Escaping the Drift with John Gafford - NAR Settlement: What it Means for Real Estate

Episode Date: April 9, 2024

Welcome to new episode of  Escaping the Drift. Today, we're tackling the National Association of Realtors' settlement and what it means for the housing market. You might be surprised, but this hits close to home for me – I was actually involved in a lawsuit related to it. In this episode, I'll break down the settlement in an easy-to-understand way. We'll clear up all the rumors floating around and get you the facts you need. Whether you're a seasoned agent or a first-time homebuyer, this info will help you navigate the changing market and make smart decisions. Let's jump in!Highlights:"Our job as listing agents is to market your house and expose it to as many people as we can, to bring as many active buyers through the property.""You get what you pay for, but you should also only pay for what you're getting.""The market will right itself; great agents will continue to be great agents and give great service."Timestamps:00:21 - Unpacking the NAR Settlement03:20 - Misinformation in Real Estate05:12 - Insights from a Lawsuit Defendant08:11 - Financial Effects of Settlements12:08 - Brokerage Impact Analysis16:24 - Critique of NAR's Strategy23:26 - Local Board Benefits Explained26:05 - Adapting to Settlement Changes33:11 - Future of Commissions and Market Trends41:46 - Tips for Navigating the New Real Estate Era💬 Did you enjoy this podcast episode? Tell us all about it in the comment section below! ☑️  If you liked this video, consider subscribing to Escaping The Drift with John Gafford using this Link! ⤵️     / johngafford.  .💯 About John Gafford: After appearing on NBC's "The Apprentice", John relocated to the Las Vegas Valley and founded several successful companies in the real estate space.➡️ The Gafford Group at Simply Vegas, top 1% of all REALTORS nationwide in terms of production. Simply Vegas, a 500 agent brokerage with billions in annual sales Clear Title, a 7-figure full service title and escrow company.➡️ Streamline Home Loans - An independent mortgage bank with more than 100 loan officers. The Simply Group, A national expansion vehicle partnering with large brokers across the country to vertically integrate their real estate brokerages.✅ Follow John Gafford on social media:Instagram ▶️ / thejohngaffordFacebook ▶️ / gafford2🎧 Stream The Escaping The Drift Podcast with John Gafford Episode here:Listen On Spotify: https://open.spotify.com/show/7cWN80g...Listen On Apple:https://podcasts.apple.com/us/podcast... *************#EscapingTheDrift

But I also think that's going to be a real problem for NAR going forward. Because again, I think this is going to get approved, but I think this is going to be a problem because you're looking at, it's not, it wasn't the agents that caused this problem. It wasn't the brokers that caused this problem. It was 100% NAR. And now escaping the drift, the show designed to get you from where you are to where you want to be. I'm Jon Gafford, and I have a knack for getting extraordinary achievers to drop their secrets to help you on a path to greatness. So stop drifting along, escape the drift, and it's time to start right now.

Back again, back again for another episode of Escaping the Drift. And today, man, I got somebody that knows a tremendous amount about this NAR settlement that's out there. And if you've heard anything about this, this National Association of Realtors, the settlement of this lawsuit and how it's going to change real estate and how it's going to affect you as either a buyer or a seller or an agent. And the person joining us in the studio today that knows all about this is quite frankly, well, it's me. Because if anybody knows about this, it is me. And I have a very unique view on it. As the broker owner of a very large real estate company here in Nevada, my company was named as a defendant in one of the lookalike or copycat lawsuits

that came out about this. And I run a real estate team. I sell real estate. I am intimately involved with every level of this. And a couple of things. Since this has happened and this verdict came out or the settlements came out that have changed how we're going to do real estate, I have seen nothing but disinformation or misinformation continue to be perpetuated across all channels from the easy to swallow benign, like for example, I saw, and I never comment on other people's stuff on social media when it's wrong, but like Vivian Wu, who is, what is it? Your rich BFF, who I love her stuff. I think it's great. You know, this kind of made me realize, wow, I probably need to comment on this because

just because you're smart at one thing on the internet doesn't mean that you understand all of it. And her take on this or her hot take was so completely off base because this isn't what she does. And really all she was doing was reading clips, reading headlines and regurgitating it. And it goes from the easy, palatable, quick Instagram video like that of misinformation all the way up to the president of the United States saying that this was going to lower housing costs. This was going to make it easier for Americans to buy homes. United States is saying something. And look, depending on which way you vote, you may think a lot of what comes out of his mouth is a little delusionary or delusional is a better word or appropriate word, I guess. But that was delusional and it didn't make any sense. So on today's quick podcast, I want you to be informed as a consumer. I want you to be informed as an agent what this means.

