Odd Lots - A Stunning Lawsuit Could Change How Realtors Get Paid

Episode Date: November 29, 2023

Last month, a Missouri jury found that real estate brokers colluded to artificially inflate and fix their own commissions, and as a result, ordered the National Association of Realtors to pay $1.8 billion in damages. While the ruling will be appealed, with highly uncertain damages and remedies, the case is shining a light on how participants in the real estate industry get paid, and raising the question of whether homebuyers are paying too much to their brokers. So how do brokers get paid? What are their incentives? And why haven't fees for brokers gone down, even as online platforms that compete with them have proliferated. On this episode of the podcast, we speak with Andra Ghent, a finance professor at the University of Utah and a specialist in real estate who explains how the structure works currently, and how the lawsuit could ultimately change the entire business model of buying and selling homes.See omnystudio.com/listener for privacy information.

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And I'm Tracy Allaway. Tracy, we've been doing a lot on competition stuff lately. Yeah, we really have. Let's see. So we spoke with Lena Kahn from the FTC recently. Before that, we spoke to the DOJ's Jonathan Cantor. So it feels like we've been making the competition rounds. Right.

We've talked a little bit about chicken, too, in a few episodes. But competition, more broadly, is a good lens to really learn about market structure across a range of industries because every industry is different and every industry is different centers of power and people who have information, people who extract rents from that information. And so just in terms of, I don't know, sheer curiosity about how different businesses work, the sort of competition lens I find to be very useful for getting to know it. Oh, absolutely. And it's one reason why we keep asking people from the FTC and the DOJ how they actually do their research and learn about industries.

But I would say aside from that benefit, which is a major one, it does feel like there is this kind of ground swell of antitrust pressure or there's more of a examination of anti-competitive practices nowadays. And it does feel like maybe the winds are shifting a little bit towards the consumer, perhaps. given the macroeconomic background, you know, we've seen a lot of complaints about inflation, higher prices obviously feels like companies are in some respects getting more savvy about what they're charging people. But then you also have companies or industries that have kind of been doing the same thing for a long time, but now people are looking at it more critically. Yeah, absolutely. That's very well put. It does feel like across the economy, you see this a lot where something has been the norm for 30, 40, 200 years.

And then for whatever reason, maybe there's more data, maybe social media, maybe something, suddenly people wake up and say, wait, is this fair? Is this right? Is this optimal? Is this a good system? I think we see it a lot in medicine for sure where people are like, wait, this is how it works. But, and again, you know, I mentioned we've been doing a lot on competition. We've also been doing a lot on housing.

Yes. And so this is going to be an episode that is sort of a merger. Let's put the two together. Let's put the two together and talk about competition and housing. Yes. So I'm sure listeners have probably seen some headlines floating around about a recent federal civil case called the Sitzer Burnett case. It was basically a civil lawsuit. And it found that the National Association of Realtors plus two large brokerages, I think they were called Keller Williams and Home Services of America, conspired. to keep commission costs artificially high. And the jury awarded Missouri home sellers something like $1.8 billion, but I've read that a judge could, in theory, increase that to damages of as much as $5.3 billion. And this has kicked off a huge discussion about the future of the real estate industry, which has historically made its money from these commissions, at least on the brokerage side. You summarized that very well. That was really good.

And this gets to something, there are many aspects of real estate brokerage that I just don't really understand. I don't really get what multiple listing services are. Yeah, I'd never heard of that before. I knew, I mean, I was familiar with these databases. I don't really get who owns them. I know that access is very restricted. I don't totally understand. So I know you have a buyer's broker, but then also you can go on Zillow and find your own house or something like that.

At one point when I was trying to buy a house earlier this year, found something on one of the sites, maybe with Zillow, but then there was this broker who emerged. I don't really get how all these pieces fit together, but I do understand that if you have access on some level to this infrastructure, that it's very valuable. Well, here's the thing. It's one of those costs that is substantial. I think the average is something like 5 to 6% commission on a home sale price. But because it's so baked into what, you know, both sellers, and buyers are paying, it's never really broken out.

I think people don't think about it that much. It's just incorporated into the overall cost of either buying or selling a house. But now people are starting to examine it more closely and say, well, wait a second, how is this all working? What are the incentives here? And why has the average commission been so remarkably stable across literally a century, I think? So many questions that we need answers to because setting aside this one civil case in Missouri, I don't think anyone knows how it's going to change the industry.

