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The internet didn’t shrink 6% real estate commissions. But this lawsuit might


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2019 May 15, 9:08pm   2,185 views  32 comments

by Patrick   ➕follow (55)   💰tip   ignore  

http://www.kvor.com/news/the-internet-didnt-shrink-6-real-estate-commissions-but-this-lawsuit-might/

For decades, Realtors’ earnings have been maintained through an opaque structure that allows home shoppers to believe that the seller covers the agents’ costs, and that the consumer has little choice in the matter.

That entire system could crumble, if a trio of recently-filed lawsuits are successful.

In a complaint filed in early March in the Northern District of Illinois, five law firms teamed up to allege that high commissions were a result of collusion by the National Association of Realtors and the nation’s largest brokerage franchises in violation of federal antitrust laws. The firms include heavy hitters like Hagens Berman, which boasts work on cases including the state tobacco lawsuits that led to a $206 billion settlement, as well as Cohen Milstein, which co-led a case against Apple for monopolizing the market for e-books.

The class so far consists of just one person — a home buyer in Minneapolis. But the lawyers are currently recruiting more plaintiffs, and stand to gain millions in attorneys’ fees if a jury awards damages. In April, two nearly identical lawsuits were filed, one by two home sellers in Missouri and one by a Minnesota corporation.

On the other side of the suits, the National Association of Realtors is a powerhouse trade group organized in active chapters across all 50 states. It spent about $150 million on federal lobbying and elections in the 2018 cycle, according to the Center for Responsive Politics. More importantly, it also controls access to the Multiple Listing Services that Realtors need in order to list and show homes. ...

brokers know that buyers’ agents might skip showing a house if the listing doesn’t offer a full 3% commission.

“I’ve been in traditional offices, watching someone go through listings,” said Tom Wemett, a buyers’ agent in Western Massachusetts. “He immediately checks to see what they’re offered, and threw away two or three listings that might have been perfect for their client. The buyer doesn’t know any different, unless they’re searching on Zillow or Trulia and says ‘why didn’t you show me this one?'”


More good news! I hope the NAR gets sued out of existence. We would all be much better off without realtors.

Comments 1 - 32 of 32        Search these comments

1   BayArea   2019 May 15, 9:11pm  

AF told me that a good realtor is like a good rapist... he was so right.
2   Patrick   2019 May 15, 9:25pm  

It's easily explained. The NAR is the second biggest lobbyist in DC.

The first, of course, is the US Chamber of Commerce.
3   clambo   2019 May 15, 10:26pm  

Yeah, it's amazing how much realtors skim from the transaction.

I know of a case or two where the seller and the buyer said screw the realtor and just had a contract made up by a lawyer and both saved thousands of bucks.

If people only knew in some cases how little education and math capability their realtor has.

I have a friend who is nice and very successful; she sold a ton of places. She has only been to high school.

She'll put up places on facebook that are 3 bedroom 2200 square feet for $1.4 million "investment property" ; but the most you can rent that place for would be $4000/month and the property taxes will be $1400/month.

I have digressed off the subject.
4   HeadSet   2019 May 16, 7:28am  

I know of a case or two where the seller and the buyer said screw the realtor and just had a contract made up by a lawyer and both saved thousands of bucks.

This shows you don't understand what a realtor does. If you already have a buyer, you do not need a realtor. A realtor is not there to handle the details of a closing. If you do not have a buyer, and you are unable to find a buyer, that is when you use a realtor.
5   Patrick   2019 May 16, 7:33am  

Most sellers are afraid they will not find a buyer, or not the "best" buyer, if they don't pay the realtor vig.

And realtors definitely will avoid showing a house whose owner does not submit to their power.
6   HeadSet   2019 May 16, 7:47am  

I have a friend who is nice and very successful; she sold a ton of places. She has only been to high school.

