Morning Brew Daily - The End of 6% Real Estate Commissions? & Uber and Lyft Are Out in Minneapolis

Episode Date: March 18, 2024

Episode 281: Neal and Toby break down the settlement that could lead to the end of 6% real estate commissions. Plus, why Uber and Lyft are leaving Minneapolis and a former UK tech mogul goes on trial for fraud. The guys share their winners of the weekend and why are people paying hundreds of dollars for a Trader Joe's tote bag? And finally what we are watching for this week. Use code MORNINGBREW50 to get 50% OFF your first Factor box at https://bit.ly/3UUZGG0 Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning brew daily show. Ryman. And I'm Toby Howell. Today, a major American city could be without Uber and Lyft after passing a minimum wage law. Then things just got really real for real estate agents after a new settlement related to commission fees turned the industry on its head. It's Monday, March 18th. Let's ride. All right, Toby, quick round of Rose and Thorn from the weekend, but skip the Thorne, just stick with the rose. I like the good vibes. My rose was I ran the New York City half marathon over the weekend. weekend. Incredible event. I've never done a big city race before. The sheer amount of humanity that turns out for this race blows my mind. Over 27,000 people ran this incredible amount of

runners. And this is just one city in America. Can't believe it. All right. Not to blow up your spot, Toby. Of the 27,000 people, where did you finish? I got, uh, I looked it up because of course I did. I got a thousandth, 65th place. So, almost top of thousand. That was like a six 20 pace. Uh, 630. 630 pace. Uh, my. Rose. I had a way more sedentary weekend than you did, but I saw a play enemy of the people with two of my favorite actors slash TV characters of all time. Michael Imperioly, who is Christopher from The Sopranos, and Jeremy Strong, who is Kendall from Succession, even got to chat a

little bit with Michael afterwards. It's just the super nice guy. Great play. I definitely encourage everyone to go. Did they translate well from screen to play? Jeremy Strong is incredible. Oh, he was incredible. Incredible. He's a fantastic actor. always love to see that. Now let's hear a quick word from our friends over at Factor. One of Factor's big taglines is that they make restaurant quality meals, and I totally agree with that. It's not just the taste or the quality of the ingredients, fresh, never frozen, by the way, that make them restaurant quality, though. It's the whole experience. Part of the experience of going to a restaurant is the fact that you don't have to prep anything or clean anything up. And with Factor, it's the

exact same. Simply poke some holes in the plastic film and toss it in the microwave. or if you're feeling really fancy, you can fire up the oven and heat it up in there. Either way, the only dirty dish you'll be dealing with is the fork you use to dig in. If you're interested in a restaurant quality meals right from the comfort of your own home, head to factormeals.com slash morning brew 50, then use code morning brew 50 to get 50% off. That's factor meals.com slash morning brew 50 with code morning brew 50 to snag that restaurant quality 50% discount. Just before we dipped out for the weekend last Friday, the National Association of Realtors

agreed to settle multiple lawsuits around how they charge commission, which flipped the industry on its head. Real estate agents have long compelled home sellers to agree to a commission sharing arrangement in which the seller pays a commission fee, usually in the 6% range, for both their agent and the buyer's agent. The NAR were able to get away with this because in order to sell your home, it really helps to get on a listing service which shows buyers which homes are out there. And since the seller pays commission fee of both the buyer and the seller, the fear was if you don't agree to that commission, then buyer-side agents will just ignore your property in favor of ones that offer them a better deal. The settlement agreed to on Friday moves the industry

towards a decoupling system in which buyers and sellers pay their agents separately, in addition to slapping the NAR with a $418 million fine to be paid out over the next four years. Neil, the decoupling part is the big deal here, especially when you multiply this new compensation structure across the millions of homes sold every year. Yeah, experts say this could lead to dramatic cost savings for Americans. Americans pay some of the highest commission rates in the world when they buy or sell a home. One expert said that this could lead to a 30% reduction in the $100 billion that Americans pay annually in real estate commissions. It also could have disastrous effects for brokers themselves. Some may leave the industry because of the $1,000.

this one estimate puts it at half of the 1.5 million realtors that are part of this association, the NAR, will leave the profession because of this decoupling. Absolutely. It's going to lead to a real estate agent bloodbath, no matter which way you scrape it, because a lot of these agents were kind of scraping by. They weren't in that top tier. They weren't providing services that maybe were in commisurate. The fact that they're charging 6% fees doesn't add up to the services they were providing. And so you could see a big exodus from this industry where some estimates put it at 60 to 80% reduction in the number of real estate agents. So it is totally going to be one of those things that's going to reshape the

industry. And I mean, it's not an easy job being real estate agent by any means. And we might see kind of that bottom third, bottom half of people who sell homes kind of drop out of the profession. So this is going to be a major shakeup. But no one really knows how it's going to play out. One of the areas I think is most interesting is that a buyer is now going to have to directly negotiate with their buyer's agent. And the services that they provide might be more a la carte than we're used to. Maybe I'll just charge an hourly fee to show you some listings. Maybe I'll just do the contract negotiations at the end. So you're going to start to see more of this segmented market of what an agent does.

