Marketplace - Who pays real estate agents?

Episode Date: March 18, 2024

To buy a house, you’ll probably need a real estate agent. Traditionally, sellers pay both agents a commission, a cost baked into the buyer’s closing fees. But a lawsuit settlement last week means buyers could start paying their agents directly or on an hourly basis. Also in this episode: global central banks meet this week, new tech may help bring down methane emissions, and avian flu is killing chickens across California.

Hey, Marketplace listeners, you know around here we like to think you're never too young to learn about the economy and financial basics. That's why we're bringing the Million Bazillion Live Tour to schools to teach important lessons about budgeting, investing, saving, and more. It's all the fun of the podcast, but now live, immersive, and interactive. Special thanks to our tour partner, Greenlight, the debit card and money app for kids and teens. Learn more about Greenlight at greenlight.com slash million. That is greenlight.com slash million. On the show today, the week ahead for global interest rates, what that big realtor settlement means for the housing market,

and technology that pulls drinking water from the air. From American Public Media, this is Marketplace. In Baltimore, I'm Amy Scott, in for Kai Rizdahl, who is out on assignment. It's Monday, March 18th. Good to have you with us. This is FOMC week, meaning the arbiters of interest rates at the Fed will meet for two days starting tomorrow to decide what the near future holds for borrowing costs in the U.S. economy. Other central banks around the world will be doing the same. The Bank of Japan and Reserve Bank of Australia start meeting on Tuesday,

and the national banks of Switzerland, Norway, Britain, and Mexico do their big huddles on Thursday. All of these banks, with the notable exception of Japan, have raised rates in recent years to fight inflation, and all of them are expected to start cutting rates before long. Marketplace's Mitchell Hartman reports. For economic policy nerds, it's going to be quite the week. Joe Brusuelas at consulting firm RSM says what central bankers are about to embark on is a big deal. The synchronized set of rate cuts, the central banks are gearing up to put the shocks of the pandemic and the inflation that ensued behind them. Look first to a small landlocked country with a big footprint, says Andrew Hunter at Capital Economics.

We're actually expecting the Swiss National Bank to kick off this long-awaited easing cycle, the first among the G10 to start cutting rates. Next to break out of the pack could be the European Central Bank, says Sharon O'Halloran at Columbia Business School. Inflation on the continent's below 3%, and growth could really use a boost. The Eurozone, its language has started to shift, and it's now much more on an expansionist path. If the Fed waits a little longer to start cutting, O'Halloran says that could draw investment into the U.S. and boost the dollar, which could actually help the Fed, says RSM's Joe Bouswellis. A strong dollar dampens import prices

and helps put inflation to a more sustainable level. It's also nice for U.S. tourists traveling abroad, not so great for U.S. exporters whose goods are more expensive for foreign customers. But Andrew Hunter of Capital Economics says don't worry too much. The dollar is relatively strong, but that ultimately is a reflection of the fact that the U.S. economy is relatively strong rather than being some kind of headwind for growth in the U.S. economy is relatively strong rather than being some kind of headwind for growth in the U.S. And as interest rates fall later this year, that should turbocharge demand in all the major economies. I'm Mitchell Hartman for Marketplace. On Wall Street, you could just feel the anticipation today. We'll have the details when we do the numbers. You know who'd love to see interest rates fall sooner rather than later?

Anyone trying to buy a house. But as we mentioned on the program Friday, some other changes are afoot that could make buying a home more affordable. The National Association of Realtors agreed to settle multiple lawsuits accusing the group and some big brokerages of colluding to inflate commissions. The settlement could reduce the commissions agents receive as part of a home sale and change the buyer-agent relationship. Marketplace's Matt Levin has more.

First-time homebuyer John Harlan really liked his realtor. For the better part of two years, his agent put in offer after offer in Portland, Oregon's competitive housing market, arranged showings and open house visits, and finally guided him and his wife through their purchase of a $600,000 farmhouse last fall. But Harlan really couldn't tell you how much his realtor got paid for doing all that. You almost aren't thinking about compensation at all. And I went into it like not knowing that really the seller pays for the commission. The realtor's legal settlement could mean more agents charging buyers hourly rates or working on retainer. Harlan says that would have changed his house hunting pretty dramatically. If it were a per hour thing, I think we would have been a lot different about some of the houses we chose to go look at. We would have been,

you know, well, is this now worth paying for the time? That may sound like a more expensive arrangement for homebuyers, but economist Abdullah Yavis at the University of Wisconsin-Madison School of Business says under the traditional arrangement, sellers only technically paid for buyers' agents. In reality, buyers were still footing the bill. We know from the literature that sellers pass on about half of the commission to the buyers in the form of a higher price. If the seller now doesn't have to pay the entire commission, the price is likely to drop. There's a perk to a commission being baked into a higher home price. Buyers can effectively finance it with a mortgage. Sacramento realtor Aaron Stumpf says many buyers

may not be able to afford to pay agents out of pocket. A lot of our buyers are using down payment assistance, three and a half percent FHA loans, and those buyers do not have the resources to pay their agent directly. Stump says she expects to still work primarily on commission, but she's open to other arrangements. I'm Matt Levin for Marketplace. place. Matt was just talking about the relationship between real estate buyers and their agents. The dynamic between buyers and home sellers may be changing too. Connor Sen wrote about it for Bloomberg Opinion. He's also the founder of Peachtree Creek Investments. Connor, thanks for joining us. Thanks for having me.

