Hello, and welcome to another episode of the Odd Lots podcast. I'm Jill Wisenthal and.
I'm Tracy Alloway.
Tracy, we've been doing a lot on competition stuff lately.
Yeah, we really have. Let's see. So we spoke with Lena Kahn from the FTC recently before that, we spoke to the DOJ's Jonathan Canter. So it feels like we've been making the competition rounds right.
We've talked a little bit about chicken too in a
few episodes. But competition more broadly is a good lens to really learn about market structure across a range of industries, because every industry is different, and every industry is different centers of power and people who have information, people who extract rents from that information, and so just in terms of I don't know sheer curiosity about how different businesses work, the sort of competition lens I find to be very useful for getting to know it.
Oh, absolutely, And it's one reason why we keep asking people from the FTC and the DOJ how they actually do their research learn about industries. But I would say, aside from that benefit, which is a major one, it does feel like there is this kind of ground swell of anti trust pressure or there's more of a examination of anti competitive practices nowadays. And it does feel like maybe the winds are shifting a little bit towards the consumer,
perhaps given the macroeconomic background. You know, we've seen a lot of complaints about inflation, higher prices. Obviously, feels like companies are in some respects getting more savvy about what they're charging people. But then you also have companies or industries that have kind of been doing the same thing for a long time, but now people are looking at it more critically.
Yeah, absolutely, that's very well put. It does feel like across the economy you see this a lot where something has been the norm for thirty forty two hundred years and then for whatever reason, maybe there's more data, maybe there maybe social media, maybe something, suddenly people wake up and say, wait, is this fair? Is this right? Is this optimal? Is this a good system? I think we see it a lot in medicine for sure, where people
are like, wait, this is how it works. But and again, you know, I mentioned we've been doing a lot on competition. We've also been doing a lot on housing. Yes, and so this is going to be an episode that is sort of a merger.
Let's put the two together.
Let's put the two together and talk about competition in housing.
Yes, so, I'm sure listeners have probably seen some headlines floating around about a recent federal civil case called the Sitzer Burnett case. It was basically a civil lawsuit, and it found that the National Association of Realtors plus two large brokerages I think they were called Keller Williams and Home Services of America conspired to keep commission costs artificially high, and the jury awarded Missouri home sellers something like one
point eight billion dollars. But I've read that a judge could in theory increase that to damages of as much as five point three billion. And this has kicked off a huge discussion about the future of the real estate industry, which has historically made its money from these commissions, at least on the brokerage side.
You summarize that very well, that was really good, and this gets to something There are many aspects of real estate brokerage that I just don't really understand, and I don't really get what multiple listing services are.
Yeah, I'd never heard of that before I knew.
I mean, I was familiar with these databases. I don't really get who owns them. I know that access is very restricted. I don't totally understand. So I know you have a buyer's broker, but then also you can go on Zillow and find your own house or something like that. At one point when I was trying to buy a house or earlier this year, found something on one of the sites, maybe with zillo. But then there's this broker
who emerged. I don't really get how all these pieces fit together, but I do understand that if you have access on some level to this infrastructure that is very valuable.
Well, here's the thing. It's one of those costs that is substantial. I think the average is something like five to six percent commission on a home sale price. But because it's so baked into what you know, both sellers and buyers are paying, it's never really broken out, and I think people don't think about it that much. It's just incorporated into the overall cost of either buying or
selling a house. But now people are starting to examine it more closely and say, well, wait a second, how is this all working, What are the incentives here, and why has the average Commission been so remarkably stable across literally a century.
I think so many questions that we need answers too, because setting aside this one civil case in Missouri, I don't think anyone knows how it's going to change the industry. If it'll change the industry, we don't know the damages. They're certainly going to be Appeals for these types of things last for years and years, I think, And so I don't think anyone really knows where it's going. But it is a good moment to maybe back up and get an understanding of the market structure here and what
could potentially change. Yeah, let's do it, Okay, I am very excited. We have the perfect guest, Andrew Ghent. She's a professor of finance at the David Eccles School of Business at the University of Utah, specialist in this area. So, Professor Ghent, thank you so much for coming on a lot.
