The New York Times is DEAD WRONG

The real estate industry has truly never had more drama that it does right now. Every day it seems like there is yet another development that directly impacts you all – the consumers. A handful of friends and clients messaged me about the latest shoe to drop – a New York Times Daily podcast that aired last week. It makes Realtors out to be sneaky deceitful snakes, openly flouting the Department of Justice. I’m all about truth, being direct and a straight shooter. I’m going to go through this podcast’s main points and compare for you what’s happening here in the DC Metro Area.

This was an interview with reporter Debra Kamin, titled: “The Housing Market Has New Rules. Realtors are Evading Them.” I listened to it. Twice. And while I love just keeping my head down and helping my clients buy and sell houses, this interview is spreading some false narratives that could have disastrous consequences. I can’t speak to the rest of the country, but I can tell you how things are unfolding here in the DC Area. 

I love what I do, and I know that this industry has bad actors. But they are the exception, not the rule, especially in the DC Metro Area. Housing is in high demand, people here are extremely smart, highly educated, many have law degrees. This kind of nonsense wouldn’t fly here.

Podcast Point: Kamin started by explaining that as a result of the lawsuit filed by the DOJ against the National Association of Realtors, commission amounts were going to go down, which should also reduce home prices. Kamin explains how this didn’t happen, and there’s been a “great workaround” in the industry.

Her first statement I want to address is: “post-settlement, the rules said that sellers pay their own agents, buyers pay their own agents. If you work with a real estate agent, it’s up to you to pay them. That was what was supposed to happen, which should have brought a lot more competition and negotiation into the marketplace… the settlement was very specific in its language that these conversations about splitting commissions could not happen on these databases. (MLS) So the real estate community was like, OK, we’ll just move these conversations elsewhere. It never said we can’t have them at all.”

Melissa says: She’s right. This hasn’t happened. At least not locally in the DC Area. Sellers understand that if they don’t offer compensation to the buyer’s agent, it could greatly reduce the number of buyers interested in their home. For most sellers, it’s about what they take home at the end of the transaction. If they have to offer a commission to the buyer’s agent to get more buyer interest and potentially competition and a higher price, that seems like a better avenue for them. I’m not sure why this is a problem either.

First, no one can really tell a seller what they can and can’t do with their money. Second, of course there are conversations had regarding commissions. We don’t work for free, so when we are advising clients on how to craft an offer, figuring out what kind of credit the seller is open to offering is kind of a useful data point to know. Commission conversations can’t happen on the MLS per the lawsuit, but of course they are happening elsewhere. Does anyone with a W-2 job have to guess how much they are getting paid every time they go to work? No. Why should Realtors?

Podcast Point: She goes on to say that some listings have photos with 3 pizzas on a counter, to imply to buyer agents that they get 3 percent. Or they have the movie “Three Amigos” playing on the TV in the photos. 

Melissa says: You guys, I can assure you that I’ve never seen something like this. No one I know would be stupid enough to try that, and probably no one would even get it if someone was doing this. But it does make for a good story doesn’t it? 

Podcast Point:  Kamin states, “Commissions haven’t moved at all. So, the American home seller is not getting any relief at a time when they desperately need it.”

Melissa Says: What relief did they expect? Imagine before the lawsuit that a home would sell for $1M with the commission at 5%, giving the seller a net of $950,000. Now, if they only have to pay half of that 5%, so, 2.5%, yes, that saves them $25,000. But, do they still get to sell their home for $1M? All things being equal – No, because if the buyer has to pay their agent’s commission, it’s coming from what they would have offered the seller. The commission the seller is paying may be reduced by $25,000, but, then, so would the home price. Now their market value is $975,000.

If sellers don’t like this, that’s fine. But they need to understand here that if the seller pays 2.5% and still sells for $1M, the buyer is now WORSE OFF because they are paying the inflated house price and an additional 2.5%. This is the crux of what blows my mind. I took Economic Theory classes in both college and grad school. HOW COME NO ONE PREDICTED THIS?

Sellers have a choice to make. They can a) offer a buyer agent commission, get the higher price which has the added bonus of enticing more buyers. Or, b) don’t offer a commission, probably get less buyers but the buyer pays their own agent. Either way, the seller STILL NETS THE SAME AMOUNT OF MONEY!