And again, really more as the consumer, because the last thing that kind of drove me to do this was I went to a listing presentation on Friday. And this was with a guy or a gentleman that was a dentist for 40 years, a very educated man, a very smart man. I could tell just from talking to him and we were in a seven figure property as we were having this conversation about listing his house. And when I was going through the process and we were talking about

commissions of selling his home, when it got to what we were going to make, he was adamant about getting a discount. And when we worked through why he wanted that discount, it landed on the fact that he said, I'm going to have to pay my buyer's agent when I moved to Texas. And I thought to myself, wow. And this is, keep in mind, this is literally five minutes after I explained to him the value in offering a buyer's co-op to the buyer's agent. Like I just explained this five minutes ago, but he had already hung his hat on his belief system was established that this is what was going to happen because of things that he read. And it's very difficult when people have a false belief system based on headlines,

based on clickbait, based on just complete misinformation to have a false belief system based on headlines, based on clickbait, based on just complete misinformation to have a conversation that makes sense. It's very difficult to do so. So I thought that it was my obligation to shed a little bit of light on this from the view of somebody that is in it every single day, that is intimately involved with this decision, because it did affect me personally, financially, because again, we were named in the lawsuit. So that's what I want to do today. And that's what we're going to talk about. So first of all, if you have no clue what I'm talking about, there was a lawsuit, a class action lawsuit that was filed in the state of Missouri called Sister

Burnett. Now this lawsuit essentially stated that the National Association of Realtors, in partnership with all of the huge companies that are out there from Keller Williams to anywhere, which is like your Century 21s, your Coldwell Bankers, Remax, Berkshire Hathaway, all of the big companies that were out there. We're all named, all of the national companies were named in this lawsuit. Said that they colluded together to artificially inflate commissions by requiring sellers to pay buyer's agents commissions. That was the nuts and bolts of this lawsuit.

I don't think anybody took it seriously because for as long as I can remember being in this business and it's 17 years, like I don't, we wouldn't even use the word commission in open public. We would say like two donuts or four donuts. Like we wouldn't even use that word forever. And it's always been negotiable, but the general public had a belief where this lawsuit alleged that they had colluded together to keep commissions high by forcing the sellers to pay, even though this has been negotiable the entire time. I don't think anybody took this thing seriously. I think all of the big brokers and I think NAR, National Association of Realtors, thought this was going to be a rollover, just no brainer. I don't know the ins and outs of the actual trial. One of the things that I do know

that I thought was insane and tells me that they didn't take this seriously is from what I understand, not one member of the jury that was on the jury of this case had ever purchased a home. So whoever, and I'm going to use a fancy word, I wish Chris Connell was here to hear it, whoever wadeered that jury and allowed 12 people that were all renters that have no idea what it takes to buy a house or all of the stress or headaches or problems, whoever allowed that to the entire jury to be made up of people that don't understand what this is, that's nuts. That tells me that nobody was taking it seriously. But alas, the verdict came in and they awarded the plaintiffs $1.8 billion with a B

dollars. And because of the fact that this is allegedly a violation of the Sherman Antitrust Act, it gets triple damages. So now you're up almost $6 billion is where you are, which is crazy. So obviously, those companies, including NAR, they didn't have $6 billion to pay this. So everybody starts to settle. You start to see the Remaxes of the world settle for $70 million, $55 million for another company, Real Brokers just settled today for $9 million, KWS settled for $138 million, and then NAR, the National Association of Realtors, which is the big one for this, settled for $418 million.

Now, this is the one, this settlement is the one that's going to change fundamentally how real estate is done versus how it's been done for the last however long. It's a huge change in the process of what we do. Now, understand something. I don't believe, you know, if you think, if you're thinking this is some sort of a victory let's clear this up real quick if you're thinking this is a victory for the homeowners that yeah they got the evil realtors and yeah stick it to them and blah blah blah dude i saw a report the other day that you know this is this is this is not about changing the American scope. The average homeowner or home seller that is now eligible to benefit from this settlement,

by the time you add them all up, it's about $10 per household. The attorneys that represented the plaintiffs filed for $80 million in fees. So I don't think, what could you possibly have spent $80 million on trying this class action suit? This is not about a victory for America. This is a victory for a law firm. Let's be very clear about it. Now, when that happened, when that came down, immediately, guess what happened across America? There were copycat lawsuits that sprung up all over the place. Now there's north of 20 of them, including the one in Nevada, which was sprung up by some attorneys that nobody I know knows. Nobody's ever heard of. One lady is a judge that had some issues of her own, got removed from the bench, and moved to Texas is one of the attorneys on this thing. It's crazy.

It's like I want to say the office of the attorneys that filed the one for Nevada is out of a WeWork. That's how ridiculous this was. And it was word for word almost the same complaint that was filed in Missouri. And this happened across the country. And because of the size of my brokerage, we were named in this complaint. Now, there was already before the NAR, before NAR agreeing to settle,

there was already talks of consolidating all of these cases into one, consolidating across the board. All of these cases and still the ones that are outstanding, they're still talking about consolidating them now. That's still in works of getting done. But the NARS settlement, what it did was it kind of set a benchmark. And the first thing it did was it said every single brokerage that did under $2 billion in residential sales in the year 2022, according to the T360 list, less than $2 billion is covered under our agreement. Now, I'd like to preface one other thing, though. This NAR settlement has not been approved yet.

