firms of colluding to keep commission rates high, and not giving the seller’s an option of not paying the buyer’s agent.  I’m clearly not a lawyer, so I’m sure I’m missing some nuances of the case, but wasn’t the original choice made by the sellers to not list their home “for sale by owner”, they chose the benefits of the RMLS to get quality representation in selling their home and reach a greater audience of potential buyers?  The current system has been successfully working for over 100 years with commission rates steadily decreasing over time, and per the individual agent. 

Regarding the plaintiffs, this seems like a “get your cake and eat it too scenario”.   Everyone who has ever bought a home through the RMLS has benefitted from this system, and it continues to work for buyer representation.  My fear is it’s going to disproportionately affect first time home buyers and people with less money.   Most of these folks are tight on money to get into a home and may forgo using a buyer’s agent to their detriment.     

Are there plenty of bad & lazy realtors out there who aren’t worth their salt?  Absolutely!  I’ve heard plenty of anecdotes about how bad their previous realtor was, and how they did absolutely nothing and still got paid.   The buyers used Zillow, Redfin or Realtor.com to find their house, and then also did all the negotiations.  Should the realtor have got paid to the extent they did?  No.  Part of the problem is the entry requirements to becoming a realtor are relatively low, and you get people in the business for the wrong reasons.  Part of the problem is Zillow, Redfin, and Realtor.com but not the way you’d expect, that’s for a later newsletter. There’s a lot of part timers in this industry, and there’s a lot of people that don’t put in the work to be good.

Do I think people should be asking more of their realtors, and how they’ve done for their clients?  Absolutely.    

The biggest thing in real estate is understanding the market conditions and knowing how to play the hand for each different situation.  There’s a lot of things I do personally to keep up to date and know how to put my clients in the best position possible.  I spend a lot of my time reading economics reports, touring houses to know inventory & for pricing, keeping track of what things sold for, going to industry education classes, figuring out market dynamics, and researching different areas of real estate.   Can someone represent themselves? Yes, but it’s hard to do it well unless your emersed in the market. 

For my buyer clients this year, on average I negotiated a total of 3.4% of the sales price in seller financed closing credits, rate buy downs, structural fixes, and minor home repairs.   In home equity I got them on average 4.4% of instant equity in their purchased home (where the home appraised more for market value).   Between these two factors my clients netted 7.8% of the total sale price, which is over 3x what my brokerage got paid & was paid by the home seller.  These numbers don’t include the time & money I saved my clients in telling them to walk away from homes with structural or quality issues before an offer was written and an inspection done.  These numbers also don’t include the quality of the houses and the happiness of my clients. 

So, we’ll see what happens with the industry the next few years.  I’d expect to see your realtor have you sign an agreement on compensation at the start of the process from here on out.  In the comings months I’d like to investigate Zillow, Redfin, and Realtor.com and the effects on the industry.   Have a Happy Holidays just in case I’m delayed in writing because of them!