Podcast Point:  Kamin introduces us to “poor seller” Mike Chambers, a seller of a home in Boulder, Colorado who discusses the process of selling his $2.75M house, without an agent. He interviewed Realtors and said “I couldn’t find an agent who was willing to go below 2.5 percent to list my house.” Kamin says, “Every single seller who came to his home said, I’m not willing to negotiate, and wanted him to pay at least 5 percent commission. On a $2.75M house, that’s over $100,000. Chambers says to her, “Often times, it equates to about 10 to 30 hours worth of work.” She says, “Exactly. For many people in this country, that’s a salary for a year they could only dream of achieving.” Kamin tells the interviewer he could not figure out what the agents were going to do that was worth over $100,000.

Melissa Says: First of all, they forgot the part where that $137,000 commission would be split. One person isn’t walking away with all of it. They walk with half.

Second, Realtors aren’t non-profits. We are allowed to charge what we feel is fair. There are some agents who will work for less than 2.5%. He can go find one! But you don’t get the same level of expertise or time from those agents typically. While the commission may seem high, riddle me this. What job do you work with for months and months, sometimes years – with no retainer and no guarantee of payment? If it’s a listing, what job out there requires people to spend their own money for marketing, photography, video tours, social media advertisements, print ads, again with no guarantee of payment and no guarantee of reimbursement for expenses? This isn’t just a straight “how much per hour are you worth” conversation.

I’ve taken losses on listings up to $1000 when a seller is just wants too high a price for the current market, and they can’t or won’t reduce the price to sell the home and decide not to sell. No one reimburses me. And I don’t ask them to because I’m in this for the long haul and building goodwill and referral networks.

I love love love my job. And what I’m about to say is not a complaint. We take huge risks in this business, and we sacrifice a lot of our personal lives as well. All the naysayers see is the gross commission per home. They don’t understand that individual real estate sales don’t happen in a vacuum. To a buyer or seller they might look like they are isolated from everything else but there are all the other pieces that go into it. 

We are compensated well because of many reasons. The wildly unpredictable income stream, the expenses we front with no guarantee of a home sale closing and commission being paid and – we aren’t reimbursed, the gas and time showing buyers dozens of homes and they may end up not buying at all, the marital spats we end up in the middle of and have to put on a therapist hat to make sure these two don’t kill each other, the time we spend on vacation working, the late nights and holidays we work, the times our family is waiting for us to go to dinner or leave for a trip and we’re negotiating a contract because you need the house and another offer is coming in, the relationships we have with other people in the industry that we leverage to get our clients what they want. 

Everyone who thinks they could do it for less has tried, and they haven’t been profitable. See: Redfin. Also, see: Foxtons. Don’t remember them, do you? Neither does anyone else.

Podcast Point: Chambers decided to sell the house on his own. And he wanted to get it listed in MLS, the Multiple Listing Service. But he found there are costs and hurdles to doing so.

Melissa Says: Fun Fact, many MLS’s are owned by the local Realtor Associations. In Colorado, however, the main MLS serving the state is owned by a private company as of last year. They can make their own rules. If the MLS is owned by Realtor Associations, they too can make their own rules, within reason. I don’t get to park my car in your driveway do I? Why should someone be allowed to use MLS if it’s privately owned and the owner doesn’t want someone to list there? 

Podcast Point:  Chambers tried to list on Zillow, and finds that Zillow doesn’t put For-Sale-By-Owners front and center. They feature homes listed by Realtors first. 

Melissa Says: Dude, this is not some giant conspiracy. You’re not allowed to park in other people’s driveways. Zillow can do what they want. They are a for-profit company and if they make more money by promoting different listings that pay for a boost, or that they can sell agent-ads on, then that’s what they are going to do. Now you’re just being a baby.

Podcast Point: Chambers claimed he gets a phone call from someone who said: “Agents representing buyers at my company are talking to each other in text and in person saying ‘we’re not going to sell this guy’s house because he’s not playing by the rules.’” Kamin calls this steering. 

Melissa Says: Bullshit. You mean to tell me agents were allegedly “steering” their buyers away from Mr. Chambers home, knowing he would pay 2.5% of the sales price to them – the agent, because they didn’t like that he was selling his home himself? So these agents chose to steer buyers away from one solo buyer with his perfect giant house when they stood to make $68,750. Why should we let the truth get in the way of telling a good story, right?

Podcast Point: Mr. Chambers found a buyer. But, he said he decided to “pull out of the sale.” He said after seeing so much of the inside workings of the real estate industry, that he is starting a business to try to fix it.