Thank you so much for having me on the show.
Absolutely, how do brokers get paid? I buy a house, I go on Zillow, I find something. I see a bid seems cool. Somehow I come to an agreement. It all seems baked in. How are individuals getting paid in that transaction. In just the sort of standard.
Case, we have the basic intuition, right, you buy a house and the seller agent and the buyer's agent, they're going to split the commission, and before you even approached anybody, that was set in the listing contract. So it will say in the listening contract five or six percent typically, and that will be split evenly between the selling agent and the buying agent. So it's baked into the home
price right now. You know, for a very long time National Association of Realtors effectively instructed its agents to tell buyers it was free, so you may as well work with an agent because it's free. And of course I think a couple of years ago they finally backed off that, so it's no longer claimed to be free. But you're absolutely right, Joe, it's baked into the price of the house.
So just before we dig in further into commission structures, can you walk us through all the various lawsuits that seem to be floating around at the moment, because I mentioned the one that's gotten the most headlines, so the Sitzer Burnett one, but there are other things out there.
There's a Gibson case in Missouri. I think I saw a headline about apartment brokers in New York also being sued, and I guess I'm curious, like why these are coming up as civil lawsuits versus something more federal or you know, like more targeted from the DOJ or something like that. I think the DOJ did have some sort of settlement with the National Association of Realtors a few years ago.
But like, walk us through what this landscape of ever multiplying lawsuits it seems actually looks like right.
Now, you know, this has been going on for some time, and sort of the puzzle you alluded to earlier in the show about why has this stayed sticky? We've had this technological advancement where you know, thirty years ago wasn't super feasible for you as an individual consumer to go and find a home online and effectively, you know all that the technology hasn't translated to lower prices for consumers. And I don't have a good answer for why now.
Accept that we've had this long standing affordability crisis in the US that sort of came to a head with COVID. So COVID because it increased residential demand so fast, we saw this big increase in home prices and supply hasn't had a chance to catch up, and so I think that might be why there's a little bit more openness to sort of thinking about this. But you brought up
rental agents. But the other lawsuit we're seeing is one about real Page and the software for rental housing, where again it's like our the landlord's colluding here by using the same software and providing data to basically extract the most they can from renters. So that's my best guess. I think the FCC does have a lawsuit against realtors as well, but that's my guess. It has been a
long time coming. It's you know, I have to say I was very happy to see the bird at Sisser case because I think it's a bit outrageous to force consumers to pay this price. And I want to get into another sort of maybe more hit in cost of being forced to hire a realtor, which is what sort of incentives they have in terms of your portfolio by being forced to work with a full service broker.
Right, So I assume that given the way these commissions are set, where like the selling agent will split the commission with the buying agent. I assume that means that buying agents are incentivized to push the listings that have a higher fee. Right, if someone is offering them like one percent instead of two point five percent, they're probably not that interested. They're probably not going to be pushing that property as much to buyers.
For sure. There's very few in practice of commissions that are really, you know, in the two percent range for combining the buyer and the seller. I think the more concerning part to me is that a full service agent has an incentive, first of all to always get you to buy. That's kind of obvious because they get paid as a percentage of the house. But they also have an incentive to put you into the most expensive home
you can qualify for a mortgage for. And this is actually the bigger concern to me, because having all of your assets in one asset that actually has a lot of kind of not diversified risk is actually not great from a financial portfolio perspective. Right, So for the average household, the vast majority of their wealth is in their house, and you might not want to be in a house that is taking up forty percent of your income to
pay the mortgage. And you know, maybe a smaller house might be a better fit for your portfolio because then you had a little bit more money to put into stocks and bonds and maybe some private equity. So that's actually my bigger concern with the current structure is that it's very hard to get a flat rate service right now with a buying agent. I want to make clear, I think a lot of buyers may benefit from the expertise of somebody to help them buy a house or
to help them sell a house. The structure, though, isn't giving me the option as a consumer right now to say I want to pay somebody a flat rate to show me around, or I want to pay somebody, you know, ten thousand dollars to show me around and do all the paperwork and also look at how it fits in with my overall portfolio. You know, that structure doesn't exist right now. That's what concerns me most because of the
listing agent having it put in the contract. So how the buyer agent is going to get compensated is determined again before you even walk through the door.