I really believe it's going to, which is why I'm feeling free to talk about this podcast. I believe it's going to get done, but I just think there's some weird stuff in it. Anyway, but back to the T360 list. T360 is a website where you can self-report your sales. So essentially, it's brokers trying to get ranked on this list and send in their residential sales. So I don't know, if you puffed your sales,

you got a real problem because what this did, when you see this 2 billion North, now, luckily we did less than 2 billion in 2022 in residential sales. Thank God, because I'm covered under this thing, which again, which is why I'm feeling free to talk about it because I'm covered under this deal. But we did less than $2 billion worth of sales. But like, if you look at other states, there've been a lot of defendants that have been added to these current lawsuits that were not on the original list because of NAR kind of throwing them under the bus

and saying, if they're north of this number, you can add them. And they've been added. And my problem with this and the fundamental problem with setting these damages or setting these who is not covered under the settlement based on the amount of sales you do is real estate brokers, we do business very differently. The way that we set up and run our brokerages can be astronomically different to the bottom lines. For those of you who don't know, not all real estate companies operate the same way. There are companies that operate on what's called a split, a high split, meaning that if an agent sells a house and that agent takes a commission, well, they're paying a

percentage of that commission to their brokerage. And in some cases, if it's a national firm, they're also paying a franchise fee to the national brokerage. Those splits can be 30%. They can be 20%. They can be 40%. Again, no set fee. Everybody can run their business how they want, but they can be very expensive. So these big companies, if you take a look at this, and let's do the math on this real quick. Let's assume that you're a lucky winner and you've done $2.1 billion worth of sales. So you take your 2.1 billion and let's say you're at a company. And again, I'm not saying it was ever a fixed amount, but we're just dealing in fantasy here with everybody saying that it was a fixed. We owe realtors had a fixed 6% commission. So let's assume that's true, even though it wasn't

and say 3% of that, which would be one side on that and get my sales on $2.1 billion times 3%. And then let's take that number, which is your commission number total that would have been earned. And let's take 30% of it for the brokerage. That's $18,900,000 that brokerage would have taken in on commission splits for the year. Now let's look at the other side of the coin let's look at the brokerages that do it the way that i do it the way that we do it which is we take a flat fee a transaction fee per deal it doesn't matter how much the deal is it doesn't matter how big the commission is it does not matter to give you a clear frame of view on that,

at one point several years ago, one of my agents did the largest single residential transaction in the history of Las Vegas when we did the Veer Tower acquisition, when literally every single available unit at Veer Tower was sold from MGM to Portis. One of my agents did that deal. It was a monster deal, seven figures. I mean, no, it was, God, how many figures was it? It was nine figures. It was huge. It was a nine-figure deal. He got a monster commission. We made $595. That's how much money we made on the deal because that's how much money I make on every deal we do. So let's take a company doing it like that. I'm not even going to say 595. Let's say they make 400 bucks.

So let's say you take the 2.1 billion. Let's divide it by 450,000, which is an average sales price in most markets now. 450,000, that means that they sold 4,666 units. You multiply that by $400. Now that brokerage is taking in 1,866,666. So literally a tenth of what the split company is. But when they're looking at these settlements and they're looking at the amounts that they want these brokers to pay, they're basing it on their sales, not on how much money the brokerage made. I think that's a little screwy to me. I think that's very unfair. I think it's incredibly unfair to the flat fee brokerages, which actually had no interest whatsoever, no interest whatsoever in the amount of the commission. They don't care if it's 12,000 bucks. They don't care if it's 6,000 bucks. They don't care if it's 150,000 bucks because they're

making their one fee. That's all they make. It doesn't matter. They have no vested interest in the amount of the commission. It didn't matter. But the companies that did are going to wind up paying the same amount of fees here when they're making 10 times more, which to me is a problem. But I also think that's going to be a real problem for NAR going forward. Because again, I think this is going to get approved, but I think this is going to be a problem. Because you're looking at, it wasn't the agents that caused this problem. It wasn't the brokers that caused this problem. It was 100% NAR because you're talking about, we all play a game. We're all players in a game, players on the field.

That board is laid out by the National Association of Realtors and the rules to that game are laid out by the National Association of Realtors. We have no choice but to play their game or we can't play. So if I don't play by their rules, I can't play. And now all of the players that are over that 2 billion mark are being punished. And it wouldn't surprise me at all to see NAR have a problem from some of those people that are having to pay these giant fees because they were just playing by the rules that NAR set out. You know, when it comes to NAR, and I think you're seeing this as well, you've probably heard, you know, Mario Emanski, who's famous from The Real Housewives of Beverly Hills, owner of a company called The Agency, working with a Compass agent out of New York is talking about forming a new national realtor association called ARIA or ARIA. I think they're calling it Association of Real Estate

Agencies, Professionals, whatever it is. I'm not sure what it is exactly, but they're talking about that. And he speaks very freely about there's not a lot of value in the National Association of Realtors. There just isn't a lot of value for any of us. And I think they're going to have a real problem pressing forward, showing us what that value is. For most brokers and most agents, the value that we get is from our local realtor boards, not the National Association of Realtor Boards. And as much as I disagree a lot of the time with some of the nonsense and high school politics that get played at the local board, and believe me, it's plenty, I do see value in the local board. And I'll tell you what it is. People ask me all the time, what's the value of being a realtor? What's the value of being a realtor? Look,