If it'll change the industry, we don't know the damages. There are certainly going to be appeals for these types of things last for years and years, I think. And so I don't think anyone really knows where it's going. But it is a good moment to maybe back up and get an understanding of the market structure here and what could potentially change. Yeah, let's do it. Okay. I am very excited. the perfect guest, Andrew Ghent. She's a professor of finance at the David Eccles School of

Business at the University of Utah specialist in this area. So Professor Gent, thank you so much for coming on odd lots. Thank you so much for having me on the show. Absolutely. How do brokers get paid? I buy a house. I go on Zillow. I find something. I see a bid. Seems cool. Somehow I come to an agreement. It all seems baked in. How are individuals getting paid in that transaction in just the sort of standard case. You have the basic intuition, right? You buy a house and the seller agent and the buyer's agent, they're going to split the commission. And before you even approached anybody, that was set in the listing contract. So it will say in the listing contract, five or six percent typically, and that will be split evenly between the selling agent and the

buying agents. So it's baked into the home price right now. You know, for a very long time, National Association of Realtors effectively instructed its agents to tell buyers it was free. So you may as well work with an agent because it's free. And of course, I think a couple of years ago, they finally backed off that. So it's no longer claimed to be free. But you're absolutely right, Joe, it's baked into the price of the house. So just before we dig in further into commission structures, can you walk us through all the various lawsuits? That seemed to be floating around at the moment because I mentioned the one that's gotten the most headlines. So the Sitzer Burnett one. But there are other things out there. There's a Gibson case in Missouri.

I think I saw a headline about apartment brokers in New York also being sued. And I guess I'm curious, like, why these are coming up as civil lawsuits versus something more federal or, you know, like more targeted from the DOJ or something like that. I think the DOJ did have some sort of settlement with the National Association of Realtors a few years ago. But like, walk us through what this landscape of ever multiplying lawsuits, it seems, actually looks like right now. You know, this has been going on for some time. And sort of the puzzle you alluded to earlier in the show about why has this stayed sticky? We've had this technological advancement where, you know, 30 years ago, it wasn't super feasible for you as an individual consumer to go and find a home online. And effectively, you know, all that the technology hasn't translated to lower prices for consumers. And I don't have a good answer for why now, except that we've had this longstanding affordability crisis in the U.S. that sort of came to a head with COVID.

So, COVID, because it increased residential demand so fast, we saw this big increase in home prices and supply hasn't had a chance to catch up. And so I think that might be why there's a little bit more openness to sort of thinking about this. But you brought up rental agents, but the other lawsuit we're seeing is one about RealPage and the software for rental housing. Right. Where again, it's like, are the landlords colluding here by using the same software and providing data to basically extract the most they can from renters? So that's my best guess. I think the FCC does have a lawsuit against realtors as well, but that's my guess. It has been a long time coming.

And it's, you know, I have to say I was very happy to see the Burnett's sister case because I think it's a bit outrageous to force consumers to pay this price. And I want to get into another sort of maybe more hidden cost of being forced to hire a realtor, which is what sort of incentives they have in terms of your portfolio by being forced to work with a full service broker. Right. So I assume that given the way these commissions are set where like the selling agent will. split the commission with the buying agent. I assume that means that buying agents are incentivized to push the listings that have a higher fee, right? If someone is offering them like 1% instead of 2.5%, they're probably not that interested. They're probably not going to be pushing that property as much to buyers. For sure, there's very few in practice of commissions that are really,

you know, in the 2% range for combining the buyer and the seller. I think the more concerning part to me is that a full service agent has an incentive, first of all, to always get you to buy. That's kind of obvious because they get paid as a percentage of the house. But they also have an incentive to put you into the most expensive home that you can qualify for a mortgage for. And this is actually the bigger concern to me because having all of your assets in one asset that actually has a lot of kind of not diversified risk is actually not great from a financial portfolio perspective, right? So for the average household, the vast majority of their wealth is in their house. And you might not want to be in a house that is taking up 40% of your income to pay the mortgage.