So wait, let's just say Tracy and I wanted to become buyers agents, buyer's brokers, and we said, you know what, we're just going to charge by the hour, and it doesn't matter whether you buy a two million dollar house, it doesn't matter whether you buy a half a million dollar house. This is our hourly fee. We'll take you around, et cetera. Is that possible under the current structure? Could we even enter the market with such an offering?
It's technically possible, But then it's almost impossible to do though, because the way buyers are going to perceive it. In addition, they're going to get compensated this, you know, two and a half or three percent of the home value, and so very few buyers are going to be willing to pay that given right now, they're looking at a market where they don't have to come out of pocket. And again, that additional two and a half three percent is already baked into the value of the house, and so I
think it'd be very hard to convince a buyer. We couldn't say, like value, what if?
What if? What if we said we're going to remit that three percent to you get cash back.
It's a good question because there is a company called Homie here in Utah that's been trying to do that and the Utah Association of Builders have made it very hard for them to actually run a competitive business model
with that. There are some companies around the country that have tried that to try to remit I think REDFID might have that model where they're trying to remit some of that brokerage commission to the buyer exactly to try to so some buyers who are like I don't really want to pay the full three percent, And it sort of depends on how power hold of realtor's lobby is in various states, the success these companies have had with this.
So you mentioned expertise of realtors earlier, and my understanding that this is without being mean to the thousands of realtors across the country, this is a point of contention, and one of the arguments is that, well, the fee the commission basically remains the same across all different types of realtors of varying skills, who you know, might put more or less time into either buying or selling your home.
So I guess the question is how valid is that criticism, How difficult is it to buy or sell someone a house, particularly in this market.
I think the answer is that there's huge variation in the quality of realtors and what services do you want as a home buyer. You can't unbundle them right now. I know in my own case, I basically have the house picked out by the time I go to it, like with the realtor, and I basically having to pay somebody a huge amount of money to fill it some paperwork I could have hired. I could have either done the paperwork myself or hired a real estate attorney for
you know, a couple thousand dollars. You know, typically they're going to put a second year associate or something that it's not complicated paperwork for most you know, residential real estate transactions. And I do think it's very costly to get a bad realtor because again, these are ones that are especially unlikely to understand the risks of the home. The home ownership is really really risky, and I think
people underestimate that, maybe especially with recency bias. You know, you if you bought a home in the last five years, you've done phenomenally well, and people somehow have forgotten what happened if you bought a home in two and five in Florida. So home prices do go down, and individual homes often have you know, every home has defects. But
what does it take to be a realtor? In most states you have to have a college degree in some field, some sort of college degree, and either you know, somewhere between fifty seventy maybe even one hundred hours of online training. But half the online trading tends to be like propaganda for the National Association of Realtors on why it's terrible
to work without a realtor. You know. So, I do think there are nuances of buying a home and it seems scary, I think, especially for first time home buyers. Right there's this huge sense of like what if it goes down? And what if I miss like a leak in the ceiling and there's you know, I think when you've done it a few times, you're like, oh, yeah, old houses have leaks.
Old houses like you tell me about it.
That is just part of the deal. That there's a lot of maidens costs that you won't foresee. But it is scary, and I do think there are some downside risks that working with a realtor. You know, a good realtor can help with, and good realtors also you know, they view their customers more as sort of a long term relationship, and they know they're going to get business from word of mouth, and they'll help you with a lot of little things. But what I would say, Tracy
is it's not hard to get your realtor's license. That is a true statement. How hard it is? Does Ella house that or by a has that? That is a sort of It varies by agent, and it varies by individual consumer as well.
So I want to talk more about why it is that the rise of sites like Zillow, redfin etc. Haven't actually had the effect of cutting out the brokers who make a lot of money. But before we do, can we just talk about for a minute the specifics of the Sitzer Burnett claim. What was actually alleged here in terms of what the plaintiffs deemed to be anti competitive or unfair about how the market is structured. And I think also a couple of the brokerages had already settled
out of court and word of affected. But just walk those through. Well, really this was about yeah.