Well, that lack of formal education has not hurt her. She must have high intelligence and great people skills. Selling real estate is a pure performance based industry - either you can sell or you cannot. Ability to sell matters more than gender, age, race, education level, or any other superficial factor. I know several realtors, including one "high school" grad lady who eventually started her own agency and then went on to get elected to the VA State government and then to US Congress. At the other end of the education spectrum, I know a retired Air Force Colonel with a Master's who did quite well financially as a mere agent.

Most real estate agents do not do so well. But I would not disparage the ones who do just because they lack education credentials. It is almost as if the college guy who paid his dues and can "sum moments about a point" resents a "lesser" achieving greater success.
7   HeadSet   2019 May 16, 7:54am  

We would all be much better off without realtors.

No, because the average Joe cannot find a buyer for his house, mainly because buyers virtually always call a realtor. Just like average Joe calls a CPA or H&R Block to do his simple taxes. In England, the "Estate Agents" only get a 1% commission. There is no multiple listing. The problem is not so much the realtor as the customary 6% commission. I would like to see a small flat fee to list, and a 1-2% commission to the guy who actually brings a buyer.
8   HeadSet   2019 May 16, 8:01am  

Patrick says
Most sellers are afraid they will not find a buyer, or not the "best" buyer, if they don't pay the realtor vig.

And realtors definitely will avoid showing a house whose owner does not submit to their power.


Pat, I have sold 10 houses over the years and can assure you it is difficult to impossible to sell without listing. I have bought 4 houses without a realtor by getting to the seller before he/she listed. Buyers like me are rare, though. Most buyers want a realtor to drive them around believe the realtor is needed to handle the closing.
9   Shaman   2019 May 16, 8:15am  

I suppose it matters the most what market you’re in. In my area, just listing a place at a comparable price to the rest of the neighborhood ensures a swift offer or five. Or putting it on Zillow. That’ll work just fine too.

Realtors like to brag that they can sell your house for MOAR money and thus justify their commission. But that’ll be the buyer’s agent bringing in customers, not the listing agent. Although the listing agent gets the guaranteed commission.
10   clambo   2019 May 16, 8:46am  

Headset, the person I am describing is a realtor because she is nice to talk to and she's a good salesman.

Having no math skills or education may be an issue for some because I know she cannot do the calculation : if you pay $1 million for a house, and can rent it for $4,000 per year, what is the % yield on this investment?

I don't resent she succeeds at selling something people want to buy anyway; I am mentioning that although she dresses nice she has no education and really knows very little about the ways of the world. If you seek someone to help you go $800,000 into debt to buy an "investment" you should be aware she has no financial or math training.
11   HeadSet   2019 May 16, 9:42am  

If you seek someone to help you go $800,000 into debt to buy an "investment" you should be aware she has no financial or math training.

I see. But I would hope that anyone with the where-with-all to access $800k would have enough sense to know what to invest in. The realtor is not a source of investment advice, she just helps you find the suitable house that fits your all ready determined investment parameters.
12   clambo   2019 May 16, 11:55am  

We agree that the realtor is simply a salesperson.

The problem I have is she goes around claiming knowledge she doesn't have.

Headset and I both know it's crazy to listen to her "advice" but others don't know this. Most don't know you don't need a realtor.

You might be surprised at how many people have windfalls or etc. of $500,000 or more who have no clue what is an appropriate "investment". I know several of them.
13   HeadSet   2019 May 16, 12:44pm  

You might be surprised at how many people have windfalls or etc. of $500,000 or more who have no clue what is an appropriate "investment". I know several of them.

Hmmm, sounds like an "opportunity" in the PT Barnum style. You may as well fleece them before someone else does. Or if you are a nice guy, explain laddered CDs and index funds.
14   Patrick   2023 Jan 18, 11:44am  

Patrick says

More good news! I hope the NAR gets sued out of existence. We would all be much better off without realtors.


Oh well, the NAR conspiracy against the public continues.
15   AD   2023 Jan 19, 9:03pm  

I've negotiated down with a sellers real estate agent and got a 5% fee instead of the typical 6% fee. I've seen some negotiate to 4%.