I think 95% of it is pomp, circumstance, and nonsense. It's print up an award and hand it to the person to the left of you while they all stand in a circle and clap. That's what it is. But there are certain things within the local realtor board that I do believe are incredibly valuable. The first one is the arbitration model. And again, when you look at the heart of this, the problem being attorneys and lawsuits, and I'm going to get to why that's a bigger problem later, having that ability to have a place where we can arbitrate problems when there's an issue with a contract is really invaluable to saving legal fees. It's really, really great. The next thing is policing the MLS. Yes, with our local board here, the MLS has been split away, technically, sort of, I don't know, kind of run in the same building. Who knows? Those two things are split, but it's not access to

the MLS that's of value. It's the policing of the data. If you are a commercial agent or if you've ever, or you know a commercial agent, call them and ask them this one question and they will, without a shadow of a doubt, tell you this is true. There's no policing of the data within commercial real estate, meaning that if I get a listing for a warehouse, I'm going to throw it up on LoopNet or PropertyLine or wherever, and I'm going to leave it there forever, whether it's available or not, because it's getting me leads if somebody happens to not have an agent and fall upon one of those sites. So the data on most of those sites is trash. Whereas if I have a client looking for a house in the MLS and I go on the MLS, I can pretty much know that that house is available. The person that's listing it wants to

sell it. It's still available on the MLS. It's still there. Now, while yes, all MLS sheets are marked, you know, information deemed reliable, but not guaranteed. I can pretty much assume the house is still for sale, which makes our job immensely easier in some cases than commercial agents have to make 50 phone calls to see if this even still exists. And when in a lot of cases, it doesn't. Now, the next thing is standardized forms. You know, one of the things that we're really big on is acting within our scope. Act within your scope, act within your scope, which is, we're really big on it, right? Imagine if every single person had a different contract. And I'm telling you right now as a broker that if you didn't know this, if you're just a consumer listing,

the broker assumes all of the liability of the agents. So the 585 agents that I have, anything they do, I and my partner are responsible for by law. So anytime that there's a screw up, the agent doesn't get sued. Or even anytime there's a door, I'm not even calling it a screw up. I'm going to say anytime there's a window of opportunity for an opportunist with any type of a lawsuit, including blatant nuisance lawsuits, I'm the one that has to show up and pay the bill. That's the gift of being a real estate broker and owning a real estate company as we assume responsibility for everyone. You know, people think, you know, when you look at a contract, when you look at your

contract, the only reason your agent's name is on your contract is to make your agent feel good about themselves. It's the only name on the contract that matters is the clients and the brokers, because the broker is the one that's legally accepting responsibility for everything that's in it. But having standardized forms is so important because if everybody had different contracts and all of a sudden now I've got 585 chat GBT attorneys trying to figure out legalese who are in a contract. That would be an absolute nightmare and it wouldn't be possible. This job just wouldn't even be possible.

And the last thing I would say, the benefit of the local board is going to be having that standardized lockbox system that allows us to be able to get in and out of our stuff. But outside of that, I just, I mean, for me, that's why I believe the local board is important. And outside of that, I don't get it. I know that's going to be an unpopular statement to a lot of folks, but hey man, that's my opinion on how it is. Now, when you talk about the actual settlement

of what NAR has agreed to do and what's going to change, it is this. We are no longer allowed to say that buyer representation is free. Now, I will admit this was something that when I got in the business 17 years ago was rampant. You saw it everywhere. The reason you use me is because I don't cost you any money. It's free.

It is what it is, blah, blah. When in reality, because you're buying the house and that commission was built into the price, it's not free because ultimately the buyer was paying it. I haven't seen anybody really doing this in a really, really, really, really long time, like decade. But when I first got in the business 17 years ago, that was pretty prevalent. Not allowed to do that again. Now here's the key one that everybody seems to be screwing up. They are no longer allowed to advertise, keyword being advertise, co-ops in the MLS. All right. What that says is I can no longer advertise as a seller that I'm willing to pay a buyer's co-op commission in the

MLS. What this is designed to do is designed to have agents not filter listings based on potential commission they could earn. It's called decoupling. They want to decouple those sides and it's supposed to be where the buyer will pay the commission. Now, it doesn't say that sellers cannot pay buyers agents commissions. It does not say that. What it says is they cannot advertise it in the MLS. I would be hard pressed not to see sites like Zillow, Trulia, Realtor.com, Homes.com, at least before they get in trouble,

really lean into saying, you can put your co-ops on here. We're not the MLS. You can do whatever you want on your listings here. I'm free to put it on brochures. I'm free to put it on my website. I'm free to put it everywhere. It does not say sellers cannot pay this. It says realtors may not advertise this. Now, here's a biggie. It also states that before you go see properties with a buyer's agent, you are going to have to sign what's called a buyer broker's agreement. It is essentially a listing contract for a buyer is what it is. Now, here's the funny thing with