And you'll start to see more market force. I think that's what a lot of economists and people are so interested in to see her, because we're seeing a market emerge in real-time that didn't exist. So you'll see what the actual services rendered are and how much compensation agent makes because of what the services they're providing to a buyer. One company that I'm very intrigued at how this is going to affect is Zillow. When this kind of was passed on Friday, Zillow shares fell 13%. The company gets a big share of its revenue by connecting sellers to buyers, agents.

That is one of their big revenue sources. So lower commissions could mean those representatives have less money to spend on marketing. So Zillow might come out of this on the negative, but also they do have a rather robust business in general. So Zillow is one company to keep an eye on how this affects them. Meanwhile, the settlement money is huge. It's $418 million. And if you're one of $50 million, it could be up to $50,000. million people who recently sold their home, you could be a part of the settlement. So I would

definitely keep your eye on that. Okay, moving on, if you live in Minneapolis, it could soon feel like 2007 again, because Uber and Lyft warned they will leave the area after the city council passed a law that would require them to pay drivers the equivalent of the local minimum wage. Advocates of the law called it a David and Goliath story of regular working class people taking on corporate giants to prevent worker exploitation. Currently, drivers in Minneapolis make a median of $13.63 per hour, and this law would bump that up to a floor of $15.57 an hour. Uber and Lyft, of course, have a different view. Lyft said the pay hike would make its operations unsustainable in Minneapolis, and it has support from the mayor and the governor. They're worried about what Uber and Lyft leaving means for vulnerable

people who rely on ride-hailing services for their daily lives. But is this all of bluff by Uber and Lyft to try and get Minneapolis to compromise. Definitely could be the law doesn't take effect until May 1st, so you can bet negotiations will be ongoing. Yeah, this is definitely a hot button topic. It kind of boils down to this. Everyone wants to see these drivers get a raise, make a livable wage, but that raise or livable wage doesn't do a whole lot if it means you lose your job in the process. So Uber and Lyft are definitely applying maximum pressure here saying, like, all right, you thought you did something good for these workers, increasing the amount? that they're paid, well, now they have no jobs altogether. So it's definitely a tight line

from both that the city council is walking as well as Uber and Lyft. Shows how much leverage they have in these particular cities. One statistic that they pointed to in saying we're leaving, this pay hike is completely unreasonable, is that the state did a study and it said that to get to this minimum wage that the city wants to get to, you only need to pay $1.20, not only, but you need to pay $1.21 per mile and $4.4.4. 49 cents per minute. Meanwhile, the law that was passed is much higher than that. It is $1.40 per mile and 51 cents per minute. So the ride handling services are saying you're not even looking at the own data that you commissioned, the study that the state did. It requires us to pay less than what

the law just passed. It compels us. And I definitely feel bad for Minneapolis because there was a report from Axios that found that Minneapolis only has 39 licensed cab drivers, which back in 24, They had 2000. So again, if Uber and Lyft leave this city, it just won't exist. Like ride sharing, I can't imagine a life where you just can't call an Uber home from the bar in the evening or something like that. So, again, we've talked about leverage, and Uber and Lyft certainly have it in this scenario. And particularly for disabled people, they need to get into their jobs. There are a lot of nonprofits working in the area that connect these people that have partnerships with Lyft and Uber.

And they're warning that Uber and Lyft leaving will lead to basically massive job displacement. they're going to be like, these people can't get to their jobs. On the other side, though, there are those who say Uber, you are profitable now. You're making a billion dollars from your advertising business. You can afford to pay drivers more. And cities and states across the country, New York, Seattle, Washington State have all put in place minimum wages. And Uber and Lyft haven't left. They threatened to leave, but they haven't.

We got to bring in Kyle, our resident, Minneapolis resident, to get the word on the street here. buyer's remorse is the worst sometimes that dress that looks so good on the model just doesn't quite fit the same or the hot new running shoe that you paid $300 for doesn't automatically turn you into Elliott Kipchogi. I know that from experience. But HP has perhaps one of the longest lasting bouts of buyer's remorse on record after acquiring the software company autonomy for $11 billion back in 2011. It's so big and so long lasting that they are still wrapped up in litigation against autonomy. economy's founder, Mike Lynch, to this very day in 2024. Mike Lynch is from the UK and was once hailed as Britain's Bill Gates for raising the profile of the Cambridge tech scene after completing this gigantic sale.

