KGCI: Real Estate on Air - The Impact of the NAR Settlement for Investors.

Episode Date: May 7, 2024

Welcome, everyone. This is the abundant investor podcast, and we are Beth and Christine, your host. We are here to show you how you can live your rich life right now with the power of an abundance mindset and tools the wealthy have used for years that are accessible to the rest of us, things like real estate investing and using the powerful benefits of life insurance. We're so glad you're here. Now let's dive in. Hello, everyone. This is Christine Fisk. I'm here for the Abundant Investor podcast. I'm here along with Beth Rooney, my co-founder and podcast, fellow podcast hosts. And today we are addressing a topic that's very timely for everyone in the real estate world.

We're going to talk about the recent NAR settlement. Everyone's talking about it. I think, though, we've got a really interesting perspective on this, especially Beth, with her experience, managing agents and big offices in the Boston area for over, what is it, 11 years, Beth, 15 years? 15, 16 years, yeah. 15, 16 years. I know Beth has seen it all because I've seen her, I've witnessed her talk about this. I've seen her experience when I was working as a buyer myself and she knows her stuff.

So we're going to get into how this settlement that is happening right now is going to affect buyers. We're going to talk about how it affects sellers, investors, and agents. So all you agents out there, I want you to stick around because we are going to dive into what this means and how we see this, we actually see it as an amazing opportunity. So we're pretty excited about it from that perspective and our timing coming into coming back to real estate in the buying, selling and investing, working with those customers. I think there's a tremendous opportunity there. So let's just dive in. This is very timely. Beth, can you just start by explaining to everyone at a really fourth grade level? What's happening with who's NAR? What's happening with NAR? What does this mean for the real estate industry?

Absolutely. So NAR is the National Association of Realtors. Okay. So as an agent, you have the opportunity to join this association. You pay a certain annual fee and you now are a member of. So when you hear those funny memes about being a realtor or a realtor, all that kind of stuff, that's a realtor is somebody who's a member of the National Association of Real Estate. And there's local tour. chapters, like locally here we're a member of the Greater Boston chapter. There's a chapter. So NAR, there's been a number of lawsuits and copycat lawsuits around how commissions are paid out in real estate. And NAR recently settled for over $400 million and covered most all of those cases with the extinction of some very large companies. So that settlement was just reached last Friday or last week. And it's really going to have, you know, there's a lot to it. And it still has to be redacted and all that kind of stuff.

But really, there are two major takeaways. The first one is that you can no longer make an offer of compensation on the MLS. Now, in some parts of the country, the MLS is actually run by the local association. In ours, it's not, but it varies across the country. So it doesn't matter. They're saying from here on in, the local MLSs or the multiple listing services is what stands for MLS. Right, which is like the professional. That's what real estate agents use to look at comps, to look at listings, to list things.

It's like what realtors use instead of the average person looking at Zillow. You're right. And you don't have to be a realtor in some markets to be able to have access to the MLS. In some markets, you have to be a realtor to have access to the MLS. So it's, it varies. But it's not open to the public. And the offer of compensation is unilateral, meaning that if a seller has agreed to pay, let's just say as an example, two and a half percent, that offer of compensation is unilateral,

meaning that's open to anybody that's on the MLS. If you're going to buy or fourth and you consummate a sale, you get paid the two and a half percent. So that is a big difference. going forward, that offer of compensation from the seller can no longer be advertised on MLS. So it's a really important note because they're not saying that sellers cannot offer compensation. And when you say sellers offering compensation, you're talking to the buyer's agent. You got it. That's right. Thanks for that clarity. So they're saying that if a seller is offering compensation to the agent representing the buyer,

they can no longer advertise whatever that compensation amount is on the MLS. Got it. So just from like a really basic point of view, because I'm new to being an agent, but I've sold and bought a lot of houses. When I've listed houses before, it's been we pay our broker. It's 5% around here generally. That seems to be what most people are paying in the Boston area, right? And so I'm paying 5%. Half of that has gone to the buyer's agent who's brought the buyer to the table. And when I'm a buyer, I typically have not paid anything. And it's great because I've hired a buyer's agent in the past. And then the seller has compensated my buyer's agent. Yeah. Yep. And it's a matter of, it's really a matter how you look at it,

because they're not going to pay you if you don't come forth with a strong offer. And they're using the proceeds of your offer to pay that whole commission. So yes. So technically, how it's always worked is that the listing agreement between the seller and the listing company has a place to negotiate the total compensation and then how that compensation is going to be broken down. So it's always been negotiable. Like we do have companies around here that maybe they'll take a 5% listing, but the company, the listing side will keep three and only offer out two. That is a hard. of a term and condition of the contract between the seller and the listing company. And that's always been that way. And then whatever they agree upon, they advertise on the