Melissa Says: Sellers really can’t pull out of sales, so I think this is also some BS. Once they sign a contract, everything is out of their hands. Buyers are running the show, only executing releases on contingencies if they choose, but sellers can’t just say “I’m not selling my house to you anymore.” I don’t believe he had a ratified offer, which means, he had nothing.

Podcast Point: Kamin says, “So rather than moving his family to Costa Rica, which was his dream, he’s now going to stay in Colorado for the time being and work on this startup company that he’s created to try to change real estate commissions.”

Melissa Says: This has been tried a bunch of times before. Before he tries to “disrupt” the industry, he should work in it first. Truly. That is not a snarky statement. People are always trying to disrupt the industry. But to do that, they need to know the inner workings of it. It can’t just be disrupted with “tech.” We need disruption but it’s in the form of higher barriers to entry and stricter punishments for violating our Code of Ethics because don’t get me started on how Realtors are “self-policing.” I worked for a decade with (for no money) on Professional Standards for our local association which determines Arbitration and Code of Ethics violations. Hand slaps for everybody.

Mr. Chambers decided to toss out his family’s dream of moving to Costa Rica to “fix” the real estate industry. Does anyone see how unhinged this sounds? I can’t even imagine telling my husband and kids they have to sacrifice our family’s life-dream for the wild hair I just got up my ass.

Podcast Point:  Kamin relays that Chambers’ message is that you should be able to determine how much you want to pay for that service. And the industry is not allowing those conversations to come to the surface.

Melissa Says: Do you go to your doctor and tell them you only want to pay them $14? No. I fell down the stairs, spent 5 hours in the hospital and it cost $37,000. Service providers offer a service at a price that works for their business. You can say yes or you can say no. Just because this guy can’t find an agent who will take what he wants to pay doesn’t make it collusion.

Podcast Point: The interviewer asks Kamin, what would you say to people who are trying to figure this out, perhaps aren’t willing to do what Chambers did, which is actually take charge of the whole process themselves, but they just want to be able to navigate the current dynamic in the best way possible? Kamin says that buying / selling a home is scary. She did it and she remembers sitting down with the agent and signing papers that she didn’t understand. She thinks she paid 6%, but she doesn’t know, so if it can happen to her it can happen to anyone.

Melissa Says: There’s a reason you can’t buy or sell a home until you’re a legal adult but when you do, put your adult hat on and do some adulting. If you don’t understand the paperwork, ask. If you don’t like the answer, find an attorney to explain it to you. But just because she didn’t understand, it doesn’t mean she can blame the agent or say she was forced to sign. That’s silly. Take some responsibility here.

Everyone who has a home to sell is welcome to try it on their own. I currently have buyers under contract with a seller who chose to sell themselves. I’m doing a good chunk of the seller’s side too because the seller doesn’t know much about the process. I could be screwing the seller over but I’m not because I’m a nice person and I want my clients to get this home. If they had a listing agent that agent would be all up in my grill right now asking for proof the deposit was sent, that the loan was applied for, that the appraiser was called, that they secured an insurance policy for the home. I don’t have to offer up that information. I’m not saying you can’t sell on your own, but without someone who knows the process and the current landscape and works it regularly, you may be in for some unwelcome surprises.

Podcast Point: The interviewer then asked Kamin how she thinks this change will unfold, or if it will. She says, “I asked this question to the lawyer who brought the case that resulted in the settlement and won it, Michael Ketchmark. He said, Blockbuster Video, when movies started streaming did not shut down all of its stores the minute things started streaming. It took time.

Melissa Says: Be Kind. Rewind. They are missing a key difference. And DVD’s were commodity products that could be improved upon by changing the method of delivery. Yes, the real estate industry can be improved upon by having more education required and higher barriers to entry. But how do you automate service, the unique set of skills, the knowledge of the industry and relationships? Even AI can’t replace that.

The settlement did what it was supposed to do. It decoupled the real estate commissions. Not sure why anyone expected much to change other than that buyers are now alerted that sellers may pay all, some, or none of their agent’s commission.

I recorded this because I’m tired of the narrative that we are all uneducated losers who suck, that we are overpaid, that we don’t work for our money and we take money away from innocent people. Are there agents out there who fit that profile? Yes. But they don’t last in the industry. Because the other thing our industry is, is litigious. And if you screw up, people will come for you.