We've been in a seller's market since, what, 2015? Why have sellers had the upper hand for so long? We really underbuilt housing for a decade heading into the pandemic. And then during the pandemic, you had a couple factors that really boosted housing demand relative to supply. One is that mortgage rates fell so low. And so you kind of supercharged housing demand for a couple of factors that really boosted housing demand relative to supply. One is that mortgage rates fell so low. And so you kind of supercharged housing demand for a couple of years. And it took builders a long time to catch up to that and respond. And so we entered 2022 with the rise in mortgage rates where housing demand was very strong.

We had underbuilt for a decade and mortgage rates were 3%. And even as mortgage rates have gone up, sellers have stayed in the driver's seat. Why is that? From about August of 2022 until August of last year, sellers basically decided not to transact in the market. This was the mortgage rate lock-in effect where people said, I have a 3% mortgage rate. I know mortgage rates in the market are 6% or 7% now, so I'm just not going to sell. And so for people who had to buy, that really put them in a tough spot just because there was so little to buy that prices stayed strong, even though affordability was terrible. But you write that that might finally be changing. What signs are you seeing that

the market might be shifting? Since the spring selling season started this year, and in much of the country, particularly the South, that is right around the Super Bowl in mid-February, we're seeing inventory really grow off the very low levels of last year. So we're only back to kind of the new listings level of 2022. But with how bad 2023 was, that's like a 20% increase in new listings. And in a market that's very undersupplied, that's becoming a meaningful amount of inventory, particularly in parts of the country like Texas and Florida. I want to get to why it's happening in certain markets more than others, but why are sellers finally listing their houses? Can they just not afford to wait any longer? I think that's it. So as much as people might want to hold on to their low mortgage rate,

life events do happen, whether that's marriages, babies, schools, deaths, divorces. And you also have had now two years since mortgage rates started going up. And so you do have about 10 million homeowners who have bought in this new world of higher mortgage rates. And they're not locked into low mortgage rates the way the people who bought in 2020 or 2021 are. So why Florida more than, say, the Midwest? So Southwest Florida is unique in that it had a big impact from Hurricane Ian in the fall of 2022. And so you have some homeowners who have damaged homes

and they decide they'd rather sell them. And then also Florida is unique in that it has this fairly well-documented at this point home insurance issue where home insurance rates have really spiked. And so even if you have a low mortgage rate, if your homeowner's insurance is up 50, 100, 200%, that's still an impact on your cost of ownership.

And people decide, I'd rather sell than pay these rates. We started this conversation talking about the underbuilding of housing that kind of led to this in the first place. But home builders have also picked up the pace of construction. Is that making a difference, too? It is. And we're probably going to see the highest rate of new construction this year for single family homes since probably the 2008 crisis. And so maybe it's only 1.2 million homes per year, but it does have an impact. And building is the kind of thing that it doesn't fix the market overnight, but it's kind of a slow and steady impact in terms of

correcting the underbuilding of the 2010s. For sellers, obviously, they want to get the highest price they can. But for buyers, this seems like good news. People who've been shut out of the market and just waiting for more options. Exactly. So I think what's happening is that probably the monthly payment that buyers are going to end up with

will be more or less the same as what they would have thought in December. But the difference is that they thought they might be paying a 6.25%, 6.5% mortgage rate. Instead, it's more like 7%. And so the difference is probably going to happen on the pricing side. So maybe you say, look, I was willing to pay $500,000, but with rates here, I can only pay $480,000. And some seller will accept that. It looks like we might have 5% home price growth this year. And at the moment, it's looking more like flat. some markets probably be down again.

What does that mean for the broader economy? So it's interesting because the way that the housing market impacts the economy, one is on the building side, and we're still going to see as much building as we would have gotten otherwise. And then two is on the resale side. It's that realtors are getting their commissions, movers, furniture, all the stuff that goes into transacting a home. And so even if prices are not as strong as people might have thought a few months ago, if you do have more transactions, that's a good thing for the economy. So in a weird way, a more sluggish pricing environment is going to be a better economic impact just because we're going to get more transactions.

a better economic impact just because we're going to get more transactions. Connor Sen writes for Bloomberg Opinion and is an investment advisor with Peachtree Creek Investments. Thanks so much. Thanks for having me. One of the many consequences of the changing climate is more frequent and more severe times of drought. By mid-century, the World Meteorological Organization says water shortages could affect more than half the world's population. The team behind our podcast, How We Survive, has been looking at how technology might help us adapt, which is how I found myself on a rooftop in Scottsdale, Arizona, a while back, checking out what look like solar panels, but do something very different. Here you can see we have 10 of our hydro panels right here on the roof of our SORUS global headquarters.