all of this stuff. Here's the funny thing. I don't care about any of this. And here's the funny thing i don't care about any of this and here's why because i've been running my business exactly like this for 17 years we have never taken a client out nor would i taken a client out without having a buyer broker's agreement in writing stating they were hiring us to work for them. I think that's what professionals do. Now, as far as not offering co-op, I mean, yeah, we've all been doing that part. But when you look at what this is going to do and what they're saying it's going to do, I just don't see that necessarily adding up. Because if you look at the falsehoods that are out there and you look at the misinformation, here's some of the biggest ones. Number one, you look at the White House spin, Joe Biden up there saying that, oh, this is going to help affordability and it's going to make

houses more affordable. Well, it's not realtors making houses less affordable. It's BlackRock and the Fed. Now, the reason I say that is because, yes, the percentage of homes owned by investors has been grossly overestimated in a lot of clickbait articles, but it's really happening. And here's the part of it that I think people miss. When institutional investors like invitation homes or BlackRock buy a single family home, when they buy that house, you might as well burn it down. Now, I don't mean go out and commit arson. That's not what I'm saying. What I'm saying is that house is never going to come up on the open market for sale again. It is not going to go through its seven-year, six-year life cycle with the current buyer

who's going to want to move up or downsize and then get it listed to put back into our housing inventory. It might as well no longer exist because if it ever gets traded, it's going to get traded as a bundle of properties to another investment vehicle, to another investment arm, to another company trying to commoditize the American dream. So I think that's the real effect of what we're seeing. And you're seeing that in these markets where you're seeing a lot of houses get sold cash like here in Las Vegas. That brings me to the second thing. The Fed not doing anybody any favors with the interest rates. Now, yes, I get inflation. Yes, I get all that. Yes, I get we printed all this money. I'm not an economist. I'm not going to try to get

into what I don't know, which is why I'm doing this podcast. I'm trying to stay in my lane. If other people did that, I wouldn't be happy doing this. But when you look at what the Fed has done, if you are a person, I don't care if you want to move up. I don't care if you want to downsize. If you're sitting on a 3% interest rate, you are never going to swallow one of the sevens. You're just not going to do it. You're just like, I don't care if this house is too small. I'm not going to double my payment for something that's not even close. When those rates, the number that I keep seeing or I keep hearing from everybody is 5-5. When the number hits 5-5, you're going to start to see housing inventory ease up a little bit because people that have rates at 3-2-5 will

swallow one of the low fives. They'll make that move they've been sitting on and you'll start to see some of that inventory come back. But again, this is about supply and demand. There's not enough supply across the country. Demand is still high, even though rates have gone up. I mean, look, everybody that says, I love this, this is my favorite thing. When people say like, look at Las Vegas in particular, when people talk about, oh, I'm waiting on the bubble to pop. When the bubble pops, I'm going to buy. Dude, I can give you 800 reasons why it's not going to happen in Vegas, from the amount of investors that have come in to buy cash, from the amount of equity that there is there that you need foreclosures for a bubble to pop,

and the fact that equity doesn't go to foreclosure because somebody will buy it up, and there's a pain. And then I'm like, look, the only thing that would cause a crash at this point is going to be a black swan event, right? Meaning some major catastrophic event that would cause our market to collapse. I don't know. Like, for example, COVID, when the number one economic driver of the whole market here, which is the Las Vegas Strip,

was shut down by the U.S. government. The number one economic driver was shut down by the U.S. government by an extended period of time. And what happened to the real estate market? Prices went up. So if that didn't do it, I don't know what is going to do it. But that, again, it's not realtors causing housing pricing to go up. It's all of these other extenuating circumstances that are making it go. That's the problem. Another falsehood. Commissions were always set at 6%. This is not true. It has never been true. Commissions have always been negotiable across the board. Like I said earlier, in open classes and open classrooms, we would not even use the word commissions. You'd call them donuts

or whatever else because we didn't want anybody to think that there was any collusion or any fixed rate commission. Now, here's what I say to people that think that. Anybody that thinks that we had some kind of rule that you had to have a 6% commission. Well, when I drive around in my city, and I don't know about where you live, but when I drive around in my city for years, I see people up on billboards, list your house for 1%, list your house for that. Don't you think that if we had some kind of secret handshake that we all had to abide by, these guys would be doing that a little quieter rather than buying a billboard that 100,000 people drive by every day? It doesn't make any sense. So where this came up with or where it's being perpetuated,

it's just nonsense because all you have to do is open your eyes when you drive around in the town that you're in and you'll see that this is complete nonsense that we have this. Next falsehood, sellers can no longer pay buyers agents. Now that is absolutely just not true because if I'm a home seller, now let's talk about where I think this is going to go, where I think it's going to go with buyers, agents, and sellers. And this is what we're advising our sellers. Number one, I think that commissions, will they constrict? Are they going to come down a little bit? We're already seeing that in our market a little bit. We're seeing commissions come down. I think some of that is being based on

greed, not necessarily from sellers, but from agents that are probably keeping a bigger piece of the pie and trying to pay the buyer's agents less. But I think what you're going to see is you're going to start to see commissions become a little cyclical. And yes, in a tight market right now where there's not a lot of inventory, is it going to compress some of those fees? I think it will. If you look at new homes and how new homes have always functioned, when the market's booming, man, they'll pay us a little bit. But when the market gets cold, all those new home reps come rolling into our brokerage with those flyers, now paying 5% on standing inventory. Look at all this money you can make if you sell these houses. I think with sellers, it's going to become the same way. In super hot markets, where there's limited inventory, you're probably going to be able to get away with a lower co-op.