And maybe a smaller house might be a better bit for your portfolio because then you had a little bit more money to put into stocks and bonds and maybe some private equity. So that's actually my bigger concern with the current structure is that it's very hard to get a flat rate service right now with a buying agent. I want to make clear, I think a lot of buyers may benefit from the expertise of somebody to help them buy a house or to help them sell a house. The structure, though, isn't giving me the option as a consumer right now to say, I want to pay somebody a flat rate to show me around, or I want to pay somebody, you know, $10,000 to show me around and do all the paperwork and also look at how it fits it with my overall portfolio, you know, that structure

doesn't exist right now. That's what concerns me most because of the listing agent having it put in the contract. So how the buyer agent is going to get compensated is determined again before you even walk through the door. So wait, let's just say Tracy and I wanted to become buyers agents, buyers brokers. And we said, you know what, we're just going to charge by the hour. And it doesn't matter whether you buy a $2 million house. It doesn't matter whether you buy a half a million dollar house. This is our hourly fee. We'll take you around, et cetera. Is that possible under the current structure? Could we even enter the market with such an offer? It's technically possible. But then it's almost impossible to do, though, because the way buyers are going to perceive it. In addition,

they're going to get compensated this, you know, two and a half or three percent of the home value. And so very few buyers are going to be willing to pay that given right now they're looking at a market where they don't have to come out of pocket. And again, that additional two and a half, three percent is already baked into the value of the house. And so I think it'd be very hard to convince a buyer. We couldn't say like, what if we said, we're going to remit that three percent to you, you get cash back? It's a good question because there is. a company called Homey here in Utah that's been trying to do that. And the Utah Association of Realtors have made it very hard for them to actually run a competitive business model with that.

There are some companies around the country that have tried that to try to remit. I think Redfin might have that model where they're trying to remit some of that brokerage commission to the buyer exactly to try to. So some buyers who are like, I don't really want to pay the full 3%. And it sort of depends on how powerful the realtors lobby is in various states. The success these companies have had with this. This is Tom Keen, inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney.

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And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keene, Paul Sweeney, and me, Alexis Christophorus. Subscribe today, wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day. So you mentioned expertise of realtors earlier. And my understanding that this is, without being mean to the thousands of realtors across the country, this is a point of contention. And one of the arguments is that, well, the fee, the commission basically remains the same across all different types of realtors. of varying skills who, you know, might put more or less time into either buying or selling your

home. So I guess the question is, how valid is that criticism? How difficult is it to buy or sell someone a house, particularly in this market? I think the answer is that there's huge variation in the quality of realtors. And what services do you want as a home buyer? You can't unbundle them right now. I know in my own case, I basically have the house picked out by the time I go to it like with the realtor and I basically having to pay somebody a huge amount of money to fill out some paperwork. I could have hired, I could have either done the paperwork myself or hired a real estate attorney for, you know, a couple thousand dollars. You know, typically they're going to put a second year associate or something out. It's not complicated paperwork for most, you know,

residential real estate transactions. And I do think it's very costly to get a bad realtor because again, these are ones that are especially unlikely to understand the risks of the home. Home ownership is really, really risky. And I think people underestimate that maybe especially with recency bias, you know, if you bought a home in the last five years, you've done phenomenally well. And people somehow have forgotten what happened if you bought a home in 2005 in Florida. So home prices do go down. And individual homes often have, you know, every home has defects. But what does take to be a realtor, in most states, you have to have a college degree in some field, some sort of college degree, and either, you know, somewhere between 50, 70, maybe even 100 hours

of online training, but half the online trading tends to be like propaganda from the National Association of Realtors on why it's terrible to work without a realtor. You know, so I do think there are nuances of buying a home, and it seems scary, I think, especially for first-time home buyers, right? there's this huge sense of like, what if it goes down? And what if I miss like a leak in the ceiling? And there's, you know, I think when you've done it a few times, you're like, oh, yeah, old houses have leaks.

Tell me about it. That is just part of the deal that there's a lot of maintenance costs that you won't foresee. But it is scary. And I do think there are some downside risks that working with a realtor, you know, a good realtor can help with. And good realtors also, you know, they view their kind of. customers more as sort of a long-term relationship and they know they're going to get business from word to mouth. And they'll help you with a lot of little things.

But what I would say, Tracy, is it's not hard to get your realtors license. That is a true statement. How hard it is to sell a house or buy a house that that is a sort of, it varies by agent and it varies by individual consumer as well. So I want to talk more about why it is that the rise of sites like Zillow, Redfin, et cetera, haven't actually had the effect of cutting out the brokers who make a lot of money. But before we do, can we just talk about for a minute the specifics of the Sitzer Burnett claim? What was actually alleged here in terms of what the plaintiffs deemed to be anti-competitive or unfair about how the market is structured?