I just wanted an agent to be a screen as far as to stop bullshit and scam offers such as from real estate sharks (i.e., landlords), etc.

I've used an agent and paid them about 75% of one month rent to help me find a suitable tenant. It paid off also as the tenant stayed for over 4 years.

.
16   BayArea   2023 Jan 19, 9:47pm  

The fact that 6% realtor commission rates (or anything close to it) still exist today is one of the great mysteries of the modern age.

This from someone that bought their house FSBO.

Washington lobbying and fear pumping (fear of making a costly transaction error) has somehow kept the real estate cartel thriving
17   GNL   2023 Jan 19, 10:48pm  

BayArea says

The fact that 6% realtor commission rates (or anything close to it) still exist today is one of the great mysteries of the modern age.

This from someone that bought their house FSBO.

Washington lobbying and fear pumping (fear of making a costly transaction error) has somehow kept the real estate cartel thriving

What about loan officers and mortgage brokers? A software program is all that's needed. Why do they still exist?
18   gabbar   2023 Jan 20, 2:26am  

BayArea says


Washington lobbying and fear pumping (fear of making a costly transaction error) has somehow kept the real estate cartel thriving

Apparently, there are 9000 real estate agents in Columbus, Ohio. The so called standard purchase agreement (a copyrighted document of Columbus Board of Realtors) is so written that the real estate agents have total power over the transaction. Most brokerages use this standard agreement document. The sellers and buyers are actively discouraged from making any minor or major changes to the purchase agreement. The seller and buyer are the pawns of the real estate agents.

I don't understand the need of a 4 person family to buy a 4000 square feet home in Ohio. Why are people so careless with their money?
19   gabbar   2023 Jan 20, 4:04am  

GNL says

What about loan officers and mortgage brokers? A software program is all that's needed. Why do they still exist?

As long as there is NAR and banksters, I don't see loan officers and mortgage brokers going away. They all need their pound of flesh and will fight to maintain status quo.
20   WookieMan   2023 Jan 20, 4:49am  

gabbar says


GNL says


What about loan officers and mortgage brokers? A software program is all that's needed. Why do they still exist?

As long as there is NAR and banksters, I don't see loan officers and mortgage brokers going away. They all need their pound of flesh and will fight to maintain status quo.


This was my bigger beef with real estate when I was in the belly of the beast. There are too many hands in the cookie jar. We over complicated an industry that needs a buyer, a seller, attorney and a bank. I'm okay with a MLS type system, but it should be a flat fee. Paying brokers a percentage of printed debt is really ludicrous.

We sold one listing in Chicago for $2.1M..... dual agent @ 6%. It was obscene, but was a short sale during the bust. Saved the brokerage to live another day. I wold have gotten out in year 5 instead of 15 and ended up dragging the misery on for 10 more years. Having dozens of properties listed and under contract is a miserable existence. I'd say on average each deal has 10- 15 points of contact. Buyer, seller, attorney, attorneys secretary, bank/brokers, title company, buyer broker, listing agent, inspector, building trades if new construction, etc.

I can't rank roles that I hate the most, but inspectors are up there pretty high. They're useless and destroyed deals to justify their service and get another inspection. I'm of the opinion if you don't have the basic skill to see a defect you probably shouldn't own a home in the first place. I don't care how new or perfect your home is, you WILL have an issue if you own it more than 5 years. They'd always scare the female about the house. Or beta men.

Doing short sales to stay afloat was eye opening. Most people, even well off are house poor after you see their tax returns. Which was another weird thing. The fact people entrusted bimbos and mimbos (male bimbos) real estate brokers with their taxes returns. There might be training about it now, but it was the wild west in 2007-2009 as far as brokers handling tax returns. I'd bet a lot of SS#'s got out during that time.
21   zzyzzx   2023 Jan 20, 4:56am  

WookieMan says

if you don't have the basic skill to see a defect you probably shouldn't own a home in the first place. I don't care how new or perfect your home is, you WILL have an issue if you own it more than 5 years. They'd always scare the female about the house. Or beta men.