But I still genuinely believe that you need to pay something. And any good agent that talks to you in a listing presentation should tell you this. Here's why. Our job as agents, I know this sounds weird, but as a listing agent, I don't believe that it's our job to sell your house. No agent in the world is good enough to flat cold close somebody on your house. Here's why. It takes way too long to buy a house and there is way too much time for a buyer to change their mind. At no point has a buyer bought a house and then the day they bought, they closed on it, they're sitting in the house like, oh my gosh, how did that happen? I got buyer's remarks, we shouldn't have bought this place. It's not a Hooters t-shirt. It's not an impulse buy.

It is a house that you can have inspections. You have due diligence. You have HOA docs you can go through. There's a lot that goes on in that process. So you just don't have somebody that's good enough as a listing agent to just flat close somebody and have it stick if the house didn't do their job. Our job as listing agents is to market your house and expose it to as many people as we can and drive as much interest into that property as we possibly can to bring as many active buyers that want to and can purchase your property through the property. That's our job. And then to negotiate you the best deal that sticks and get it from that point to closing. That's our job. So if I'm sitting with a listing presentation, I'm talking to a seller. It's like, look, if you have any hope of selling your house to anybody that has served in the armed forces of

this country that is utilizing a veteran's loan it is not they are not allowed to pay any fees at all when purchasing a house they're not allowed to so you're telling me that every single veteran in the united states is going to become unrepresentable because of this new agreement? Absolutely not. Absolutely not that's going to happen. So you need to offer something so people can bring clients. And if you offer zero, if you're telling me zero, you need to expect that offers are going to come over that have a closing cost commission written into them. We'll talk about that in just a second. Because what's going to happen is these transactions are

going to work exactly the same way commercial does. How commercial works is when you send an offer or a letter of intent over in a commercial building, it includes compensation. It includes what the agent that's representing the buyer or the tenant is going to earn based on the contract. And it's a negotiation point in the contract. And the same is going to happen within our offers. Now, here's the interesting point. I've been doing this for years this way, because when somebody hired us on the buyer side, again, I already told you, we always get a buyer broker agreement. And within that buyer broker agreement, it states a certain fee that we're working for. Now, when we would go out into the marketplace of our client found a house they wanted to offer,

and the co-op was being offered at less than what was in the MLS, well, then we would ask with permission of our client, we would write this phrase into the other terms, which would say buyer is being represented by buyer's broker under buyer brokerage agreement, ensuring that buyer's broker earns X. Property is being offered in the MLS at X, creating a shortfall of Y. Y is now a material fact closing cost for the buyer. Buyer asks seller to make this up as an additional closing cost. Now, again, I've been doing that for probably 12 years, as long as I can even remember, probably 12 years doing it. The only funny thing I'll tell you about that is I would get in, let's call it, I'm not going to call it arguments. I'll call it debates. We'll call it debates

with broker, what was particularly one broker at another company that was, we'll call, we'll call this person a high ranking member of the local association is what we'll call this person who called me to tell me that by doing that, we were violating the code of ethics saying that you, we were negotiating commissions. And he quoted whatever the code of ethics was about me about doing this. And I said, no, I'm not negotiating a commission. I'm requesting for a material fact closing costs, which is well within my right to do so. The ironic thing about that is when we're meeting with the NAR attorney recently, when said person asked the NAR attorney about this and said, are you guys going to change the code of ethics to allow for the negotiation of commissions within the contract? And the NAR

attorney's answer was, well, that exact section of the code of ethics allows for you to negotiate closing costs in that manner. So, hey, I felt a little vindicated, but I also thought it was a little funny that, you know, I'm not blaming the guy that thought it was an ethics violation for us to do this. He probably genuinely believed it. And who knows? Before this came up, the NAR attorney may have agreed with him, but I just thought it was interesting that now it's switching to this, all of a sudden, oh, it's okay. We can now do this, which I thought was interesting. But that's how commissions are going to get handled. You know, my favorite misconception that I saw, and this is the one that Vivian Wu or whatever said that really bothered me that I was like, holy shit, this is bad. Well, she said, you know, just hire like an agent and pay him like $500 to write the

contract. Let me tell you why that is absolutely not gonna happen. Because if you remember back a couple of minutes ago, I talked about, I personally have the liability of 585 people, right? We make a very small amount per deal. Now, the way that our contracts have always kind of read are if a commission or a referral is below a certain amount, then we'll only take like 20% of it. So in this case, it would be like a hundred bucks. If you think I'm going to risk a hundred thousand dollar nonsense lawsuit for a hundred dollars, you're crazy. So you may see some brokerages pop up, fly by night, an offer to do stuff like this. Zero chance they will last because the first time they get served a lawsuit, they're cooked because the juice won't be worth the squeeze. And if you're like, well,

