Hello my friends. Welcome to another episode of Ask Marco on the Passive Real Estate Investing Show. I’m glad you’re here today with me. I went digging in my folder of Ask Marco questions. There’s a bunch of ’em. I don’t know <laugh>, how to keep up with some of these. But anyway, I’m glad you’re writing in and I appreciate it. I do reply to some of them personally and I just pick and choose 1, 2, 3 for these Ask Marco episodes from time to time. So today I went and picked one that was a little kind of interesting, but definitely a pertinent question and possibly one that’s on many people’s minds. But I’m gonna guess that a lot of people don’t even know what has been going on with some of the legal actions that have been put up against the National Association of Realtors NAR as it’s known as an acronym.
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So Sylvia wrote in with an interesting question and I definitely want to read that out and then address it. I’ve got a couple thoughts about it and I don’t know if it’s gonna impact you directly or indirectly or even in the short term. But before I read the question, or at least her email to me that she submitted at passive realestate investing.com by clicking on Ask Marco, I just wanna remind everybody to subscribe if you haven’t done so. I know we have a lot of new listeners each and every month and each and every week, and we are now and have been for quite a while, one of the top real estate investing podcasts globally, certainly in the United States, and definitely rank in the top 0.05% on iTunes. So that is outstanding and it’s it has a lot to do with you. I appreciate you guys listening, providing, you know, feedback, comments, questions, ratings, reviews, all that stuff.
It’s all very, very positive, so I appreciate it. Alright, well, having said that, Sylvia writes in, she says, hi Marco, I love your podcast. I’ve been listening for the past few years and I really appreciate how you break down relevant topics for me as a new real estate investor. Well, you’re welcome. Also a big thanks to your team I’ve been working with during that time, as I am now the proud owner of two investment properties and counting in brackets. Well, congratulations Sylvia, keep up the momentum. That’s fantastic. I’m very happy for you. My question is this, I just listened to a very interesting podcast from the Daily, which is from the New York Times, titled The Bombshell Case that Will Transform the Housing Market. The podcast explains the history of the National Association of Realtors, their almost monopolistic hold on the real estate market over the past 100 years and how we will see significant changes going forward after the recent class action lawsuit started by five homeowners in Missouri, specifically related to the 6% fee involved in buying and selling.
And that fee is typically referred to as a commission. The daily podcast addresses how the settlement will affect home prices and increase access for many Americans to buying a home. But it doesn’t touch on how it will affect landlords or real estate investors. I would love to hear your perspective. I will try to give you my perspective. I don’t really know how much of an impact this is gonna have on the industry or with real estate investors because it’s a little too early to tell. And this has been a common complaint for not only years, but literally decades about price fixing and having a commission. It’s illegal to have a fixed fee. It has to be a negotiable and undefined fee or commission or percentage in the industry, otherwise it’s non-competitive. So for as long as I can remember, I remember that you cannot say that the the commission is a fixed amount.
It’s always negotiable. You can say this is, you know, our, our recommended commission or what we work with or this is what I charge, but it has to be negotiable, cannot be a fixed price, that that’s just not legal and unfair and not just et cetera. I mean, if it’s a free market, it’s a free market, you can’t have a a monopoly on this stuff. Anyway, just to give some background and context, I didn’t listen to that episode, but I do know what the episode is about. So in that episode on the daily podcast, you know, the focus is on a recent legal settlement involving the National Association of Realtors, or NAR as we call it, that could significantly impact real estate transactions in the us. Now historically, the Association of Realtors has enforced a, well I say enforced, maybe that’s a strong word, but enforced a standard quote unquote 6% commission on home sales.
And that’s typically split between the buyers and seller’s agent. Between them, they can adjust that up or down. They can agree to whatever they want, but generally speaking, it’s split between the buy side and the sell side of the transaction. And that has kept transaction costs relatively high. ’cause If you stop to think about it, it’s not always 5% or 6%. Sometimes it’s been more, sometimes I’ve seen it less and sometimes it’s got like a graduated scale where it’s a certain amount for the first a hundred thousand of the transaction and then it goes down incrementally for every a hundred thousand. I mean, it just depends on where you live, the state, the county, even the city. I’ve seen it done so many different ways. Long story short, this adds to the cost of the transaction because even if it’s 5% on a hundred thousand dollars properties, $5,000, 5% on a million dollar properties, $50,000.
