Gnar, NAR, NAR … Does Anyone Really Care?

Dan Austin: [0:00] Hey there. Welcome back to another episode of the collecting keys Friday focus. You have me today, Dan Austin, as your host. If you're new here, these are episodes that air every Friday, where Mike or I like to take a deep dive into a specific topic, go on a rant about something relevant to industry, and if you stick around long enough, we do a deal case study with our scale community members. We bring somebody on every couple Fridays, we will record with them, and then we do a deep dive into how they found a deal, how they negotiated, the challenges that they went through to get it under contract, and how they exited, and what their profits were, whether it was a win or loss. We don't discriminate, we take both on. Those are really good episodes to to put on display what it is to be an off market operator from from those that have chosen to to participate in our scale community. Today though, will not be a deal case study. Today, I'm gonna go on a bit of a rant on this NAR, National Association of Realtors lawsuit that everybody's talking about, and you're probably like, Dan, dude, chill out, this has been going on, everybody's been posting on their Instagram for the last couple weeks, we got it. And totally fair, but I have gotten a few DMs and some folks in our scale community ask like, hey, what is your opinion on this?

Dan Austin: [1:08] And so I figured I would just at least share an opinion, what I think about the NAR lawsuit, and realtors in general. A lot of people are wondering like, is this a big deal, or is it just a big fat nothing? And it's probably somewhere in between, And so I'll just start by by talking about NAR, National Association of Realtors. I think it's pretty amazing that they have $418,000,000 to just give away to the government for this fine, which if you weren't totally cut into this, they're basically there's a lawsuit filed against them, and also some of the big brokerages like Keller Williams that have to pay fines as well, or I don't know if you call it a fine, whatever they're paying. They lost the lawsuits. Essentially saying that brokers, buyers and sellers brokers were colluding to keep commissions high, and that NAR was part of that by setting the commissions and all these sorts of things, which NAR doesn't set the commissions, but there is an industry standard of about 6%. Half generally goes to the buying agent, half goes to the listing agent, yada yada yada. Anyways, I mean I'm a licensed real estate broker, I wouldn't call myself an operating agent, but I do know a little bit about you know, being a real estate broker, but I'm not good at it. But from that standpoint, NAR hasn't specifically affected me or does it do anything for me. I look at it as kinda like workers unions or another lobbying firm like the NRA, like they've done a lot in the past to create value and they maybe hold some things at bay, but at the end of the day, they're there to protect the groups, whether they're right or wrong, that are paying them dues, right?

Dan Austin: [2:38] So National Association of Realtors gets paid dues, obviously they have a lot of dues that they collect because they're paying $418,000,000 in fines, and I'm sure they'll be fine, financially speaking. But they are there to basically lobby on behalf of agents. So agents stand in between buyers and sellers, and they, what I would call, scrape out some of the value of from the industry, typically 6% from a transaction, and they're taking that, and then that gets rolled up to these brokerages, because everybody has these commission splits, and then everybody's paying NAR, so there's all these other people in between real estate agents, and the sellers as well, that are collecting their fees. And again, historically, they've probably shaped the industry for the better, and now we're at a point to where the question we're all questioning like, do we really need NAR, do we really need real estate brokers, do we need all this stuff? And again, the answer is not gonna be black and white, yes or no, it's probably somewhere in between, but from the standpoint of this lawsuit, what came out of it, the ruling basically said is that, there's a lot of details, I'm just gonna give the high level two things that that really stick out.

Dan Austin: [3:42] One is, you're no longer allowed to input a buyer's agent commission in the MLS. So a lot of times, in most MLSs, not all MLSs do this, in fact, Northwest MLS, where I'm at, doesn't do this, but there are MLSs that essentially, you can put in buyer's agents. So when you go and sign a listing agreement with a seller, there's a box that says, how much commission, percentage, or dollar amount will this listing agent get paid, and then below that, there's usually a spot where they say, how much are you going to pay to the a buying agent? How much is the listing agent willing to give to a buying agent? So as a seller, you're say, oh, okay, so they're gonna they're gonna give half their commission to anybody that brings a buyer. Perfect, that makes sense, I'll market it, That way, it brings in buyer's agents to bring their buyers yada yada yada. That would make sense because that's how brokers get compensated. And then they would take that, they would input in the MLS, and so then a buyer's agent who's gonna go and look for houses for their clients would say, oh, okay, this one has 3% commission, I like that one, I'm really gonna sell that. In theory, that's I think what the lawsuit's saying was happening, and so they're essentially colluding together, because they're setting their commissions, and then other agents can go and basically shop houses to their buyers based on that commission. Here's the problem with that is is we don't need the MLS anymore, so we don't need agents access to the MLS to find properties.