how many lawsuits could you possibly be in? Guys, only behind Germany per capita, the United States is the most litigious country on earth, which means there's more civil lawsuits about anything, anything. And we get sued over stuff that is, if you saw it, it's crazy some of the things we get sued over. Like legally, we are only allowed to do this. We're not allowed to do this, but then I'll get a lawsuit because we didn't do this. Like if I was to do what this person is saying I didn't do, which caused this problem, I would actually be in violation of my license and lose my license for acting outside my scope. But now I have to defend a lawsuit over it because it's never about being right. It's about getting to our insurance and trying to get a settlement. But because it's never about being right. It's about getting

to our insurance and trying to get a settlement. So, but if you think that a broker is going to take on the risk of this or that you're crazy, it's just never going to happen. So let me kind of get to, I want to talk now about what does this mean? If you're a buyer, what should you do? If you're a seller, what should you do? And if you're an agent, what should you do? The first thing I would say is if you're a buyer, you need to interview your agents. And when you interview them, I don't mean, do I like this person?

I don't mean, are they the best looking person on Instagram? I don't mean, you know, do I feel like I want to ride around in a car with them for three days because they're fun to look at? No, experience matters. I would look at their reviews. I would want to know how much they've done this. I would know how many deals they've done. I want to know all of that stuff. I want to know what service you're going to provide me. If you can't articulate exactly the service I'm going to get from A to Z, and it better be more than opening

a door and saying, here's a fireplace. It better be more than that, right? You've got to have some serious services, some serious chops to justify getting paid in this thing. You know, I hate to tell you, I think the lottery agents are gone. You know, they're saying there's a report that I saw today. Again, it was crazy. They came out, no, not today. This came out a while ago, but it says that they're thinking NAR is going to shed between 800,000 and a million realtors. I don't know how accurate that number is. I think that there may be some truth in it because here's the deal. You got to remember, you know, if you look at our local board, I think a local board here, I want to say has about 16,000 agents in it. Half of them have something in common, which is they didn't do a deal last

year. So while they're paying these fees, I have no idea why it's advantageous for them to do that. My company, something we decided to do a long time ago, I'm probably one of the few brokers in Vegas that actually lets people go. If you're not doing any business and you're just off at another job and this is just like you have this in case something comes up, I'm not the guy to work for. We're not the place to work. And I think the market is going to shake some of these people out. I think if you're a lotto agent, you're kind of screwed. But also remember from the buyer side, because you're getting what you pay for, right? You get what you pay for, but you should also only pay for what you're getting. You know, see what they're going to do and understand that this is the largest single purchase you're ever going to make.

There's a lot of moving parts to it. There's a lot of things that can go wrong. You want to understand that you're doing that. I would also, when you find the right agent and you find the right buyer out there, I would not look for the cheapest person because you got to remember this. And this is one of my favorite things to say when I negotiate occasionally hard with clients, because you have to sometimes, which is if I'm not willing to stand up to you, why would you think I can stand up for you? Because if somebody is just going to fall over and say, I'll be the cheapest, are they going to get you the best deal? Are they going to negotiate the hardest for you? Do they have the highest skill level to accomplish what you're trying

to accomplish? You get what you pay for. Now, my advice is, even if you feel it's a little more than it is, overhire. What I mean by that is, if they say they want X amount percent as part of a buyer broker, give it to them under the understanding that if they can't get it done in the contract, it ain't going to happen. They can't get it done as part of the closing costs. We're going to have to rework this. And the reason you want to do that is again, you've got to get them the ability to ethically negotiate this within the contract as a closing cost for you. And it's got to be a set agreed to amount. You might as well agree high and then work it down

if it has to get worked down. You might as well. But if you cut their legs out from them to start, they're going to be a little more, probably a little more, you know, there's a better chance they're going to put their heels on the ground when it's time to get paid. So give them the opportunity to start a little high and work down, right? That would be my advice. And I thought about this. What would I do if it was me? As a seller, again, totally up to you, but I would definitely still be offering a buyer

co-op because I want as many willing and able people as I can get to come to my house. And when inventory spikes up and sales slow down, and it will at some point because everything is cyclical, nothing stays this hot forever. What goes up must come down. But at some point, you're going to see buyers offering, you're going to see sellers offering 4% and 5% co-ops to try to get their houses sold. And you're going to see it on the flyers in the mailboxes in front of the houses. You're going to see that because people are going to be doing what they need to do to sell their houses. But I would still want to offer it because I don't want the VA

buyers walking away. I don't want that. But remember also, one thing I forgot to say about the buyers, you can finance commissions. People think you can't because it's a closing cost. If you look at the current stuff that's out there on conventional loans, if you put down less than 10% on a conventional loan, the max seller contribution can be made as 3%. But if you put down 10.001%, well, now it jumps to six. So you can finance that.