And I think also a couple of the brokerages had already settled out of court and were it affected, but just walked us through what really this was about. Yeah, so this is a group of individual home sellers. Okay. And what they're alleging. Can I just tack on? I don't understand why damages were awarded just to the sellers and not to the buyers as well, who would be, I mean, they're paying the sellers by paying for the house and the cost is incorporated in the purchase price. Yeah, so it's a good question.

The buyers were not part of the suit, right? So this is a class action suit. And the buyers are not part of the suit. So I think they don't have standing. Tracy, that would be my understanding. And technically, in terms of the actual pecuniary cost, it is sellers that are paying it. You're right. Who actually paid for the higher house price to compensate the sellers?

It's the buyers. But they're not part of the suit as far as I understand. I feel more class action lawsuits might be coming on behalf of buyers. Yeah. I mean, I'm actually really happy. It's hard to imagine spending this much time on a case, right? When it's 20, 30,000 or something, it's not a huge amount of money. And it's a lot of time in the seller's lives.

But what they're saying is they're claiming it's a restraint of trade. It's a collusion to set the price specifically for the buyer's commission. So the sense is you could negotiate over the overall, you know, five or six percent. There's not a ton of negotiating room because oftentimes because, again, this propaganda in the realtors course, they'll say, no, I'm not going to even take it if it's a 3% commission overall. Like that's how they're sort of taught. But it's specifically, we haven't heard what the remedies. are. And I'm excited to see what the court comes up with with the remedies. But my guess is they're

no longer going to be able to mandate in the list agreement. So basically the deal, what these home sellers were faced with was if I want to work with a realtor and the only way you get your house on the multiple listing service is you work with a realtor, that's sort of a requirement to get your house. So if you can't get your house on the multiple listing service, it's critical. As you explain this, Explain the role of the multiple listing services within the market infrastructure. It's almost impossible to sell a house without, I don't want to say impossible, but you'd be taking a huge discount because buyers won't even see your house. Even when you go to Zillow or Redfin or some of these. So Zillow does have a for sale by buyer option, but it's actually shown differently.

If you look at the fine print, it's actually shown differently than any contract that is on the multiple list of service. So this is basically information that realtors share with one another. In disclosure states, which is the majority of U.S. states, you can see the transaction prices and you can see the listing prices. And that is a matter of public record. It's actually harder in states like the one I'm in in Utah or Texas, some of these other what we call in non-disclosure states. In non-disclosure states, sales prices of real estate are not a matter of public record. What that means is that the only people that have access to that information are realtors through the multiple listing service. So it's not a matter of public record.

What's on the MLS is not public record. And so part of the reason that realtors in states like Utah and Texas have resisted going to a disclosure regime is that it takes away their informational advantage, if that makes sense. So right now, even if I could hire a realtor piecemeal to either side, sell or buy a house, so I didn't have to pay it through this commission structure. It still would make it pretty difficult for me as an individual buyer or seller to figure out the fair market value of my house, either that I'm buying or selling, because I don't have the information, but the realtors do through the MLS. Oh, got it. So there's obviously been a lot of reaction to this decision on the case. And I've seen so many commentary pieces about what this means.

for realtors for the housing market in general. And I suppose you could sum it all up by nothing good for realtors. But a lot of it seems to be going in various directions. So why don't I just ask you the top line question, but what does this mean for the real estate broker industry? So it's a good question. My hope would be is that it forces out some of these very part-time realtors that do a couple transactions a year that I think are really not.

helping homebuyers or sellers because I think those folks are just sort of waiting for good luck a windfall. That's how they can stay in the industry, even though they're not, they don't have a ton of expertise. I do think you'll see commissions come down and I hope you'll see more piecemeal services. The other thing I suspect, we really need to know what the court decrees as remedies because that's what we haven't seen yet. The hope is that the remedies will be you cannot, it cannot be, the seller that's compensating the buyer's agent, at least not as a commission. People do have worries about that, particularly for first-time home buyers who are credit constrained, right? They have limited cash and asking them to come up with another $10 or $15,000 or even $20,000 to compensate

a broker. That's hard, but that, I suspect, is going to be the remedy because the particularly anti-competitive part of the case, the allegations are that you're setting the price in advance with no opportunity for the buyer to negotiate. Right. So just on this note, I mean, could the National Association of Realtors agree to some sort of settlement where they do decide to make some changes? Yeah. They've said they're going to fight it, right?