But soon after the acquisition, HP CEO, who orchestrated the takeover was ousted and things got nasty. Just one year later in 2012, HP announced an $8.8 billion write-down of autonomy and blamed it on quote, serious accounting impropriety. HP and Lynch have been locked in a decades-long legal battle ever since, culminating in a trial that begins today in San Francisco. What do you make of this Mike Lynch saga? Well, they call it the largest fraud in the history of Silicon Valley.

They say that Lynch artificially inflated autonomy's revenues by backdating sales and other sort of accounting tricks. They also say that they misrepresented hardware sales as software deals, giving the false impression that autonomy software was growing much faster than it was. And it's a really interesting snapshot of where Silicon Valley was back in 2011. HP was this kind of dying dinosaur that it was the first wave of Silicon Valley, right? HP was the giant, it was the alphabet, it was the apple of its time. It was facing slower hardware sales. It wanted to put wants to pivot to high profit, higher profit or higher margin software sales. And it thought autonomy was the answer. And it was a

complete debacle. Absolutely, a big debacle. The fact that this company, I just want to read you how the New York Times described what autonomy actually did. The company helped clients analyze unstructured information in order to unearth hidden insights about their business. That is a word salad if I've ever seen one. Weirdly enough, though, that's kind of what Snowflake does today. They add in a storage aspect as well. That's a $51 billion company, so maybe autonomy was just ahead of its time. I think that's, I think that is just like data analysis. That's what a lot of companies do is they help you make sense of your data. I think those companies are very popular in 2024.

As much as it was in 2011, they just use generative AI to help you find insights from messy data. Yeah, maybe Atonimo just needed some AI. It is interesting, too, because from what I've read, his odds do not look good in any sense or any way you cut it. In 2022, a London judge found Lynch and then Autonomy's former CFO liable for defrable for defraud. frauding HP and then the San Francisco judge has already dismissed some of the evidence that Lynch tried to bring to the table. The one light I see at the end of the tunnel, though, is that Ernst & Young, who's the accounting firm that looked over the deal for HP back in 2011, did not find any accounting discrepancies at that time. So that's something you can always

point to and said, hey, look at EY, looked at this thing. They didn't find anything. So why you're having buyer's remorse right now. That's right. So I do think there is some ask. And we should say Lynch's side is he's accusing HP of mismanaging autonomy once they bought it. There was no accounting fraud in that HP and Meg Whitman, who came in to be the CEO. Meg Whitman is a big Silicon Valley figure. She was the CEO of eBay. Now she's the U.S. ambassador to Kenya. She's completely mismanaged autonomy after the merger.

But HP is not the only major corporation to have problems with mergers or accused founders of inflating their numbers. I mean, just recently, J.P. Morgan bought this college financial aid company, Frank, 175 million, and now they're suing the founder of Frank, whose name is Charlie Javis, for making up a bunch of numbers. So this is going to happen throughout the entire course of corporate history. Yeah, it's the tale as old as time. Up next, pour yourself another cup of coffee because we have our winners of the weekend segment coming up right now. Welcome back to Winners of the Weekend, the segment where Toby and I pick two things that couldn't find any thorns this weekend. Toby, you won the pre-show half marathon, literally, so you get to go first.

My winner of the weekend is the Kansas City current NWSL team. This weekend was the grand opening of its brand new stadium, the first soccer-specific stadium for an NWSL team ever built. Casey hosted the Portland Thorns in its new digs on Saturday, looking to get things started on the right foot in their new digs. But the Thorns were not a very good house guest scoring four goals. in their opponent's new home, but luckily the current scored five in an absolute barn burner of a game that tied the league record for most total goals in a game. A 5-4 victory to break ground at your historic stadium

in front of a sold-out crowd. Not a bad housewarming point. I don't think this is just the first NWSL women's focused team. This is the only arena stadium that is focused on a women's sports team anywhere in the world. At least that's what the owners of this team say. So it's a truly historic thing. a bunch of women's teams have always just been the third or fourth tier

tenant at men's stadiums and haven't had their own facilities. So the fact that they built a stadium which cost $117 million was almost fully privately financed is a remarkable historic moment that shows how far women's sports has gone. And just another moment that was also historic about this game. A 16-year-old scored her first goal for Kansas City. Youngest goals scored in NWSL history. So I think the entire moment was just emblematic of the growth of women's sports in America, but also around the world. I also want to shout out Arsenal's women's team.