So this is a group of individual home sellers, Okay, okay, and what they are alleging.
Can I just tack on I don't understand why damages were awarded just to the sellers and not to the buyers as well. Who would be I mean, they're paying the sellers by paying for the house, and the cost is incorporated in the purchase price.
Yeah, so it's a good question. The buyers were not part of the suit, right, So this is a class action suit and the buyers are not part of the party to suit, so I think they don't have standing, if Tracy, that would be my understanding. And technically, in terms of the actual bikiniary cost, it is sellers that are paying it. You're right, who actually paid for the higher house price to compensate the sellers? It's the buyers, right, They're not party to the suit.
As far as I understand, I feel more class action lawsuits might be coming. I'm bad to.
Buyers, yeah, I mean, I'm actually really happy these It's hard to imagine spending this much time on a case, right when it's twenty thirty thousand or something. It's not a huge amount of money, and it's a lot of time in the seller's lives. But what they're saying is
they're claiming it's a restraint of trade. It's a collusion to set the price specifically for the buyer's commission, so the senses you can negotiate over the overall, you know, five or six percent, there's not a ton of negotiating room because oftentimes, because again this propaganda and the realtor's course, they'll say, no, I'm not going to even take it if it's a three percent commission overall, Like that's how
they're sort of taught. But it's specifically. We haven't heard what the remedies are, and I'm excited to see what the court comes up with with the remedies, but my guess is they're no longer going to be able to mandate in the listing agreements. So basically the deal what these home sellers were faced with was if I want to work with a realtor, and the only way you get your house on the multiple listing service is you work with a realtor. That's sort of a requirement to
get your house. So if you can't get your house on the multiple, so this is your key.
You just as explain this the role of the multiple listing services within the market infrastructure.
It's almost impossible to sell a house without I don't want to say impossible, but you'd be taking a huge discount because buyers won't even see your house even when you go to Zillow or redfin or some of these. So Zilo does have a for sale by buyer option, but it's actually shown differently if you look at the fine print, it's actually shown differently than any contract that is on the multiple listings. So this is basically information
that realtors share with one another. In disclosure states, which is the majority of US states, you can see the transaction prices and you can see the listing prices, and that is a matter of public record. It's actually harder in states like the one I'm in in Utah or Texas, some of these other what we call it non disclosure states. In non disclosure states, sales prices of real estate are not a matter of public record. What that means is that the only people that have access to that information
are realtors through the multiple listing service. So it's not a matter of public record. What's on the MLS is not public record. And so part of the reason that realtors in states like Utah and Texas have resisted going to a disclosure regime is that it takes away their
informational advantage, if that makes sense. So right now, even if I could hire a realtor piecemeal to either sell or buy a house so I didn't have to pay it through this commission structure, it still make it pretty difficult for me, as an individual buyer seller to figure out the fair market value of my house either that I'm buying or selling, because I don't have the information, but the realtors do through the MLS.
Got it. So there's obviously been a lot of reaction to this decision on the case, and I've seen so many commentary pieces about what this means for realtors for the housing market in general. And I suppose you could summit all up by nothing good for realtors, but a lot of it seems to be going in various directions. So why don't I just ask you the top line question? But what does this mean for the real estate broker industry?
So it's a good question. My hope would be is that it forces out some of these very part time realtors that do a couple transactions a year that I think are really not helping home buyers or sellers, because I think those folks are just sort of waiting for good luck, a windfall. That's how they can stay in the industry even though they're not they don't have a ton of expertise. I do think you'll see commissions come down,
and I hope you'll see more piecemeal services. The other thing I suspect we really need to know what the court decrees as remedies, because that's what we haven't seen yet. The hope is that the remedies will be you cannot it cannot be the seller that's compensating the buyer's agent,
at least not as a commission. People do have worries about that, butarticularly for first time home buyers who are credit constrained, right, they have limited cash, and asking them to come up with another ten or fifteen or even twenty thousand dollars to compensate a broker, that's hard. But that I suspect is going to be the remedy because the particularly anti competitive part of the case that the allegations are that you're setting the price in advance with
no opportunity for the buyer and negotiate. Right.