That's right. These are called hydro panels. Ashley Hauer is VP of marketing at SORUS, the company that makes them. the roof of our source global headquarters. That's right. These are called hydro panels. Ashley Hauer is VP of marketing at Source, the company that makes them. They're pulling water vapor straight out of the dry desert sky to create drinking water. And that provides water for your office? Provides water for our office. You got it. We'll try some in a moment. But first, founder and CEO Cody Friesen explains how it works. Think about the way that if you leave the lid off the sugar bowl, over time it gets a little bit clumpy because obviously the sugar is absorbing water vapor from the air.

Hydro panels are based on the same principle. We have a material that's engineered to do that same process very rapidly. We then show those materials to sunlight, which causes the water vapor to respire. Meaning the water vapor is evaporated and condensed to create liquid water. We do that many, many times per day. And so very efficiently now we can produce drinking water really anywhere. Even in bone-dry Arizona. Water vapor is actually everywhere on the planet. And even when it's hot and dry out, hot air holds a lot more water vapor than cold air. How much water can one of those panels produce here on a hot day? Yeah, so each

panel can do about five liters a day. So like 10 standard 16-ounce bottles of water a day. You know, if you had two on your home, you'd be producing like a case of bottled water a day. And in places where clean drinking water is scarce, like the Navajo Nation, that can be a lifeline. A mix of private and federal funding has helped the Navajo Nation install hydro panels on more than 500 homes. Because as soon as you have a hydropanel in your home, you own intrinsically your own drinking water supply. A two-panel installation runs about $7,500. Based on average prices from the Beverage Marketing Corporation,

buying the same quantity of bottled water could cost between about $500 and $3,000 a year. But how does the atmospheric water taste? All right, let's go try some. All right. In the kitchen at Source headquarters, near the Pac-Man arcade machine, there's a dispenser fed by the hydro panels on the roof. Okay. Tastes like water.

And on a hot day in Arizona, that's what matters. You can hear more about how tech is helping solve water challenges in the West on the latest season of How We Survive, wherever you listen to podcasts. coming up we've lost 30 percent of the egg layers in the state in the past two months. And Easter is right around the corner. But first, let's do the numbers. Dow Jones Industrial Average gained 75 points, 2 tenths percent, to close at 38,790. The Nasdaq grew 130 points, 8 tenths percent, to end at 16,103. grew 130 points, 8 tenths percent, to end at 16,103. And the S&P 500 added 32 points, 6 tenths percent, to finish at 51,49. The red-hot chip maker NVIDIA picked up 7 tenths percent on the

first day of a big AI event it's hosting. Research firm Truist predicted a 34 percent upside to the stock. Meanwhile, another company benefiting from the AI boom joined the S&P 500 today. Super microcomputer builds servers that can be used in artificial intelligence applications. Wasn't a great debut, though. Shares subtracted six and four tenths percent. Bonds fell. The yield on the 10-year T-note rose to 4.32%. You're listening to Marketplace. This is Marketplace. I'm Amy Scott. If we as a society are going to get a handle on the greenhouse gas emissions heating up our planet, we've got to target methane, a big contributor to global temperature

increases. About a third of global methane emissions comes from the energy sector, and new data from the International Energy Agency shows those emissions have held steady at around 130 million metric tons a year since peaking in 2019. Marketplace's Elizabeth Troval looked into why the industry hasn't made more progress. The potent greenhouse gas methane is everywhere you find natural gas, from LNG terminals and wellheads to... If you have a gas stove, when you turn it on, it's largely methane that is being combusted there to heat your food. That's Brian Prest with Think Tank Resources for the Future. He says companies have made efforts to decrease emissions, but they still leak methane.

For instance, something going wrong in a valve and suddenly you have a bunch of methane spewing out. Companies can decrease emissions by buying better equipment, and that can be a hard investment to make. But there's an incentive now. Some companies will face new charges this year for methane emissions, charges that will go up in subsequent years. There's one problem. It's hard to measure methane emissions. It makes a lot of things difficult. Todd Cort is with the Yale Center for Business and Environment. It makes it difficult to say how much it's going to cost us to reduce it. It makes it difficult to say how much it's going to

cost us to reduce it. It makes it difficult to say whether we're going to meet these targets. But that data is improving thanks to new technology like this. That's a SpaceX recording from earlier this month when a methane measuring satellite was launched into space. It's just one example of the recent scaling up of methane measurement technology, says Arvind Ravikumar with UT Austin. And in the next two to three years, you're going to see a significant expansion in the deployment of these technologies to detect and reduce methane emissions. to detect and reduce methane emissions. So both regulators and private companies will be able to more accurately track emissions and ideally reduce them as new fees and regulations on methane take effect. I'm Elizabeth Troval for Marketplace. Egg prices are going up again, just in time for Easter.