Dan Austin: [5:00] Zillow is getting it and getting it out there, and yeah, Zillow pulls up from the MLS, but people can just put it on Zillow too. I mean, buyers don't need agents to help identify. I remember when I parish for buying a house back in the early early nineties, an agent would open up his trunk and he'd have a whole thing of like, Polaroid photos of houses, and then like, oh, I like that one, let's go look at it was just the front of the house. Oh, I like the front of that house, let's go look at that one, and that's that's kinda how you did it, it's totally different now. The other thing coming out of the lawsuit, that they basically said that buyers agents have to have a signed agreement with a buyer before they can show a house. You could have done this beforehand, right? But it's essentially saying that the the buyer's agent cannot show a house without an agreement of compensation, it could be zero, it could be $1, it could be whatever they're going to compensate, and a lot of people are saying, well that implies that the buyer has to compensate the buyer's agent. And in a way, that's kind of the direction I think that this lawsuit's supposed to go, is like, oh, the the seller pays the seller's agent, the buyer pays the buyer's agent for the work that they're doing, and we'll dive into that in a minute. Fundamentally, that's stupid, and there's a reason why we've come together the way we're doing it now, because if you have buyers paying the buyer's agent, they're going to be able to afford less of a down payment, so think about FHA buyers who can only afford 3%, but they're gonna get into home ownership, the American dream and all that stuff, well now they have to give, you know, a percentage of that away, like that's just going to drastically reduce what they can afford, or knock them out completely. On the flip side of that, VA buyers aren't even allowed to pay commissions, like VA buyers in to get a VA loan on that HUD cannot be buyers paying a buyer's agent commission.

Dan Austin: [6:35] So VA buyers in that case, even be able to to buy a house with a buyer's agent, they'd have to work directly with the selling agent. So fundamentally, that's what they're saying, what they're also not saying, that that's where like the major changes, don't think are gonna happen. So basically, you could still call the selling agent and be like, hey, I see you got this listed, what's your commission? And they'd be like, oh, I'll give you 2%, perfect, I'm gonna bring my buyer. I don't like that in the sense of, I've seen and I know buyers agents that steer buyers away from houses because they have a lower commission. I think that's bullshit. I think as a buyer's agent, you should be willing to show, usually they are, but then they'll show over the house like, this thing sucks, you don't want it, these are the reasons why you don't want it, and they'll they'll negatively influence the buyer when maybe it's a better deal for them, it's just a worse deal for the agent. That's bullshit, they shouldn't be able to do that. Now, with this rule, it doesn't really change the fact that a selling agent or a listing agent is going to offer a buyer's commission, they just have to go out of their way to get it, like what that number is. Okay, fine, whatever, so there's not gonna be a lot of big changes there.

Dan Austin: [7:35] But I do think what comes into question is, what is, what will the long term outlook be for agents, and I don't think in the near term, anything's really gonna change, but I do think there is a lot of areas where people are scared of change, and like some folks are saying, well, buyer's agents will totally go away, And to be honest, they don't really need buyer's agents, like what they do, okay, so all they they get you into the lockbox, well, there's tons of new digital lockboxes out there that you could even use that don't require an MLS access. And I think there's some security reasons why we wanna do that, but I'll tell you right now, I've had buyer's agents come to my house, book a showing with me, just so they can take a shit in the toilet in the house, I'm not even kidding you, like it's so disgusting, where I've had, you know, sellers come back to the house and say the house smells like cigarettes, because the buyers that they walked through were, you know, smoking cigarettes before they got in there. So it's like, it doesn't like preclude everybody, like, doesn't mean just because a buyer's agent has access to the ambulance that they're going to bring in people that you want walking through your house when you're not there, like, all sorts of shit could still happen.

Dan Austin: [8:32] But there is some security reasons why you would want at least some gatekeeping there. But in reality, and if that's the case, is why you need a buyer's agent, because you can you don't need them for the MLS anymore, right? Zillow posted up there, it's up there, you can see the houses, all the pictures, it looks great, you can really filter down what you want. Zillow even helps you understand what's gonna cost per month from taxes and and PITI, all that stuff. So buyers are more easily informed. So you don't need them for the MLS, and if they're just being a showing agent, I mean real estate, property management companies use showing agents all the time, that's like a $15 an hour job, so as an agent, I guess you could bring that value, but that's like such low skill value. The other value that a buyer's agent might bring is their ability to understand and know the legal jargon around some of these documents, it's like so do lawyers. So would you trust a 19 year old with no law degree to step you through some of these legal contracts? No, you're gonna go to a lawyer, and there's a lot of great real estate lawyers out there that are that can help you just draft from scratch documents, or you can go and get some from somewhere else, and have them readjust them with the contingencies that meet your needs, and you could pay them, you know, a thousand bucks for that, and it's gonna be a lot cheaper than paying a buyer's agent, or giving like 3% up to a buyer's agent, I can guarantee you that. So we just eliminated that, we don't need them for that.