They sold out the Emirates Stadium, which is, again, where the guys played. The women's Arsenal team has an higher average attendance than 10 Premier League team men's teams. So it just goes to show you that there is a massive demand for this. I also went to a Gotham FC game over the weekend as well. There was 14,000 people there. It was a great environment. Morgan unfortunately broke Gotham's hearts in the 87th minute, but it is truly just like it's having a moment. And I'm glad that these teams and these women are capitalizing on it and getting these stadiums that they deserve.

It's pretty amazing. So this Kansas City Stadium has capacity of 11,500. Season tickets have been sold out for months. And there's just a question of when, not if they're going to expand capacity in that stadium. We're going to stick with sports for my winner, which is Long Beach State men's basketball coach, Dan Marr. Munson. One week ago, Munson was fired after leading the team for 17 seasons, but he agreed with the school to stay on board until the end of this season. Well, the end of the season is going on longer than anyone expected because Long Beach State caught fire during its conference tournament

and probably won the title and is now dancing in March Madness. Munson is still fired, though, which means he could become the only coach in history to schedule a Zoom first round interview during half time of a game. I think lame duck coaches are dangerous. You got nothing to lose. The players are playing their hearts out. So I would not want to see Long Beach across for me at the dancer playing Arizona. So good luck, Wildcats.

I was wondering, what do you think the business equivalent of this is, like a lame duck CEO. What I came up with is a CEO gets fired, but also has to stay on to take a company public and their IPO goes really well. That feels like the equivalent here, but it's hard. Like, this doesn't happen in any other. It doesn't happen. No, it doesn't, in the CEO corporate world, it does happen where you stay on a few months and sort of hand the baton over. But you're not technically fired, maybe. It's more of amicable parting than this is.

But this, I mean, he has been super gracious about it. He said, this has been the ride of a lifetime. I don't think I'm done coaching yet. I think I'm going to try to coach elsewhere. So he's been super gracious about it. And, you know, if you need a team to root for in March Madness, I mean, you can't beat Long Beach State. Another great fact about Long Beach State that used to be called the 49ers. and in 2019, for some reason, I don't know if this school is great at marketing,

but they changed their nickname to just Beach. So their Long Beach State Beach. I love that. Their job is Beach. Take a play out of Ken and Barbies playbook right there. My job is Beach. Stanley Cups are sew out. Many tote bags.

They're sewing. The latest social media-fueled consumer craze comes from the aisles of everyone's favorite grocery store, Trader Joe's. They sell these mini-traded. Joe's branded tote bags that only cost $2.99 in store and are only big enough to fit maybe one box of cauliflower Noki, but that hasn't stopped shoppers for going nuts for them. The demand has brought out resellers in mass with some tote bags being listed on eBay for as high as $999 for a pack. If cute merch from TJ's was the kindling, TikTok was the flamethrower with multiple videos showing people customizing their bags as well as crowds fighting over them that all went viral.

It's crazy how these hyper-accelerated consumer trends can propel some pretty innocuous items into a must-have, even if no one really must have a tiny tote bag. No, we are definitely in the age of the micro trend. I mean, we're not going to be talking about Trader Joe's toots in April, if only to the point of saying we're going to talk about the next trend and say, remember what happened to Trader Joe's in April? Remember what happened to Stanley Cup in December? These trends are going as fast as you can because of social media,

because of TikTok. The whole product's life cycle of introduction, discovery, maturation, and then falling off is just, it takes place in weeks, whereas it used to take place in months or years. I think all the ingredients were there for this Trader Joe's to go viral. I mean, it's got the exclusivity aspect, the limited supply, plus the virality built in. I also think that colors play an underrated role in a lot of these things, because remember, that was one of the things that made Stanley Cup so popular, is that you could collect them. There was different colors. There's only four colors of the Trader Joe's tote bag, but it's something like, oh, you have the blue one. I want the yellow one.

So there's all these different ingredients that propel these massive highs and then also people moving on for them. And I think colors is part of it. To what extent do you think signaling is a part of it? So you have the Trader Joe's bag and now you post on social media that you have the Trader Joe's bag. How big of a deal is that? I think part of it is signaling, but Trader Joe's is just another beast entirely. Like, people have built in love for them that I think goes beyond just like a status symbol. People, it is like a cult-like following.

So in most cases, I would agree with you. But I think in Trader Joe's, people, like, truly just want their hands on them because they love Trader Joe so much. It's just so funny that these products are not anything special. They're just normal. It's a water bottle. It's a tote bag. It's things that you use in your daily life. They're very useful.