MLS. And that MLS, that offer of compensation is unilateral to any member of the MLS. If they bring forth a buyer, consummate a sale, they are entitled to that compensation. And so, yes, buyers, But, you know, that doesn't mean that buyers haven't at times also paid their buyer's agent. Got it. Okay. So now sellers aren't able to advertise that. So what's the buyer agent to do? Well, let's just let me just go back to because we talked about there were going to be two major takeaways. So that's one of them. Yes. Another major takeaway is that now buyers agents that are working with a buyer need to have a written contract. and the terms of that contract are really important. And that's what you can get into next.

So that's a big difference. In the past, I could just disclose to you or we could just say that I'm your buyer's agent, Christine, and we sign a mass mandatory disclosure that now you know who I am. I'm not representing. But I have no contract with you or you have no, and I could still represent you without a written contract. And they're saying no longer. So those are the two big changes.

Got it. Okay. All right. So that is, that's substantial. This is a big change for anyone in the buying or selling a house, right? And I think for the buyer or seller, it's really important to understand that. And I think probably a lot of people didn't understand how it even really worked before. So this is great. And hopefully it's opening the consumer's eyes, consumer meaning the buyer or seller as well. Okay. So that's really helpful. So I'm a buyer. And, you know, I'm ready to go start house hunting. Maybe I'm relocating to Phoenix and I want to find a house and I fly out to Phoenix and I start interviewing agents. What should I be thinking about and how do I become an informed buyer now? Excellent. I will walk you through that. I do want to say that many, because I've managed agents for over 15 years, my best agents already practice this practice of having a contract with their buyer.

So I can tell you right now, many agents, this is no change because this is how they do their business. However, going forward, they won't have that option. So as a buyer, okay, so now your first step as a buyer really does need to be hired to hire an agent, okay? And so when you're hiring an agent and you sign a contract, there are three major variables in that contract that you ought to be having a conversation with that agent about. The first variable is the length of the contract, okay? So any contract that you sign, really, no matter what you're doing, has a timeframe. So that time frame could be one day, one week, one month, or one year. So if you see a property and you have a buyer agent and you say,

I want to buy this property in this town, but only work with this buyer agent on that one property for whatever reason, you could make that contract good for a day, a week. You know what I mean? So it's really, that's a negotiable term, the length. The second negotiable term and important to talk about is the geographic area. So in my last example, it could be for one house, one neighborhood, one town, one whole state. You know, so you have that flexibility. And then the third big piece of it is the compensation.

And that compensation really has two parts. The first part is how much are they going to get paid? and the second part is how are they going to get paid? Where are those funds coming from? Okay. So again, the amount is negotiable. Could be 3%, it could be 2%, it could be a flat fee, it could be 2 and a half percent. You negotiate that.

Then you say, okay, now how is that compensation going to be generated to pay my bill now that I have owed to this buyer's agent? Right. So there are three options. The first one remains that the seller can pay that. They can still offer compensation. They just can't advertise it on MLS. So that's option one.

And option two is the buyer pays it and wraps it into their closing costs. Now, that is a little bit more complicated because depending on the program that you're, the mortgage program that you're using and the amount of money that you're putting down in your credit score and all that kind of thing, is going to really have a lot of variability on how much you can wrap in. And then the third part is the buyer could actually just write an agent or their company a check. Really, it can be a combination of all of those things. So let's just say as an example, you and your buyer's agent agree that that buyer's agent is going to get,

just for easy, ease of purposes, they're going to get paid two and a half percent. Okay. The buyer, the seller may be offering 2%. So the seller offers 2%. Buyer says, thank you very much, Mr. Mrs. seller. We'll take that 2%. And now I still owe 0.5.