This!!!
22   stfu   2023 Jan 20, 5:58am  

WookieMan says

There are too many hands in the cookie jar.

Great post.

The wife and I recently sold a home for double what we paid for it in 2014 thanks to the recent crazy. I hate to disparage the buyers but my god they were taken advantage of. They were moving into our area Our sale closed in Fall 22 but we learned that they had purchased a new home in Spring 22 and had never moved into it. Apparently they bought it site unseen (using a hero realtor) and didn't like it after the fact. They also purchased our home based on a zoom walk through by that same realtor - never saw the home until several weeks after being under contract.

Well their realtor introduced me to yet another grift that I had not seen before. The realtor engaged a third party "closing management" team that consisted of a former realtor who decided to specialize on gouging the seller during the inspection/ closing process. So in addition to home inspector, pest inspector, irrigation system inspector, crawl space inspector, HVAC inspector, Well inspector; the buyers were also paying a fee for this professional negotiator. I mean, I'm used to the sellers getting grifted by the realtors for "you just need to do these home improvements to sell this pile of bricks, but fortunately I know some really good tradesmen" but I've never seen such an over the top scam perpetrated on the buyers before. They must have spent 1 percent on these inspections and consults. End result? We told them "the contract price was not a jump off for negotiations, and we agree to do zero. Please cancel quickly so we can get back on the market". They didn't walk. This over kill also left such a bad taste in my mouth so that all of the materials I had prepared for turn over at closing (explicit details on the workings of all mechanical, technical, and even a former property dispute issue we had won a legal victory on) stayed on my thumb drive in my pocket.
23   gabbar   2023 Jan 20, 6:06am  

WookieMan says

Most people, even well off are house poor after you see their tax returns.

Are people brainwashed, covertly or overly, to relate their home with their status? Homes are built to serve the profit of the builder not the home buyer. I see most people buying more than they need. A house doesn't bring happiness, so what's the point of buying a large house? A large home puts you on the bankster's treadmill.
24   GNL   2023 Jan 20, 6:13am  

Until "I just sold my house for double what I paid for it 7 years ago" stories end, people will pay out the ass because this is how they believe they'll get rich. And they have been getting rich. Even though rates have doubled or more, home prices are predicted to go higher. And maybe they will. Does anyone have a story about housing being a loser?
25   WookieMan   2023 Jan 20, 7:06am  

gabbar says

WookieMan says


Most people, even well off are house poor after you see their tax returns.

Are people brainwashed, covertly or overly, to relate their home with their status? Homes are built to serve the profit of the builder not the home buyer. I see most people buying more than they need. A house doesn't bring happiness, so what's the point of buying a large house? A large home puts you on the bankster's treadmill.

My wife is... lol. We're building but it is pretty modest except for what I'm going to do to it ;) We've lived extremely modest for the past 10 years. We're also moving next door to good friends with a lot that won't be built on so it will feel like having 1.5 acres roughly and we might pick up one more lot. Village sewer and water connections, but still rural. They're not moving any time soon. Epic parties will ensue between our two houses. Not fall down drunk, just fun.

Taxes will piss me off here in IL though. Going from a steal annually of $3,200 to likely $10k is going to be a tough bullet to take. The kids are at that active age pre-teen/teen and our hobby of travel will just have to take a modest break. So we'll spend less on that and put it towards the mortgage. We'll still be under 3x's income to value of the house. I'm also currently paid by the school district, so I'm kind of getting my money back in a way as that's the highest portion of our taxes.

But having been in the industry I'm going to make some executive decisions on finishes. Got our final plans from the architect and will start a thread soon, maybe today.

Having other people give input even if they don't know building, layout, kitchens, baths, etc. is still valuable. Sometimes you just miss something on a custom build.
26   HeadSet   2023 Jan 20, 8:36am  

WookieMan says

Got our final plans from the architect and will start a thread soon, maybe today.