So, just on this note, I mean, could the National Association of Realtors agree to some sort of settlement where they do decide to make some changes.
Yeah, they've said they're going to fight it, right, so they're going to appeal. They're appealing. I'm interested to see what's in that appeal. They could settle, but I suspect what they're going to claim is that these laws are largely set at the state level, and they're going to say it has nothing to do with the National Association
of Furnitures. I don't know this for a fact. I'm speculating the CORE has been asked to come up with remedies specifically, and so the settlement doesn't really deal with the remedies unless NAR would agree to its various member organizations, these state level realtor's boards. You know, that might be an option, but we have to see remedies. We have to see we are no longer going to engage in this practice that has been identified as restraint of trade.
And then the other thing I was wondering, just from a legal strategy perspective, but you know, there are multiple brokers involved in multiple lawsuits at this point. Could you start to see some sort of like fracturing of the industry where individual companies try to argue that they're not like the other brokerages that are price fixing that you know, maybe they deserve a carve out from some of these lawsuits or something like that. Could you kind of see intra industry fighting.
I doubt it, with the exception of some of these flat raid or you know, low commission services, and those do exist, and you have seen more of those pop up in the last ten years or so. Again, some states make it feasible in some states try to extinguish this business model. I think anybody who's operating on this structure where the buyer's agents compensated explicitly in the listic agreement,
I can't see that surviving. And so I think if that's your business model, which is the business model of the vast majority of these large brokerages, I cannot see how they could claim they're doing something fundamentally different.
One reason why there's a lot of anxiety and concern and interest in the space right now is because the housing affordability problem. We've been talking about it on the show a lot. By some measures, the least affordable housing market. Ever, I don't know, just to put on your sort of academic professor of fine nance hat for a second. You know, if you take out the broker, do houses actually get cheaper or does it just mean that the seller pockets
more of the money. If I see a house that's listed for a million dollars and we take out six percent, I guess that's take out sixty thousand. Does that mean that if that goes away, maybe it goes down to twenty thousand. Does that mean that the house gets forty thousand dollars cheaper or does it just mean that the seller walks away with forty thousand dollars more.
I think it's a little bit of both. It's forty thousand dollars that was previously going to the agents, and hopefully that will be shared between the buyer in the form of a lower home price and the seller. And you know what weights is it fifty to fifty? It kind of depends a little bit on the market right now, you know, it's it's not a great time to be
a seller. So I suspect that the potential buyers that are willing to buy existing homes rather than new construction, I suspect that the buyer's wait a little bit more, so you will a little more softening at home prices. So it's a little bit of both. Right, it's surplus that is now available to be shared between the buyer and the seller.
How does the US commission system and the rates, the average rates that we're paying five or six percent, how do those stack up against other countries? Because I feel like those sort of interracuntry comparisons are really useful in helping us understand how unusual or different the American system might be.
Absolutely, the US system is very unique. You don't see this overseas.
American exceptionalism strikes again.
Yeah, you don't see this in Australia. You don't see this in the UK, and the UK is like one one and a half at most two percent, And so you do have to ask what is it about the US that is different? Because we largely have the same legal structure, right, these are both sort of common law countries. Property markets aren't that different, especially looking at Australia, and so I do think you have to sort of say,
why are we special? Is there something that's especially difficult and time consuming about buying and selling residential real estate in US? And I think the answer is probably no.
Can you explain further the impediments that states or realtors in those states put up to thwart alternative broker models, because you mentioned, yes, some of these do actually exist, and that there are companies that will remit part of their the broker fe back to the buyer, et cetera, but that the realtors put up roadblocks and make those business models hard. What makes them.