And I can add that now. Maybe I can wrap that amount into my closing costs. Or I'm wrapped into your mortgage. You can do, yep, exactly. You could do a combination of any of those three. Got it. Okay. And I'm guessing that buyers are going to be looking to their broker

for expertise on this, for confidence around how they're going to handle it. And there's probably room to negotiate with some agents. And some agents might be, this is the way it is. This is my fee, period. And yeah, it's always- It's 100% negotiable and always has. You know, those headlines are sensational about saying the 6% is going away. They can no longer negotiate.

They've always been negotiable. So yes. And yeah, I think that what's happening is it's really putting a spotlight on having that conversation, which has been avoided for a lot of reasons, mostly because the buyer's agents don't necessarily, I think, have the confidence to lay it out like I just did. This is my value. This is what I should get paid. And this is how we can get it paid.

It's really important to know, Christine, why the, you know, the next step in this whole process, is getting pre-approved, but it really has to be that you have to hire your agent first before you go get pre-approved because you want to know those terms and conditions before you get peer-approved because it may affect how much you're going to get pre-approved for. And if seller is not offering compensation, then refusing any compensation, it's going to make a difference as to how much you can spend on that home, all of that kind of thing. So it's really now, it used to be, I think we'd say, go get pre-approved and then come talk to me as an agent anymore. That has to be reversed.

Yeah. You know, like the more you talk about this, the more I really feel like it's so important for buyers to be connecting with agents who really have wrapped their head around this, who really understand it, who really know how to convey their value, who know their stuff in general, and then also around all of the applications in terms of how the fee can be structured. knowing who to talk to from a mortgage perspective to get pre-approved. And our buyer guide, I'm also, like, my head is also just, like, flipping through that beautiful buyer guide that we created that walks people through the 10, walks buyers,

through the 10 steps of buying a home. And we lay this all out there. You know, and I think, like, what a gift that is for someone, especially if they, I mean, really, for anyone right now, especially for the newer home buyer or someone who hasn't had to think about this in the past, right? So, you know, I think that that's, we'll get to the agents, but the agents that are going to succeed going forward are the ones that really know how to convey this information

as eloquently as you do, and who are able to lay out the process and guide their buyers through the best way to go about this process of buying a home. Because it really is the process, and the buyer's agent does bring so, has the potential to bring so much value to the table. always has, I think. And now it's just going to weed out the ones that know how to do it. And people that are not really wrapping their head around this or don't really care to

convey the value the same way or walk their buyers through these steps, I think, you know, we'll see what happens. I just think it's a great opportunity for so many people that are already doing it or that, like, want to step up their game. So that's really great. On the other side, as a seller, what do you see as the implications for sellers, Beth, given? You know, for a seller, it's, you know, I've always been an advocate to have a really well-educated listing agent and a really well-educated buyer agent as part of every transaction because it helps get people to the closing table on what can be a very, very cumbersome and litigious sometimes, biggest sale of your life, biggest purchase of your life. So it's always, you know, when I managed offices, we really made it. a point to try not to double side it and try not to like do double side means that the agent is representing both the buyer's right really well really either representing the seller and the buyers

unrepresented or becoming a dual agent and you know I've managed some really amazing agents over my my career and we really made it a point to make it fair equitable easy make you know hosting open houses for like a whole weekend in this market where things are flying off so people have a really fair chance to get in, assess some property, come back a second time, maybe a third time, and, you know, an offer deadline. And when you do it like that, you typically have buyers that are represented by another agent. And that's always really good. I have a quick story to tell about this, because when I first became a real estate agent, I became an agent at the same time buyer agency became a thing in Massachusetts. Okay. So you used to

buyers you did not have representation. So buyer agency came to the forefront. I became an agent. So as a new agent, I just learned how to do it this way. So when I took on a buyer, I would actually have them sign a retainer with me. I would take a thousand dollar retainer. I would obviously sign a contract with that retainer explaining my role just as I just outlined earlier with those three parameters and we'd go out and look at property. Well, I had a client. He was a doctor. And lo and behold, the house that he decided that he wanted to make an offer on was a for sale by owner. And that seller was offering compensation. So for sale by owners have always been able to do this. So that seller for sale by owner was not obviously represented by a seller agent, but was offering a buyer's agent compensation,

