On the 424th episode of MailRight, Robert Newman and Jonathan Denwood discuss the NARS settlement and precisely how you can insulate your business and give some ideas for agents to protect themselves from some of the changes that won’t be coming until July or August of this year at the very earliest.
Jonathan Denwood is the joint-founder of Mail-Right, a marketing platform, CRM, landing page, and email and text messaging drip campaigns in one great, affordable package. On the other hand, Robert Newman is a 6-year real estate industry veteran, real estate consultant, real estate SEO expert, and founder of InboundREM.
Understand the Lawsuit of NAR
It was announced that NAR had settled a lawsuit with the federal government after 10 years. The settlement means consumers can finally negotiate their commissions with both the buyer’s agent and the seller’s agent.
It won’t affect whether or not a buyer’s agent and a seller’s agent get a commission. What’s at stake is that for the very first-time buyers, a buyer’s agent will have to negotiate their commission rate with their buyer as opposed to having that commission come out of the seller site, which is automatic and connected to the MLSs, which was what the lawsuit was all about.
How Real Estate Works in the United Kingdom
In the UK, when agents help you sell your house, they usually get around 2% of the selling price as payment. The real estate business in the UK is doing well overall. But the way it works can be complicated. They don’t handle the legal stuff or the contracts, so you must hire a lawyer, which costs a lot. So, you’re paying both the 2% fee and the legal fees. Plus, it’s stressful because you don’t know if the sale will happen until the day you sign the papers. Anything could go wrong at the last minute, which makes it a bit of a nightmare. Changing this system has been challenging because lawyers make a lot of money, and many politicians used to be lawyers themselves. So, they don’t want to change it.
Let’s do some simple math. Imagine you’re a buyer’s agent, helping people find houses. It’s a tough job because you always show houses and assist clients. But how you get paid isn’t clear.
Now, let’s talk about seller agents. They usually get 3% of the selling price. Let’s say they sell one house every month, which is pretty standard. In their third year, they should sell more than one house monthly. Let’s keep it simple and say they’re selling one house per month. The average house price in the US is about $400,000. So, 3% of that is around $12,000. That’s about $180,000 a year before expenses like marketing and hiring agents. After expenses, they might end up with around $100,000 to $120,000.
This situation has helped big real estate companies and organizations. Many agents out there sell very few houses a year. They don’t have much money to invest or build a real business, so they rely heavily on the big companies.
In 2024, 1,554,064 realtors in the US were members of NAR. However, there are also about 2 million licensed real estate agents, so 400,000 realtors aren’t NAR members. You might have heard that 1 million realtors would be NAR members. People say that because of a lawsuit, maybe 25% to 50% of those with licenses might give up their licenses.
Getting a real estate license has been pretty easy for a long time. This means many people, including those without much experience in real estate or business, have become realtors. Some are parents who’ve been looking after kids for a while. But buying or selling a house is a huge deal, probably one of the most significant decisions in your life.
Imagine someone without experience helping you buy a house just because they’re family. They might not know about reasonable loan rates or contract details. A lot could go wrong, like missed inspections or buying an unsafe house. This could lead to financial trouble or even bankruptcy.
It would be a good idea to be an apprenticeship. You’d have to work with someone who knows what they’re doing for 3-5 years before you can do it yourself. This would help people learn properly and keep others from making big mistakes.
In the hyper-luxury market, successful agents from extensive business backgrounds often join high-end markets like Beverly Hills. They usually learn from someone famous in the luxury market for several years. Then, they gather enough clients or referrals to compete for a single property in Beverly Hills. Usually, there are 5 to 10 qualified options to buy or sell the property. It’s a lot of money, even with a 2% to 3% commission.
How the Home Buying Process Changed
Buying homes has changed a lot. A report from Zillow says the average American household needs to make $106,536 a year to afford a typical US home comfortably. But in California, it’s much higher. In Los Angeles, you need around $157,000 to $300,000. It’s slightly less in San Diego, and in San Francisco and San Jose, it’s even higher, from $275,000 to $500,000. That’s a lot of money just to buy a home.
This is why the real estate industry is under a lot of pressure. The National Association of Realtors (NAR) recently gave up a lawsuit they had for 10 years. Why? Because most people can’t afford homes. The country needs to work on making homeownership more affordable, and NAR knows that. They pushed it as far as they could.
But when most people can’t afford a home anywhere, that’s very bad for the housing market, even for people who already own homes. Home prices have increased by over 50% to 60% in the last four years. That’s great if you already own a home for that long. But if you can’t afford to buy a home, even with a good income, it’s crazy. Do you need to be a millionaire to consider purchasing a home in Los Angeles now? The answer is almost yes. This situation is going to make a lot of changes in the real estate industry.
We’re just starting to see the first changes happen. We’re seeing a lot of lawsuits and settlements coming up. People are trying to negotiate, saying you can save 6 or 7% on a home price. But honestly, it will probably only be a 1% difference. It won’t make much difference because sellers will keep the extra money unless there’s a good reason not to.
The average seller can pocket $12,000 on a $400,000 home sale. So unless something stops them, they’ll just keep it. Keeping your selling shares will affect buyers and buyer’s agents because of how the system works. Most experienced agents either have junior agents for buyers or avoid it altogether because it’s tough and time-consuming. But if you’re trying to get started, you must do it. The question is, who’s going to pay for it? Will it be hourly or a fixed payment?
In a luxury space, whenever you talk about something very common, like searching for things, or other stuff like cell phones or long-distance plans, you always have to set yourself apart with good service. Always. Weirdly, that not all real estate agents have been good at selling different things in their careers. Because if they had, they’d know that no matter what, you have to develop a unique service to get your clients to pay you well and keep your business strong.
Here are some of my ideas for making a service plan to help you negotiate the highest or best buyer commission. You’ll need an agreement, and your customer will sign it.
- Don’t waste time driving around to show houses. Most houses are online. Just use Zoom to look at pictures together and talk about them.
- Driving all over doesn’t make sense unless it’s a referral or a family member. Your marketing should focus on you being an expert in one area.
- Know your inventory well. Check out the top 20 or 30 homes in your area every month. Take videos of them and show them to your clients on Zoom.
- Some people think everyone will compete to have the lowest price. But that’s not true. Some, like Redfin, are already trying to be the cheapest, and they’re not doing so well.
- Buyers might have to pay part of your fee upfront. Because if they don’t follow through, you’ll have to sue them, which costs a lot.
- You need to see what others offer and decide if you’re just like everyone else or provide something unique. I’ve always focused on being unique and giving more than people expect. And because I do that, it’s fair for me to get paid more.
- If you end up having to compete on price, try to talk about the quality of your service instead. Get lots of good reviews on your Google profile to show people how good your service is.