So, you know, it, it’s, it’s significant cost when you talk about the cost of a real estate transaction. However, following, you know, this groundbreaking legal case, this structure is now being challenged. It’s, it’s definitely been challenged for a while, but now it’s got a legal precedent behind it. So the settlement requires the elimination of mandatory commission sharing, which means that buyers may soon have to pay their agents directly, likely leading to reduced overall fees because this is gonna create more flow of fluidity and competitiveness. You know, it’s definitely gonna be more of an open subject and a marketplace, a dynamic, a variable. So the shift can make homes more affordable by cutting costs in transactions, but it might also change how people choose real estate agents possibly incentivizing new, more competitive pricing models in the industry, which hasn’t changed for decades, many decades. So the recent settlement with the National Association of Realtors is expected to significantly impact home prices and accessibility for American buyers, primarily by altering how agents commissions are structured.
And we’ve already been seeing this. It’s just I think going to accelerate and be more prominent. Traditionally, sellers have paid, you know, that standard, standard in air quotes, 6% commission and that’s often been split. But you know, a system that has often increased transaction expenses for sellers and indirectly affected home prices is now I think, figuratively speaking on shaky ground. So here are some of the expected effects from this. One is I think there’s gonna be lower transaction costs by ending, you know, the requirement that sellers pay, both the agent’s commissions this settlement may reduce total transaction costs. Buyers will likely start paying their agents directly. And this is not unusual, it’s just not common. And that could lead to more transparent and competitive commission fees. This change might also put downward pressure on home prices, which I know a lot of people would like to see as sellers no longer need to factor in the cost of the buyer’s Agent’s commission potentially making homes more affordable.
Time will tell, I don’t know if that’s actually gonna happen, but it’s a possibility. Also, enhanced affordability and access. Reduced transaction costs could increase affordability as I was just talking about, but especially for first time buyers who might have previously been priced outta the market due to high upfront expenses. ’cause Someone has to bear the cost of this and the expenses the seller carries. Some of it, the buyer carries some of it. But this potential affordability could lead to broader access to home ownership, benefiting particularly low and moderate income households by lowering barriers to entry. And thirdly, you know, a shift in buyer seller dynamics. Buyers now directly responsible for their agents’ fees may become more sensitive in hiring agents, possibly leading to more competitive services and pricing. And this shift may open the door for alternative business models and discount brokerages, or at least more of them that charge lower rates and maybe change their service structure and not just their pricing structure.
But that would increase options for buyers and sellers alike. So I think overall the settlement could foster a more open and flexible housing market that may better accommodate varying budgets and preferences. However, the impact of on affordability will depend on how broadly these commission changes are adopted in the industry and how quickly they translate to lower home prices in different markets. If they have an an impact at all, I think there will be some impact. I don’t think it’s gonna be as broad or as large as I think some people hope, but as a real estate investor, you know, if this pushes down home prices and makes housing more affordable, you’re gonna see more people move into ownership rather than rentership. But we still have such a high demand for rentals and we are still living in renter nation. I don’t think that’s gonna impact us as real estate investors all that much, especially in the short term.
Maybe in the long term it, it could have some sort of impact. But I still really think that the lack of supply, especially in rental housing, the high demand is gonna keep things very favorable. Meaning a lot of tailwind for us as real estate investors. I don’t think it’s gonna impact this dramatically, even if it makes housing more affordable and it really shouldn’t change much else in terms of us being real estate investors when it comes to this legal settlement with the National Association of Realtors. So I, I don’t think it it’s bear or bullish, I think it’s just going to modify the way we do business a little bit in the industry in the United States, you know, when it comes to commissions and fees and how real estate agents work with buyers and sellers in terms of their services and their fees, the cost structure.
So I’m not really upset or overly excited about, you know, this change. I do think it was long overdue. ’cause I do feel that there was, in an unspoken way, I hate to say a fixed pricing model, but for the most part, you know, real estate agents and brokers really want to keep a pricing structure in place, you know, to maximize the amount of revenue and profit they generate. That’s just a given. You ask any real estate agent or broker, they don’t want to be discounting or shaving down their commissions. You know, they’ve always liked the industry because of the potential for high income, high commissions and whatnot. So I don’t think that might change all that much, but you know, time will tell anyway. So Sylvia, I appreciate the question. My perspective is not much of a perspective. It’s really just, I think minor changes are coming.I don’t think they’re gonna be major changes. We’ll probably see more brokerage houses and more competitive bidding situations with real estate agents if you are using real estate agents to find your rental properties or investment properties. But, you know, if you’re working with a, a, a service like ours, you know, that doesn’t really come into play.
But anyway, I appreciate you submitting the question. Thank you very much.
And that is it for today’s quick Ask Marco episode. If you haven’t subscribed to the show again, remember to do so, help us share the show with your friends and family. Remember to leave us a rating review and we will see you soon for another episode on the Passive Real Estate Investing Show. Thank you.
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