Hard, I think that they sometimes almost will kind of blacklist you or take away your license if you're operating under certain business models. I don't know all the individual states exactly, but I do know having bought a home and let's see four states. Now, there's a lot of heterogeneity, and i'd say that the non disclosure states are especially challenging for these other business model. And part of the value of a good realtor is that they have an
informational advantage. They're doing a lot of transactions, They're spending a lot of time thinking about the market and learning about what's on the market, and they may know off market deals that haven't come to market yet and those that's a huge value. So that's the sort of value I think a good realtor can provide. Where I sort of have more problems is when they're actually restricting who has access to the information. They're not just using the
information they're gathering through having multiple deals. They're saying only a licensed realtor kind of access to this information, and they're putting up roadblocks, certainly to disclose this information. You know, Zillow has sued multiple times trying to get access to this information in non disclosure states. So I don't know exactly. It's more through I think, threatening to lose your license if you're not operating on a certain business model. You know.
When I think about the potential macro impacts of all of this, obviously the effects on the residential real estate market are a huge one given its size and position in the US economy. But the other one I kind of think about is just from a pure labor perspective, because there are a lot of real estate brokers in the US, and I think there's some disagreement about what this might mean for those jobs. I've seen some people arguing that, like, maybe it means if commissions are coming down,
you're not making as much money. Maybe it means more people are doing it part time. You know, On the side, it's a little bit of a bonus that you might make in addition to your normal day job. But then I've seen other people arguing that actually, this is going to mean fewer part timers. Expertise, as you were mentioning before, becomes more important and so you're going to see more full time agents. So I'm curious where you land in that discussion.
Yeah, it's a good question, and I don't know definitively, but my I would lean towards fewer overall agents and more full time agents because I think you're going to want to do more volume of transactions, right, and you're going to treat a little bit more like a commodity because you can't be compensated, you know, these huge sums of money. I mean, I don't think we're going to
get rid of the commission structure altogether. I do think you'll see fewer part times because basically, those part time agents that were selling one or two houses a year, they were just waiting to kind of get lucky, right that somebody would come to them. And now I suppose the commission comes down to four percent between the seller and the buyer. I'm just throwing out a number there that mass starts to look worse.
You know, you mentioned I think you were a little bit skeptical of the effect of buyers brokers or buyers agents steering people to houses based on the percent that you do think that there was a lot of action towards steering people to the most expensive home that people could afford. But why don't sellers' agents just say knocking down to two percent or one percent? I mean, why isn't there more competition on that?
And that is because I think it's that these agents are instructed through their education to not accept something below five percent of the overall listing agreement, Like that's the sort of collusion, is that they're so pushed on for that and it's so deeply ingrained in them. Yeah, whether that will change going forward, I don't know, but I think the education of realtors has to change. But that is I don't think going to be part of the
remedies in this case. To be clear, I suspect the remedies are going to be that you can't explicitly put in the listing agreement.
Because technically speaking it can be won the seller's agent could it could in the listing on the MLS that it's one percent is just basically never done.
It's basically never done. That's right. There are companies that do this that agree. I think redfin is one of them that do do this. Why they can't operate in a state like Utah, I'm not sure, but there are companies operating in some states and it's a company wide position, if that makes sense. You know the strain. Which thing is you mentioned? Well, would you be worried as a
seller that no buyers agents would visit you? I think that does go on, but I think increasingly with the information that prospective buyers have, I'm not as concerned about that as long as it's on the MLS, because I can just tell my agent, like, take me to this house. I saw it online. It has two bedrooms and one and a half pass. I want to see this house, right, Yeah,
So I don't know. One concern I have is that consumers perceive some authority on the part of their realtors and they don't realize they're really the ones in control, and so they can just say I want to get into this place. I want you to you know. So, yeah, but it does sound like that goes on. Is that, oh, well, then the buyer's agent won't go there. I don't see why it should go on given the information that most home buyers have, except that they trust the expertise of their realtor.
I just have one last question, which is, Okay, this was a civil suit in Missouri, As you mentioned, there are other suits. What would it take for this to be a national change to the industry, because does this just affect realtors in Missouri? What or how what is the scope of the ruling.
I think it would affect as setting a precedent. So it may be that the scope of that case in particular is specifically Missouri. But then there's a precedent, ok right, And so then I know in other states, Hey, the legwork to get you know, maybe do we have to
do the same lawsuit? Fine, we got to do it, but there's precedent got and if that precedent holds up, it's not a big you know, you know, the realtors might just say we're not going to do that because we don't want to deal with this suit because it's the precedent.