So they're going to appeal this decision. I'm interested to see what's in that appeal. They could settle. But I suspect what they're going to claim is that these laws are largely set at the state level and they're going to say it has nothing to do with the National Association of Realtors. I don't know this for a fact. I'm speculating. The court has been asked to come up with remedies specifically. And so the settlement doesn't really deal with the remedies unless NAR would agree to its various member organizations, these state level realtors boards, you know, that might be an

option. But we have to see remedies. We have to see we are no longer going to engage in this practice that has been identified as restraint of trade. And then the other thing I was wondering, just from a legal strategy perspective, but, you know, there are multiple brokers involved in multiple lawsuits at this point. Could you start to see some sort of like fracturing of the industry where individual companies try to argue that they're not like the other brokerages that are price fixing that, you know, maybe they deserve a carve out from some of these lawsuits or something like that? Could you kind of see intra-industry fighting? I doubt it, with the exception of some of these flat rate or low commission services, and those do exist.

And you have seen more of those pop up in the last 10 years or so. Again, some states make it feasible and some states, you know, try to extinguish this business model. I think anybody who's operating on this structure where the buyer's agents compensated explicitly in the listing agreement, I can't see that surviving. And so I think if that's your business model, which is the business model of the vast majority of these large brokerages, I cannot see how they could claim they're doing something fundamentally different. This is Caroline Hyde. And I'm Ed Ludlow inviting you to join us for Bloomberg Tech, a daily podcast focusing exclusively on technology, innovation and the future of business. Every weekday, we bring you the top headlines from the world's biggest tech companies. From finance to defense, AI to entertainment and from startups,

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And I'm Ed Ludlow in San Francisco. Subscribe today, wherever you get your podcasts. One reason why there's a lot of anxiety and concern and interest in this space right now is because of the housing affordability problem. We've been talking about it on the show a lot, by some measures, the least affordable housing market ever. I don't know, just to put on your sort of academic professor of finance hat for a second, you know, if you take out the broker, do houses actually get cheaper? or does it just mean that the seller pockets more of the money? If I see a house that's listed for a million dollars and we take out, so 6%, I guess that's, you know, take out 60,000, does that mean that if that goes away, maybe it goes down to 20,000, does that mean that the house gets $40,000 cheaper, or does it just mean that the seller walks away with $40,000 more?

I think it's a little bit of both. It's $40,000 that was previously going to the agents and hopefully that will be shared between the buyer in the form of a lower home price and the seller. And what weights is it 50-50? It kind of depends a little bit on the market. Right now, you know, it's not a great time to be a seller. So I suspect that the potential buyers that are willing to buy existing homes rather than new construction,

I suspect that the buyer's weight is a little bit more. So you will see a little more softening at home prices. So it's a little bit of both, right? It's surplus that is now available to be shared between the buyer and the seller. How does the U.S. commission system and the rates, the average rates that were paying five or six percent, how do those stack up against other countries? Because I feel like those sort of inter-country comparisons are really useful in helping us understand how unusual or different the American system might be.

Absolutely. The U.S. system is very unique. You don't see this overseas. American exceptionalism strikes again. Yeah, you don't see this in Australia. You don't see this in the UK. In the UK, it's like one, one and a half at most 2%. And so you do have to ask, like, what is it about the U.S. that is different?

Because we largely have the same legal structure, right? These are both sort of common law countries. Property markets aren't that different, especially looking at Australia. And so I do think you have to sort of say, why are we special? Is there something that's especially difficult and time-consuming about buying and selling residential real estate in the U.S.? And I think the answer is probably no. Can you explain further the impediments that states or realtors in those states put up to thwart alternative broker models? Because you mentioned, yes, some of these do actually exist and that

there are companies that will remit part of the broker fee back to the buyer, et cetera, but that the realtors put up roadblocks and make those business models hard. What makes them hard? I think that they sometimes almost will kind of blacklist you or take away your license if you're operating under certain business models. I don't know all of the individual states exactly, but I do know having bought a home in, let's see, four states now, there's a lot of heterogeneity. And I'd say that the non-disclosure states are especially challenging for

these other business models. And part of the value of a good realtor is that they have an informational advantage. They're doing a lot of transactions. They're spending a lot of time thinking about the market and learning about what's on the market. And they may know off market deals that haven't come to market yet. And that's a huge value. So that's the sort of value I think a good realtor can provide. Where I sort of have more problems is when they're actually restricting who has access to the information. They're not just using the information they're gathering through having multiple deal as they're saying only a licensed realtor can have access to this information. And they, they're putting up roadblocks certainly to disclose this information. You know, Zillow has sued