Dan Austin: [9:50] The one thing that could be good, if they're a great agent, which I know plenty of great agents out there, is that they have a good negotiating skill, and most of that is because they are in the game, so they know what agents are getting educated on, and where they can use leverage, and a lot of times, they are leveraging, not like they're skilled to negotiate price, but they're leveraging contingencies and other things within the contracts that are, you know, written and and managed by MLS and and NAR lawyers, right? And so it's all kind of a little bit of occlusion there on how they do that, and kind of use those tools as leverage in negotiations, but that is where a buyer's agent could help, is with that negotiation, but let's be honest, most agents aren't skillful like that. I do know them, they're 1% agents, and the 1% agents are good no matter what. They they could be owning any other type of business, and they'd be awesome at that too, like they're just good at what they do, they're committed, they work their butts off, they're smart, highly educated people. They're already eliminated from this conversation anyways, because no matter what, they're always gonna be there and be doing well.

Dan Austin: [10:49] But you really kind of break down the need, the need for a buyer's agent. The listing agent is great, and they deserve, I do believe, because they deserve what they're getting, because, you know, they work their butts off to build a marketing and a lead generation system, and they they bring in those, there's costs associated with that to find that, so to run their business. Does it make it right that they have, you have to pay so much of your commission, or to sell your house to the commission, I'm not gonna argue that, because like, if there was less competitive, they would have to spend less on marketing, and they would make more money regardless, and so maybe, as a result in the future, that there will be less agents, because there'll be less need for bum agents. And that's probably the major result here that I see coming out of this is people are starting to realize what a valuable agent looks like, and what a valuable agent brings. And the buyer's agent honestly doesn't bring a lot to the table. Not always the case, again, there was a 1% that are awesome, but they're also doing listings and all that sort of stuff. They're good people. But there's just so many bums out there that discredits the value that an agent brings to the table that I can see a big portion of that going away, and unfortunately on the buy side, those are the agents, they're usually younger ones coming in because they don't have a huge network of people to list houses yet, right? So they're like, I'll show you a house, I'll do whatever you want, I'll you know, I'll work for you. What can you do to combat that, think, or what I think would be great, is for different agents, and maybe it's not even a real estate agent title anymore, but offering services that are like a pay as you use service.

Dan Austin: [12:22] We have all these ancillary services, like real estate agents use staging companies, right, you can stage a property for you know, a thousand dollars, $1,500, and that helps increase the value. You can hire a photographer for $300, and that's going to help show your house better, right. So there's all these ancillary services, why not break that out? So an ancillary service could be, I will show houses for you, and I just charge $100 per showing, that's it. That's a great, that's honestly a good service, or you could break out some other ancillary services like, hey, I will help you know, negotiate, be your negotiator, or b, help with your contracts, maybe you have a lawyer on your team, and you guys just help strategically build out contracts, and you leverage that service for $500 a transaction. We have TCs, right, transaction coordinators that'll do that for say, $100 a transaction, they'll make sure all the documents are in order, so what if you're a TC service, you know, you partnered up with several transaction coordinators, and then you brought in a lawyer in house to offer some services out there, legal, real estate legal services, and and make it more inclusive and more broad that And so I think there's a lot of cool little services that can pop out from these lawsuits if we really start seeing a big swing in real estate, which in the near term, don't think we will, I don't think anybody's making any major changes, we're just gonna be rolling with it, and agents are still gonna get paid 6%, they're gonna split it, and they're just gonna have crafty ways to do it, that are not gonna be illegal or unethical, they're just gonna have to do it differently. But in the long term, look out. I think there's gonna be some great changes in the next five to ten years, especially as technology comes in, and buyers and sellers realize they don't need bum agents. They wanna work with the best, there'll be fewer, more high paid agents out there, and then all these other ancillary services that those high paid agents can leverage to create a suite of offerings for their clients.

Dan Austin: [14:11] I'll stop there, this is probably getting boring for you anyways. Hopefully, you got some value out of this. If you did, or you heard something I said is stupid, or you want me to dive into a deeper topic, hit me up on Instagram at investor mandan. DM me, I love it, I like talking to you all out there, I love answering questions. Feel free to reach out anytime, and if you've got a great topic, I'll even run it here on the Friday Focus for you too. So everybody have a great weekend, hope you enjoy, see you.