which matched what I needed. So we write an offer. Everything's going great. We're five days before the closing. Now, the doctor-client of mine, instead of hiring the attorney that I suggested that he hire, who was a real estate attorney, and you have great recommendations always, by the way. We have an awesome pool of attorneys we work with. He decided to hire his malpracticed attorney. He knew nothing about real estate. So five days before the closing, I get a panicked call from the seller saying, Beth, the buyer's attorney just called me, and they're back to the last. And they're back out of the deal. I was like, what? He said they're walking away from their deposits because we're well past the commitment date and they are saying that they're not going to close. Well, it turns out

that the seller had refinanced and the discharge was never recorded, which happened. So years before the seller refinanced and typically these have to, yeah, you have to record that discharge with and it's a public recording. So some of the times that happens, especially when we see variations in interest rates. And when interest rates really go down low, everybody refinances and the courts get backed up. And sometimes this doesn't happen. So the malpractice attorney misinformed our mutual clients saying that he would owe that mortgage if he closed, which is not the case. So it's a simple solution. So I was able to get a conference call with the buyer, the seller, the attorney, and sure enough, we closed and all that kind of stuff.

We withheld $5,000. And once the discharge was released, they got the $5,000. So it's a simple solution, right? But my point is to a seller, you know, that's an example of having a really good buyer agent on the other side of the table. They're making sure that there's not going to be some kind of, you know, unexamined reason, you know, bizarre reason why something doesn't come to the closing. So it is good for a seller to have the person that's buying their property be well represented.

It's just good for them. Yep. Makes a lot of sense. And I think that, you know, that's a really telling story that having representation of folks that have been around know that something like that could be daunting to somebody sounds like, oh, something didn't get filed. You'd own a mortgage, right? Like that could really trash the deal. That could really like be an issue. And you're like, nope, seen it before.

I know what we're dealing with. No problem. Like, let's keep moving. And you held the deal together, which was probably, and everyone's benefit. Yeah. And the seller was very happy to pay me that commission. I'll tell you right now. He told me, you know, this is the best one I think I've ever spent.

So. Okay. Yeah. It's great. Really good example. And I think, you know, this is definitely affecting buyers even more. But for the sellers. what an advantage to having a great agent on the other side.

Okay, let's move into talking a little bit about investors who are looking for investment property. We work with a lot of new investors, people just getting into investing, and occasionally we're working with people that are like real estate investors. So how do you think the NAR Settlement is impacting both of those groups? You know, I think that if you're a sophisticated investor and you're buying a proxie, that maybe you're going to either fix and flip or, you know, hold for a little bit. And then, and then so if you're a sophisticated investor, you're doing a lot of research on that

market, on that property, you know the numbers. You're not making an offer if the numbers don't work. You're usually going to an agent to just perform a certain task of that writing that offer because you can't. You do a lot of the due diligence yourself. You got it. You got it. So there may be an opportunity for investors who are savvy that are working with investor-friendly agents to maybe negotiate like a flat fee or something like that. I don't know. This opens up an opportunity for that, you know, for off-market deals, that kind of thing. It typically works with, you know, especially if it's going to be like a fix and flip, you know, maybe they'll, they'll pay a flat fee

to get the property under agreement. And once they fix it up, they'll use that same agent and pay them a full commission. I can see that happening. I can see that being, you know, something that happens out of this change. That to me kind of makes some sense because that buyer is so savvy. Right. Maybe they can save themselves a little bit of the cost. One of the line items is saying to the seller, you don't, you don't have to offer my buyer agent too much because I'm just, you know, paying them a flat fee. And this is what I want that to be. And I'm not saying what that flat fee is. It could be $5,000, $10,000, $1,000. Again, it will be all negotiable. I think for a new investor, though, if you're, you know, if you're like, we talk a lot about

people buying that second home on the Cape and using it as an Airbnb and using it and staying there a couple weeks, I think they're going to act more like a residential buyer that really should have full, you know, a full agreement, a full, full buyer agency providing all of the services that a buyer agent would do. So that's just my two cents on it. I agree. Yeah, I think if you're, especially if you're outside of your regular market, right?