And then there's the Gibson case which has been filed in Missouri, like the Sitzer Burnett case, but I think that one is for national damages and I think I've seen a number floating around there of up to two hundred billion dollars in damages, which is pretty sizable. But also to Andrew's point, if there's anything I know about class action lawyers, it's that once there's precedent, there will be more lawsuits.
Yeah, Andrew Gan, thank you so much. That was a great explanation, and now I have some understanding of how this market actually works. Really appreciate you coming on oddlocks.
Thank you so much for having me. Really appreciate the time.
Thanks Sandra Joe. That was fun.
You know what sort of blows in my mind tracing that so many real estate sales are public and you can just see the price people paid for their houses.
Oh yeah, it is pretty weird.
It's weird, right, I mean, you think it's sort of a personal thing and people don't really know, but it's all right there online. It takes about two seconds to figure out how much almost anyone paid for their huse.
Yeah.
I find housing a weirdly opaque and transparent market. At the same time, it's like there are all these things embedded in the house purchase process, like the commission, which you don't necessari see broken out, but then you can see really sensitive numbers like the overall sales price. It's weird.
I remember as a kid when my parents bought a house. I forget when or where, you know, going from house to house to house to house in a drive and maybe driving behind the realtor's car, going in the realtor's car to all these different houses. It does seem crazy to me that the commission structure hasn't changed much at all, or if at all, despite the proliferation of these online marketplaces.
Now absolutely, because nowadays you can see a house online on Zillow or something like that, and you just shoot a little inquiry form over and you say I want to see this house, and then someone lets you in the front door. But that seems to be pretty much the extent of realtor services sometimes, and I do think Andrew touched on this, but I do think the argument
for unbundling more of those. So maybe you don't have a buying agent, maybe you start to substitute a real estate attorney for some of the things that a realtor historically was doing. That seems like a possibility totally.
On one hand, it seems very intuitive to me that just over time. Shouldn't there be more of these, maybe discount brokerage models for real estate where you get remitted back part of the three percent, just a flat fee, pay by the hour, et cetera. But on the other hand, as long as the fee is basically hidden to the buyer, it's just part of the house price.
And you have no opportunity to negotiate it.
Yeah, and you have no opportunity, but also no real reason too. It's like, oh, there's a million dollar house for sale. I don't the buyer doesn't have to think about the brokerage fee because it comes out of the cellar. You could see a why alternative models don't just take off because they're obviously appealing to the buyer who doesn't even really think about the fee in the first place. And b maybe that helps explain why the first lawsuits came from the seller side.
Ah, that makes sense. And also, I mean this is really a story of incentives, right, and the incentives that the listing and the buying agents actually have. And I think you can kind of also understand why, on the one hand, this industry can appear to be competitive, like the barriers to entry are probably not that high like, yes, you need a college degree, but then you can take a National Association of realchair's course and get your foot
in the door reasonably quickly. But on the other hand, like the incentive to keep prices as high as possible, it's there in a commission based system for obvious reasons, and it does feel like in that sort of structure you kind of need an external entity to affect change, right, because otherwise no one is incentivized to do it, not even the like new discount if you had discount brokerages or something like that.
The existence of them uses themselves are really fascinating.
I know, I want to look at an MLS.
Yeah, they won't let you. There's no way. You can get your real estate license then you can look at.
But no, it's like, okay, the one I will Joe.
On the one hand, it's market transparency. They're all there, so that's good. On the other hand, only some people can access it, and if you do access it, you have to sort of basically enter into these byzantine commission structures. Lots of stuff. They're related to market power.
Yeah, shout out to my realtor who fed our koyfish until we could get to the house.
That's value. That's it's a value.
Add yeah, appreciate it all right? Shall we leave it there?
Let's leave it there.
This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
And I'm joll Wisenthal. You can follow me at the Stalwart. Follow our producers Carmen Rodriguez at Carmen armand dash Ol Bennett at Dashbot and kel Brooks at kel Brooks. For more Odd Lots content, go to Bloomberg dot com slash odd Lots, where we blog have transcripts and letter and chat about this episode in the real estate room of the Discord Discord dot gg slashdots.
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