After hitting a record high average of $4.80 a dozen last January, prices fell back to earth by summer, just $2 a dozen, before rising again in the past few months. Chalk it up to a resurgence of avian influenza. In the last two years, this highly deadly disease has killed more than 80 million birds in the U.S. It's hit Iowa, Ohio, and California hardest. KVPR's Carrie Klein has this story from Central California. Outside a long gray barn at Fresno State University, graduate student Brenda Hernandez-Tapia is suiting up. She walks over to a deep plastic bin.

The first step is putting a pair of disposable plastic booties. Then come coveralls, a hairnet, a mask, gloves, a second pair of plastic booties, and then she hoses those booties off with disinfectant. We try to make sure that nothing comes into our facility because there is a lot of birds we have to take care of. Hernandez Tapia and other poultry science students raise chickens, 20,000 of them, until they're sent off to poultry giant foster farms. But right now, there's a nationwide outbreak, avian influenza, bird flu. In some ways, it's similar to human flu.

They'll have, like, nasal discharge. They'll look really tired. They won't want to move very much. Nasal discharge, like they get runny noses just like we do? Yeah. Bird flu has never reached the chickens at Fresno State, and all those so-called biosecurity measures help keep them healthy. The disease is so contagious, if one bird gets diagnosed, the entire flock has to be euthanized to prevent it from spreading.

Dr. Annette Jones is the state veterinarian at California's Department of Food and Agriculture. She says this is one of the largest outbreaks she's seen in two decades. We've lost 30% of the egg layers in the state in the past two months, so that's a pretty big impact on farms. Also lost were millions of chickens raised for meat, they're called broilers by the way, as well as turkeys, ducks, and backyard flocks. The virus is spread mostly by wild birds, especially through their droppings. Joan says that's why poultry caretakers are serious about biosecurity. Some people have gone as far as to drain ponds if they have them during migratory season to try and discourage ducks from landing. Losing a flock sets a farm back months, though the government does compensate farmers for some of their losses. That helps keep workers on

the payroll to disinfect coops. Luckily, humans aren't likely to catch this strain of bird flu, but it's affected our grocery bills. In 2022, the first wave of the outbreak killed off millions of egg-laying hens. That's when the cost of a dozen eggs more than doubled. There's also strong consumer demand for eggs. Though prices have dropped a bit, they're still higher than before the outbreak started. And in Central California, grocery store customers have noticed. Like Mary Lou Mendoza, who cooks for a youth residential facility in Fresno. She has three dozen eggs in her cart outside of FoodMax.

We do breakfast sandwiches. We do scrambled eggs. We do chorizo and eggs. We do ham and eggs. She now buys around half the eggs that she used to. Further north, in Sonoma County, a million birds have been affected, including a commercial flock of 200,000 ducks. And that's affected a butcher shop called Panacera Meat Company in Occidental. Have a wonderful day, my dear. Cashier and butcher Madison Adkins says duck meat has been hard to come by. Right at the beginning of January, we got one more order of duck breast, and that was the last time we got anything.

The good news is infected barns won't be empty forever. Once they're cleaned and inspected, farmers can begin to bring new flocks in, and maybe egg prices can go back to being sunny side up. In Fresno, California, I'm Keri Klein for Marketplace. This final note on the way out today, investors may soon be able to own shares in a more than 250-year-old brand. Bloomberg reports Encyclopedia Britannica Inc. is looking to go public as soon as June. Best known as the publisher of the oldest English-language general encyclopedia, now in digital form. The company also publishes the Merriam-Webster Dictionary, as well as educational tools and AI software.

Britannica stopped publishing bound volumes of its encyclopedias in 2012. Back then, the New York Times wrote, In the 1950s, having the Encyclopedia Britannica on the bookshelf was akin to a station wagon in the garage or a black and white zenith in the den. I grew up a few decades later, but still, check, check and check. Our daily production team includes Andy Corbin, Elise Hassan, Maria Hollenhorst, Sarah Leeson, Sean McHenry, and Sophia Terenzio. I'm Amy Scott. We'll be back tomorrow. This is APN. wrong in New York and all across the nation. And it's happening because of a podcast. I think your podcast has changed my life. And I'm going to share this podcast with everyone I meet. Sold a Story investigates how teaching kids to read

went wrong. New episodes of Sold a Story are available now.