You might have your finger on the pulse of the town that you live in. But if you're buying a vacation house two hours away up in the mountains, you likely don't really understand the economy, the local rules and regulations, especially around Airbnb's, even if you research them on your own. You want to know a little. You want to hear the buzz.

Like, as an investor myself, I want to hear what the people are talking about, what's coming down the pike, what's happened before that might impact me. And I think to be able to rely on somebody who lives locally, who knows a real estate market, who really has their feet on the ground, there's a lot of value there. You got it. I also think if you're a real estate investor who's savvy in that buying a lot of properties

in a year, you might want to get licensed, you know? 100%. You know, you're raising your hand, Christine, that's you, right? You know, it's worth it. Absolutely. Absolutely. Yeah. And I think they're more and more, you know, I hear investors talking about doing the same thing.

So yeah, I think we might see some more of that. All right. Let's shift gears. Let's talk about you have such a network of, you know, so many connections with agents, Beth, because you've managed them for so long. You've worked with so many of them, not just the ones that have been under your purview at the different offices here in the greater Boston area, but also when you're in real estate, you're interacting with other agents too. So I know a lot of local agents and agents even beyond our greater Boston area know you. And they're probably, as they have in the past, even like interested to hear, what do you have to say? How is this changing the game for them as a buyer and seller agent?

What's important going forward now that this kind of unwritten rule that they would receive a certain commission is going away, potentially, in a lot of cases? Yeah. I would say there's two things. The very first thing is their mindset. The sky is not falling. This isn't a massive change. It's a change. But if you really think about it and you've been under, if you work with me, you're probably

really, really like laughing out loud right now because for years, for years, I have told my agents to treat buyers like you treat sellers. You would never take a listing without a contract. There is nothing different about working with a buyer. and there hasn't been. So treat buyers like you treat sellers. Explain your value. Bring your value to the table.

Be confident about the value that you bring and express to them what your fee for compensation is and how they can pay that. And it's no different. And so I think that in just watching, like sitting and observing the last six days and talking to a lot of agents that I know and what have you.

I can say that the agents that are savvy that have been successful, seeing this as an opportunity, are not worried, and it's almost like status quo. There'll be some changes, right? But yes, you know, this week I sat on a call with the leadership of VXP. That was amazing.

Awesome. There were 41,000 people on that call. And on the comment box that was, you know, scrolling to the right side of the screen, the negativity, the panic, the sky is falling, the chicken little, like, oh my God, was fascinating to me. I was actually watching that more than listening. Yeah, and that's interesting to me because we have such a positive experience with the XP,

but I think it just goes to show that like at any brokerage, there's all kinds of people. This is open to the public. This was a type of XP. Okay, this was everyone. That's right. So this is not a representation of the agents per se. I was going to say, like, I think we find like the agents at EXP and part of why we join. is they're not the status quo.

These are people that are thinking opportunistically. They see things that other people don't see. Their mindset is generally, I think, very good, very good. Well, yeah, I think regardless of who you work for, you get that choice. You get to decide your mindset, right? And that's the choice. And I don't know what company these people were that had these negative. I just think in general, the agents that are really like panicking,

probably panic about a lot of things. And the agents that are already successful in life have decided to be successful in life. And they've decided to take a certain approach. And it's no different here. It's like you decide how do you want to wake up and present yourself every day. Right. Exactly. Yeah.

I see it as a parallel to what happened a couple years ago in the pandemic. And I think that, listen, like the world is always shifting. It's progress. It's how we evolve. It's happening faster than ever because there will never be any time as slow as today. Everything just keeps getting faster. So we're seeing change at a more rapid rate. And we can't control that, but we can control how we react to it. And I think that choosing to see it for the opportunity of it actually like just personally, it blows my mind because I think there's so many things that can come out of this. And you get to write your ticket and especially at a place like, like EXP where you have so much freedom to do things your way. Like you get to write a ticket for how you want to react to this, how you want to respond for your clients, how you want to market yourself and brand yourself. Like everything about it is an opportunity to up level. And it's just kind of like the universe saying, hey, like let's shake things up a little bit to see who really wants to stay in the game. Who's going to, who's going to evolve the industry forward? Instead of