Any chance you can post a pic of the layout sketch (non-detailed floor plan)? That would be a good reference for folks following your building thread.
27   RC2006   2023 Jan 20, 9:30am  

WookieMan says

I can't rank roles that I hate the most, but inspectors are up there pretty high. They're useless and destroyed deals to justify their service and get another inspection.


100%
28   stfu   2023 Jan 20, 9:38am  

GNL says

Does anyone have a story about housing being a loser?

I'd bet almost all real estate transactions (ex California) are losers for the average home owner. Even in the example I cited earlier (doubled money in 7 years) that still only equates to about a 10% return per annum - and that doesn't take into account my financing costs, property taxes, et al. 10% is not bad but it's not killing it either.

I've sold two other homes. One owned for 18 years which I had a negative real return on. Another owned for 11 years which I broke even on. It gross terms on paper it looks like I made money on all three homes but once you factor in inflation and overhead, it's very hard to make money as a normal home owner.

But, you have to live somewhere. I've never considered owning a primary home as an investment.
29   GNL   2023 Jan 20, 10:18am  

WookieMan says

gabbar says


WookieMan says



Most people, even well off are house poor after you see their tax returns.

Are people brainwashed, covertly or overly, to relate their home with their status? Homes are built to serve the profit of the builder not the home buyer. I see most people buying more than they need. A house doesn't bring happiness, so what's the point of buying a large house? A large home puts you on the bankster's treadmill.


My wife is... lol. We're building but it is pretty modest except for what I'm going to do to it ;) We've lived extremely modest for the past 10 years. We're also moving next door to good friends with a lot that won't be built on so it will feel like having 1.5 acres roughly and we might pick up one more lot. Village sewer and water connections, but still rur...

Sounds like you're moving into an HOA.
30   gabbar   2023 Jan 20, 11:43am  

stfu says

I've never considered owning a primary home as an investment.

Is this true? stfu says

once you factor in inflation and overhead, it's very hard to make money as a normal home owner.

But, you have to live somewhere. I've never considered owning a primary home as an investment.


Is this accurate? Not doubting this hypothesis, just asking.
31   HeadSet   2023 Jan 20, 1:45pm  

gabbar says

Is this accurate? Not doubting this hypothesis, just asking.

Do the math:

House bought for $600,000 cash and sold 5 years later for $700,000.

$42,000 real estate commission on sale
$25,000 real estate taxes at $5k per annum

That leaves $33k to cover 5 years of maintenance, any HOA dues, or insurance. If something "rare" occurs, like sudden rise in mortgage rates, that causes the house to not gain in price, then you are out that $67k in commission and taxes along with the other expenses.
32   stfu   2023 Jan 21, 3:52am  

@gabbar

Take a real word example. I put "Milpitas CA" into Zillow and looked at the price history for the very first listing :

1489 Gingerwood Dr, Milpitas, CA 95035

Sold 4/21/2006 $518,000
Sold 4/03/2019 $765,000
Sold 1/18/2023 $930,000

So rate of return for second seller was 3.03% - about the rate of inflation. So best case they broke even on paper but that doesn't include taxes, carrying cost nor maintenance. Now this may be a bad example because they bought just prior to the inventory glut of 2007/2008 and the resulting crash.

Rate of return for third seller was much better at 5.6% but they benefited from the opposite phenomenon - they purchased just prior to inventory tanking and the resulting record growth price from 2020 to 2022. And again, this return does not reflect taxes, maintenance etc...

Throwing that down payment into a market index ETF like VTI would have given you 3 or 4 times the return over either of those same time periods. But you'd be living in a van down by the river.

NOTE: This is back of the napkin math. To really understand it I would need to only consider the 'out of pocket' money (Down Payment + Closing costs + taxes + HOA + P&I + PMI + Maintenance + Renovations) and then compare that to the amount of cash taken away from closing at the sale of the home. That stuff isn't public info so I'm using a coarse buying/ selling price instead.

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