And they're becoming the must-have, you know, quote-unquote luxury fashion items of our particular age. I do think tote bags are having a moment, though. Like Emily Mariko, big creator, is selling $120 ones. They are cute. Like, I live, you hang out in Williamsburg, so you see them around. I see a lot of tote bags. I think tote bags are having a moment. All right, here is your preview of the busy week ahead.

First up, it is once again the season for people who don't watch college basketball to suddenly find themselves screaming at their TVs because an unpaid 19-year-old missed a free throw. That's right. March Madness has arrived. The NCAA college basketball tournament brackets were announced yesterday on Selection Sunday. The men's tournament starts Tuesday and the women's field gets going on Wednesday. I'm all in on the Golden Eagles. I'm a Marquette.

Well, I went to Marquette for two years. Men's team made it as a two seed. Women's team also made it in. So those are both my picks for the men's and women side of things. I'm all in on the Golden Eagles. Just for people who haven't been following college basketball closely, like me, to be honest. The number one seeds for the men are the defending champs. Yukon, Houston, Purdue, and North Carolina. And the number one seeds for the women are undefeated

South Carolina, Iowa and Caitlin Clark, USC, which is a lovely private school, and Texas. Who are you picking? What? Give us your picks. I like Houston. Okay. I know it's not surprising because they're kind of a juggernaut, but I think this is Houston's year. On Thursday, Reddit will become the first social media platform since Pinterest in 2019 to go public. The company, which will be under ticker RDDT, is going to list shares at a valuation of up to $6.4 billion. And in a unique twist, some IPO stock will be set aside for its most loyal users. Unfortunately, for Reddit, though, many of those loyal users are bearish about the IPO and have expressed interest in shorting the stock when it goes public.

We're not financial advisors, but I am all out on this IPO. I think it's going to be an all-time disaster just because we've seen the power that Reddit's kind of stock training community has with GameStop. And if they turn on Reddit itself, it could get ugly. And they have signaled that they are going to on Reddit itself. Okay, it's a central bank extravaganza this week. Central banks representing half of the global economy are meeting, including our very own Federal Reserve. There is virtually no chance chair Jerome Powell will lower rates at the meeting this week. But he is expected to discuss whether two or three rate hikes are in store for the rest of the year. Meanwhile, the bank of the bank of

Japan, this is very interesting, could hike rates for the first time since 2007, which would bring an end to the world's last remaining negative interest rate? That Japan stat is absolutely blow my mind. They've been trying to rev up growth for like two decades now at this point. So remember that next time we say like our economy's overheating. I mean, Japan has been trying to put their factor meal in the microwave for years now trying to get it hot. So they're finally at a good spot right. I was wondering what metaphor you were reaching for there. I think that This is good. All right.

I think that's happening today, actually. So maybe we'll talk about it on tomorrow's show and dig into that negative interest rate and what that means. It is the first day of spring tomorrow. Toby, pop quiz. Is it a solstice or an equinox? Oh, God. Are you kidding me with that? I have no idea.

I'm going to go solstice. It is. No, it's an equinox. Oh, thank you. The summer solstice and the winter solstice are June 21st and December 21st. Those are the longest and the shortest days of the year. During the equinoxes, which are spring and fall, the days and nights are the same exact length. I guess I could have known that because I knew the summer solstice.

Oh, come on. What were you going to say before I pop quiz to you? Absolutely. Oh, I was going to say, I'll believe it when I see it. When you say it's spring, but I will believe it when I actually when I feel it outside. All right. Finally, Game of Thrones creators, David Benioff and DB whites are back with their latest TV show, the three body problem, which is based on a best-selling Chinese sci-fi series. it arrives on Netflix on Thursday with a lot of hype,

but considerable skepticism over whether it'll be any good. Yeah, I don't trust these two anymore. And also, I got to read the three body problems. You do? I have it. I'll lend it to you. Lended my way. I hear it's very good. All right, that is our show for this Monday.

Have a wonderful start to the week. And remember to cherish these final few days of official winter. As always, our inbox is open 24-7, 366 this leap year. So please send your thoughts on the show to Morning Brew Daily. at MorningBrew.com. Let's roll the credits. Emily Milliron is our executive producer. Raymond Lue is our producer.

Olivia Graham is our associate producer. Eugenua Ogu is our technical director. Billy Minino is on audio. Hair and makeup is waiting in line for the Tj's Toe. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow.

Hey, Mama. Thanks for making all my favorite recipes. Hi, Ma. Thanks for your unfiltered advice. Hi, Mom. Thanks for always being by the phone. Hey, Mom. Happy Mother's Day. When you ship UPS Air at the UPS Store, your items arrive on time or your money back.

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