multiple times to try to get access to this information in non-disclosure states. So I don't know exactly. It's more through, I think, threatening to lose your license if you're not operating on a certain business model. You know, when I think about the potential macro impacts of all of this, Obviously, the effects on the residential real estate market are a huge one given its size and position in the U.S. economy. But the other one I kind of think about is just from a pure labor perspective because there are a lot of real estate brokers in the U.S. And I think there's some disagreement about what this might mean for those jobs. I've seen some people arguing that maybe it means if commissions are coming down, you're not making as much money. maybe it means more people are doing it part-time, you know, on the side. It's a little bit of a bonus

that you might make in addition to your, you know, normal day job. But then I've seen other people arguing that actually this is going to mean fewer part-timers, expertise, as you were mentioning before, becomes more important. And so you're going to see more full-time agents. So I'm curious where you land in that discussion. Yeah, it's a good question. And I don't know definitively, but I would lean towards fewer overall agents and more full-time agents, because I think you're going to want to do more volume of transactions, right? And you're going to treat a little bit more like a commodity because you can't be compensated, you know, these huge sums of money.

I mean, I don't think we're going to get rid of the commission structure altogether. I do think you'll see fewer part-times because basically those part-time agents that were selling one or two houses a year, they were just waiting to kind of get lucky. right, that somebody would come to them. And now, suppose the commission comes down to four percent between the seller and the buyer. I'm just throwing out a number there. That math starts to look worse. You know, you mentioned, I think you were a little bit skeptical of the effect of buyers, brokers,

or buyers agents steering people to houses based on the percent. That you do think that there was a lot of action towards steering people to the most expensive home that people could afford. But why don't sellers agents just say, knock it down to 2% or 1%? I mean, why isn't there more competition on that? And that aspect. Because I think it's that these agents are instructed through their education to not accept something below 5% in the overall listing agreement. Like that's the sort of collusion is that they're so pushed on for that. And it's so deeply ingrained in them. Yeah, whether that will change going forward, I don't know, but I think the education of realtors has to change.

But that is not, I don't think, going to be part of the remedies in this case, to be clear. I suspect the remedies are going to be that you can't explicitly put in the listing agreement. Because technically speaking, it can be one. A seller's agent could put in the listing on the MLS that it's 1%. It's just basically never done. It's basically never done. That's right. There are companies that do this that agree.

I think Redfin is one of them that do. do this, why they can't operate in a state like Utah, I'm not sure, but there are companies operating in some states, and it's a company-wide position, if that makes sense. You know, the strange thing is you mentioned, well, would you be worried as a seller that no buyer's agents would visit you? I think that does go on, but I think increasingly with the information that prospective buyers have, I'm not as concerned about that, as long as it's on the MLS, because I can just tell my agent, Like, take me to this house. I saw it online.

It has two bedrooms and one and a half fast. I want to see this house. Right. Yeah. So I don't know. One concern I have is that consumers perceive some authority on the part of their realtors. And they don't realize they're really the ones in control. And so they can just say, I want to get into this place.

I want you to, you know. So, yeah, but it does sound like that goes on is that, oh, well, then the buyer's agent won't go there. I don't see why it should go on, given the information that most home buyers have, except that they trust the expertise of their realtor. I just have one last question, which is, okay, this was a civil suit in Missouri. As you mentioned, there are other suits. What would it take for this to be a national change to the industry? Because does this just affect realtors in Missouri?

What is the scope of the ruling? I think it would affect as setting a precedent. So it may be that the scope of that case in particular, is specifically Missouri, but then there's a precedent, right? And so then I know in other states, hey, the leg work to get, you know, maybe, do we have to do the same lawsuit? Fine, we got to do it. But there's precedent. And if that precedent holds up, it's not a big, you know, you know, the realtors might just say,

we're not going to do that because we don't want to deal with this suit because it's the precedent. And then there's the Gibson case, which has been filed in Missouri like the Sitzer Burnett case. But I think that one is for national damages. And I think I've seen a number floating around there of up to $200 billion in damages, which is pretty sizable. But also, to Andrew's point, if there's anything I know about class action lawyers, it's that once there's precedent, there will be more lawsuits. Andrew, again, thank you so much. That was a great explanation. And now I have some understanding of how this market actually works.