letting the settlement involve the industry, who are the people that are going to lead in the face of this change? Oh, that's all it is. You nailed it. A hundred percent. You nailed it. That's exactly it. It's exactly it. And I think like we've been talking as we have more people joining our group in our downstream, right? We've been really just lately talking more about the power of branding and personal branding. And I think that this is a chance to rethink your personal brand. And it's that your brand is necessarily going to change. It can if you want it to, but get to really dig into what is the value that you're bringing to the table. And we all bring so much. And sometimes we just lose sight of it. It's the stuff a lot of times that's

really easy for us. And you get to bring that value to the table to your buyers even more. Like just thinking about like, oh, what are all the ways and all the touch points and all the opportunities that I maybe hadn't thought of before where I can go and make this process easy for them, where I can make it exciting or fun for them, right? And so in that regard, it's like, wow, super cool to think about what can this become? Right. Exactly. Exactly. I mean, it's 100% true. I agree with you. I think the work that we're doing around agent branding fits perfectly with this topic. It's just a great chance to go back and reassess and say, what is it that I do for a buyer? And then what kind of

buyer do I want to work with and who's my perfect client and all that kind of great work that you're doing. Yeah. And also what kind of brokerage do I want to work with, right? Like, what type of environment do I want to be and do I want to be with one that's like being really proactive and has a spin that aligns with me and my personal vision? Or am I with brokerage that is not, you know, responding the same way that I want to respond to this? Right. Or sitting around with a bunch of people that are complaining in my office and like, you know, like, who is it? Who are you surrounded by? We've talked about this several times on our podcast. Who you choose to surround yourself will really determine how well you fare with all of this.

And one other thing I want to say to that point, Christine, is, you know, there's so much conversation about this topic right now. Really, the bigger impact to these agents is the contracts that they're signing with their brokerage. I just got a call from a friend of mine who tried to leave his company and had an illegal non-compete, but he didn't have the energy and the enthusiasm or the knowledge, I guess, to question that non-compete. So he didn't change. He signed a contract for a lot less than what he is worth. And, you know, these contracts that they're signing are not, you know, for a non-compete, you have to be compensated for that in some way. And he wasn't being that way. And some of these brokerage really almost bully their agents into signing contracts that are so one-sided for the brokerage. And, you know, that's one thing.

I've loved at EXP is that, you know, we've heard Glenn Sanford say, you can leave tomorrow. There is no like, if you're not happy here, go, you know. And it needs for such a different atmosphere and, I don't know, like that collaboration. I don't know. It's just something different that creates a different culture. Right. Be thinking about the contract with your employer and how much that is restricting you. I mean, I talk to so many people about their core values and freedom is always.

one of the top ones. It always comes up near the top. And I think when we get into these agreements, I used to see them in the tech world. They're less common now. They really are binding people in a way that just doesn't align with most people's values. And it doesn't have to be that way. And I think the like when you said, Glenn Sanford said, if you're not happy, leave. It's like, yeah, because why would you want someone that's not happy sitting around potentially poisoning the other employees, right? So it just, it makes so much sense. I love that and I love that you threw that in here because I think that's really good. And you've had some great conversations with people that are in agreements like that.

And I think you have a lot of wisdom of people want to talk to you about that. I'm just offering you up and raising your hand for them, Beth. Because you have a lot of wisdom around that. Yeah. Yeah. And this has been really great. You know, I think we hope to be a source of information for all of the parties that we spoke to today. definitely we're building something really special over here. We're part of something that's even

bigger and more special, which always gives us a sense of purpose. And I'm super excited to see where things go. And I hope that people will continue to see the opportunity in this and be excited for what's to come, no matter what side of the fence you're on here, not side of the fence, but no matter where you are sitting if you're a buyer, seller, investor, agent, we hope that we've provided some value to you today. And thank you so much for showing up as usual. Thank you, Beth, for sharing all your expertise around this. It's so great, and I know you're such a source of knowledge here. We hope you've enjoyed this episode of the Abundant Investor podcast

and learn something new. We would love to hear from you. And if you did get something from this episode, please subscribe and rate this podcast so more people can find it and live their rich lives too. And remember, an abundant mindset means there's always plenty to go around and through giving we receive.