Conventional, put down 15% or more, 2%. FHA is 6%. VA is unlimited. USDA loans is 6%. So you can absolutely finance this stuff in. And if you think that just because now we have to decouple commissions that automatically every house is going to get 3% cheaper, is that what people think? Because I don't think that's going to happen. I don't think it's going to happen. So yes, you can roll this in. Yes, I believe it will still appraise. Now, if you're an agent, what you would do,

number one, especially if you're somebody that doesn't do a lot of business, I genuinely believe in, and this works well for me again, because like my company, I don't have a new agent training program. I don't have one because we don't hire new agents as standalone agents. The reason we don't do that is because something like 85 or 90% of agents that get in this business fail within year one. And the reason that is, is because they go to some brokerage that has a new agent training program and they sit in a class like this for eight days with a person in front of the room that teaches them, but that person

does not have a vested interest in the success of that agent. They get paid the same, whether they're the broker or the trainer or whoever they are, they're getting paid the same, whether that person succeeds or not. So therefore, what we have always done here, again, is to come work here as a brand new agent, you must join a team. Now, what is a team? A team is when you have a Rainmaker agent that has leads, mentorship, does a great business, will bring you on and mentor you, give you leads, make a financial investment in your success and teach you the business. Now, because they're making a financial investment in you and a time investment in you, the chances of you succeeding are much,

much higher. So if you're somebody that doesn't do a lot of deals currently, you're going to need to associate with somebody that's going to give you the reputation of that team, the experience of that team, the backing of that team, the service of that team to be able to show value in a presentation for a buyer. Otherwise the look at me, I'm just super cute and I have a cool Instagram. That ain't going to get it done. Nobody's going to hire you for that. If you're part-time agent and you just have your license because you want to just be that, if my sister's cousin's friend's husband wants to buy a house once every six years, honestly, you're fucked. I just don't see you making it. I don't see that working out here. If you are at a company with a big split, you may want to reevaluate that.

Because as commissions constrict, I very seriously doubt they're going to lower their percentages. I'm surprised I haven't seen any of the big're going to lower their percentages. I'm surprised I haven't seen any of the big companies looking to adjust their splits commissatory because I do think commissions are going to adjust downward in a tight market, but they will expand in an up market. But right now, obviously, we're in a tight market. So if you're somebody that's working at a company with a big split, you may want to take another look at that. Listing agents. I just wrote in my notes, don't be a prick. What I mean by that is be completely transparent in what you're doing with your clients. They should know exactly how much of the commission that you're agreeing to you're going to allocate to the buyer and how much you're

going to allocate to yourself. They should really now be two completely separate conversations, not just here's a blanket commission. You figured out when the offer comes in and you negotiate, whatever you pay them is coming out of yours. That's lazy. I think that's going to get you in trouble. I think it needs to be extremely transparent. It should change on our listing contracts. A couple of years ago, we had it where it was split. I talked to a buddy of mine that owns another company the other day. He said, they're actually going back to the old contract. I think we're going to do the same thing where it designated, this is what the buyer's agent can get. This is what the selling agent's going to get. And I would just be very transparent

with it. I mean, obviously that's part of the problem to what got us here was lack of transparency. We want to get there, but make it there. I mean, you've got to kind of explain to your clients why this is probably a still like, yeah, good idea. Now, remember, sum it up. There's going to be turmoil here. There's going to be a little bit of chaos in the markets until we figure out exactly how this is going to work and what's going to happen. But the market will right itself. Great agents will continue to be great agents and give great service. The level of service for buyers probably will step up because people are going to have to step it up now. So I think that is good for buyers.

Do I think it's going to help ease access to the real estate market by lowering pricing? No, I do not. I don't think it's going to have anything to do with that. Do I think sellers are going to save a tremendous amount of money? No, I don't. I don't think it's going to have anything to do with that. Do I think sellers are going to save a tremendous amount of money? No, I don't. A little bit here and there. Maybe, maybe not. Is it going to cost buyers more money exponentially? Maybe a little bit.

No, I just don't know. But the point is, don't believe all of this nonsense that you're reading. Like, ask somebody that knows. We are arming all of our agents with an exact outline. Because here's the funny thing. Like I'm talking to this guy the other day in this listing presentation. And like, dude, I'm like a defendant in one of these lawsuits. And this guy was a defendant before we got covered in this NAR sentiment that hopefully

we'll get through. But I'm like listening to this guy. And I'm like, how are you arguing with me on this? Like, how are you, how, like, it'd be like me going to the doctor and being like, I don't think you know what you're talking about. Like, yeah, you're clueless. No, no, no, no. I read on Dr. Googling myself. That's what this guy is doing is Dr. Realestating me is what he was doing. And it's crazy. So be careful what you believe, be careful what you read. And hopefully this helped you, whether you are a potential buyer, potential seller, just kind of curious, or you're an agent in the marketplace.

I hope you got something out of this. We'll be back with another live guest next week. Any more questions, man, you can always DM me on the Instagram or hit me up right through the Escaping the Drift website. Anyway, see you guys next week. What's up, everybody? Thanks for joining us for another episode of Escaping the Drift. Hope you got a bunch out of it, or at least as much as I did out of it. Anyway, if you want to learn more about the show, you can always go over to escapingthedrift.com. You can join our mailing list.

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