Really appreciate you coming on oddlocks. Thank you so much for having me. Really appreciate the time. Thanks, Sandra. That was fun. You know what sort of blows in my mind, tracing, that so many real estate sales are public and you can just see the price people paid for their houses. Oh, yeah. It is pretty weird.

It's weird, right? I mean, you think it's sort of a personal thing and people don't really know, but it's all right there online. It takes about two seconds to figure out how much almost anyone paid for their house. Yeah, I find housing a weirdly opaque and transparent market at the same time. It's like there are all these things embedded in the house purchase process like the convenience. commission, which you don't necessarily see broken out. But then you can see really sensitive numbers like the overall sales price. It's weird. I remember as a kid when my parents bought a house, I forget when or where, you know, going from house to house to house to house in a drive and maybe

driving behind the realtors car, going in the realtors car to all these different houses, it does seem crazy to me that the commission structure hasn't changed much at all or if at all, despite the proliferation of these online marketplaces. No, absolutely. Because nowadays, you can see a house online on Zillow or something like that and you just shoot a little inquiry form over and you say, I want to see this house and then someone lets you in the front door. But that seems to be pretty much the extent of realtor services sometimes. And I do think, Andrew touched on this, but I do think the argument for unbundling more of those.

So maybe you don't have a buying agent. Maybe you start to substitute a real estate attorney for some of the things that a realtor historically was doing. That seems like a possibility to me. Yeah, totally. On one hand, it seems very intuitive to me that, oh, just over time, shouldn't there be more of these maybe discount brokerage models for real estate, where you get remitted back part of the 3%, just a flat fee, you pay by the hour, etc. But on the other hand, as long as the fee is basically hidden to the buyer, it's just part of the house price.

And you have no opportunity to negotiate it. Yeah, and you have no opportunity. But also, no real reason to it. It's like, oh, there's a million dollar house for sale. I don't, the buyer doesn't have to think about the brokerage fee because it comes out of the seller. you could see, A, why alternative models don't just take off because they're obviously appealing to the buyer who doesn't even really think about the fee in the first place. And B, maybe that helps explain why the first lawsuits came from the seller's side.

Ah, that makes sense. And also, I mean, this is really a story of incentives, right? The incentives that the listing and the buying agents actually have. And I think you can kind of also understand why on the one hand this industry can appear. to be competitive, right? Like, the barriers to entry are probably not that high. Like, yes, you need a college degree, but then you can take National Association of Realtors course and get your foot in the door reasonably quickly. Yeah. But on the other hand, like, the incentive to keep prices as high as possible, it's there in a commission-based system for obvious reasons.

And it does feel like in that sort of structure, you kind of need an external entity to affect change, right? Because otherwise, no one is incentivized to do it. Not even the like new discount, if you had discount brokerages or something like that. The existence of the MLSs themselves are really fascinating. I know. I want to look at an MLS. Yeah, they won't let you. There's no way you can get your real estate license. Then you can look like it. But no, it's like, okay, on the one hand, on the one hand, it's market transparency. They're all there. So that's good. On the other hand, only some people can access. it, and if you do access it, you have to sort of basically enter into these Byzantine commission

structures. Lots of stuff there related to market power. Yeah. Shout out to my realtor who fed our coy fish until we could get to the house. See, that's value. That's value. It was a value ad. Yeah, appreciate it. All right. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill Wisenthal. You can follow me at the stalwart. Follow our producers, Carmen Rodgers. Rodriguez at Carmen Armand, Dachel Bennett at Dashbot, and Kel Brooks at Kel Brooks. For more Oddlots content, go to Bloomberg.com slash oddlots, where we blog, have transcripts, and a newsletter. And chat about this episode in the real estate room of the oddlots discord.

Discord.g.g. slash oddlots. And if you enjoy oddlots, if you like it when we do deep dives into the structure of the U.S. housing market, then please leave us a positive review on your favorite podcast. platform. Thanks for listening. I'm Michelle Hussein and for more than 20 years, I was at the BBC. But all the time I was delivering the headlines, I wanted to go further than the news of the day. To spend more time with the people shaping our world. And that's what I'm doing here on this podcast. Speaking to people from Nigel Farage, Russia needs to be taught a lot. To tech journalist Karaswishu. To tech journalist Karaswisher.

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wherever you get your podcast. You certainly ask interesting questions.