The Housing Market Has New Rules. Realtors Are Evading Them.
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What was the historic legal settlement that changed real estate commissions?
From The New York Times, I'm Michael Barbaro. This is The Daily Watch. Last year, a historic legal settlement created sweeping new reforms that were supposed to lower the price of buying and selling a home across the country. But those reforms would cost realtors money. And so those realtors, it turns out, have found ways to evade the new reforms. My colleague, Deborah Kamen, explains how they did it. It's Tuesday, April 29th. Michael. Welcome back to The Daily.
It's nice to be here again. Good to see you.
It's really nice to see your face. In the flesh. In the flesh. So a year ago, as many listeners I hope will remember, you came on The Daily to describe this really bombshell legal settlement that was supposed to transform how homes are sold in the United States. And I want to start by having you remind us what that settlement was all about and why it was we felt wrongly, as it turns out, that this was going to be such a watershed moment.
The expectations were sky high. The words that were being used by economists and analysts in the industry, earth-shattering, watershed, landmark, the greatest change to the real estate industry since the New Deal. Things that were really... pinning hopes that this was going to shake up a stagnant housing market and offer real relief to consumers in the U.S. who desperately need it. And a lot of that was pinned to the idea that rules were going to be followed to the letter, and they were not. So here we are a year later, and things have shifted a tiny bit, but we're talking about a drizzle, not a watershed. Just take us back to the settlement. So to take you back to the settlement, we actually have to go back a little bit further to October of 2023, when the National Association of Realtors, which is the trade organization that really oversees the real estate industry, they are the largest trade group in the United States. They are hugely powerful.
Who is the National Association of Realtors and why are they powerful?
They have a ton of money and a really massive amount of power and influence because of their lobbying arm.
Right. You described them as so powerful that they've trademarked the word real estate agent.
The word realtor, yes. It is a trademark of NAR. So you can only use it if you are a member of this group. And they have a lot of members, 1.5 million. They have more members than there are houses for sale in the U.S. So we're talking a very big, very powerful group. They were sued by a group of home sellers in Missouri. The idea behind the lawsuit was that their rules had essentially fixed prices on real estate commissions, inflated them, and made it so that real estate commissions were higher than they should have been. They did not expect to lose this lawsuit, but they did lose this lawsuit. And a jury agreed that they were fixing prices on real estate commissions.
Right. And I remember from our first conversation that that price-fixing claim really revolves around the amount of money that you owe the agents— that comes out of selling a house.
Yeah, the dreaded 6%. It comes out of your pocket if you're selling. And anyone who's ever bought or sold a house knows that when you sit down with your agent, it's overwhelming, it's confusing, and it gets wonky. No one really asks, how are these commissions paid? It's just kind of there. Right. And you also have enough things to worry about that you don't get into the weeds about how these commissions are paid. But for real estate agents, for realtors, this is how they make their living. This is very important. It's literally their bread and butter. And this settlement was meant to shake up the system of how those commissions are determined and how they're paid. Right.
No longer were they simply tablets handed down from gone on the mountain. In the real estate industry, they were subject potentially to negotiation, conversation, and potentially they could go way, way down, maybe even go away.
We are wandering the desert now. Absolutely. Most importantly, it was meant to say, this is the way it's been done for a long time. The way it's been done has actually...
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Chapters
8 chapters
1
What was the historic legal settlement that changed real estate commissions?
0:01–2:23
2
Who is the National Association of Realtors and why are they powerful?
2:23–5:18
3
How did the settlement intend to change real estate commission payments?
5:18–7:31
4
What is the 'great real estate workaround' that agents are using?
7:31–8:17
5
How are real estate agents communicating commission information outside the MLS?
8:17–10:16
6
Why are realtors motivated to evade the new commission rules?
10:16–11:38
7
What evidence is there that these workarounds are effective in maintaining commission levels?
11:38–14:42
8
What challenges do home sellers face when trying to sell their homes without agents?
14:42–30:46