Josh Barker Real Estate Podcast #28

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Transcription of the Podcast Episode #23

The transcription is auto-generated by a program and may not be accurate to the conversation. To ensure you get all the information from the video properly, you must watch the video.

Joey: Hey Josh, how's it going?

Josh: It's going good.

Joey: I knew you were going to laugh.

Josh: Well, we've been laughing. Now that they said, roll, and the guy over here is telling us we must stop laughing so much, so we'll have to get serious. Get serious, Joey.

Joey: Okay, I'm going to get real serious because it's been a month. It's been a little over a month, but it's been a pretty active month.

Josh: It has been.

Joey: And some serious stuff has gone down. There was.

Josh: Really? I didn't notice.

Joey: Didn't notice. So I have. I don't normally have notes, but I've got these notes here, and it's because I wanted to quote the headlines exactly. And I'm going to mess it up anyway. For example, CNN says the 6% commission on buying or selling a home is gone.

Josh: Thank goodness for that.

Joey: ABC News, real estate lawsuit settlement upends policies that help set agent commissions. CBS News, et cetera, et cetera, it's all around. There was a big deal. It wasn't a court. It was just a settlement, right, a legal settlement.

Josh: Right.

Joey: Including the National Association of Realtors, NAR? So what's yours? This is some heavy-duty stuff. What's your opinion?

Josh: Okay. Well.

Joey: Wait, wait, wait. Before starting, how long have you been in real estate?

Josh: I've had my own. I've been in real estate for 24 years. We've had our brokerage since 2003.

Joey: And how many. How many transactions do you think you've participated in?

Josh: Oh, man. Well over 7000 transactions.

Joey: I'm just doing some math in my head. That's like well over a billion. That's north of a billion dollars in sales, with a B.

Josh: Yeah. A couple billion, probably.

Joey: Okay. Okay. Good. I just wanted to get that out there, so if somebody's never seen you before, they go, who's this guy? Why would he? Why does he think he can talk about NAR or anything?

Josh: Well, in full disclosure, my opinion's still worth nothing, so just start there.

Joey: Okay. Okay. Well, are CNN and ABC News true? Is the sky falling on real estate?

Josh: Oh, it's not falling. This is an incredible opportunity for consumers. We're incredibly excited about what's coming down the pipe. It's been years since we've been frustrated about how the industry has been operating. And I'm not going to pass judgment on it. There was a reason it was operating the way it was. It's just. But like all things, sometimes, as technology catches up and we learn better ways to do things, the industries don't improve, and they need to. It takes a sweeping policy change like this to happen.

Joey: So who is. The average person does not even know what the National Association of Realtors is. We hear the term realtor, and it's like a legal trademark, right? Like, you can't just. Just because you have a real estate license does not mean you're a realtor.

Josh: That's true. Yeah.

Joey: So, is NAR a government entity, or is it? Like, what is it?

Josh: All right. That's fair. So, first, to give you guys some context for those listening, what is NAR? NAR is the National Association of Realtors and a trade organization related to real estate. And if you've heard the word "CAR," that's California Association of Realtors, and they're related. Okay? So, CAR falls underneath NAR in the organizational structure. However, they do have some tangible and some intangible benefits, so the tangible ones that real estate agents see regularly will be things like contracts.

Joey: Standardized contracts.

Josh: Standardized contracts. Right? The second one would be lockboxes and having access to lockboxes. And then another one would be the multiple listing service itself, which is an efficient way to present consistent information for the consumer to consume. And it's up to date within typically minutes. And so I want you to imagine a world without that for a minute. You'd have 50 different variations of a contract. And no real estate agents. Unless you're an attorney practicing law, you can't decipher them because it's the standardized contract. It makes it easier for agents to work together because if you know the contract, you can interpret it and share it with your client.

Joey: And it protects the consumer. I think the average person is intimidated by legal jargon.

Josh: Yeah, I totally agree.

Joey: Like "henceforth," "hitherto," "therefore," aha, I got you.

Josh: Oh, yeah, I got you.

Joey: And the standardization of this helps both sides, right?

Josh: Oh, yeah. And it's so standard now that agents fill in boxes, right? And they still screw that up, by the way.

Joey: Some.

Josh: I know. But they fill in boxes. And so these contracts have been written by attorneys and combed and analyzed by legal professionals. And now it's at a point where most agents in the business know what they're doing and know how to read those standard contracts. If you were to throw five or six different types of contracts at us, and it's not something we're familiar with, now we're saying, well, in addition to working with a broker, you'll also have to see an attorney. In some states, you already have to.

Joey: I was going to say, in some states, they do that.

Josh: Yeah. In some states, you already have to. But for us in California and anybody watching, that's where this is coming out; those contracts are a big deal. And so that's where CAR comes in. Now, those are tangible. The nontangibles, the harder things to see, are that they advocate for property rights. They advocate for homeownership, and they do a lot of legislative types of initiatives that you don't see every single day, but they're hard at work doing those things. And so it's valid. It's a very valid organization, for sure.

Joey: So this legal settlement that NAR settled with out of, what, like Missouri, I think it was?

Josh: Yeah, Missouri brought the case.

Joey: What were they saying? What was the why?

Josh: Sure, so the case, anybody could just go online and look at it if you wanted to try to find it. But essentially, it was that sellers in a class action lawsuit filed a suit against multiple large brokers and the National Association of Realtors, claiming that sellers were overpaying in commissions because they were, from their perspective, forced to pay a buyer-broker commission. And that's the nuts and bolts of that case. And it's much more in-depth than that because even the settlement agreement is 108 pages long. But what happened was that NAR came out on Friday last week and said, okay, we don't. They said that they didn't want to admit wrongdoing, but they recognize that the industry is changing. And for that reason, they're going to change some of their policies, which we have to follow if we want to be realtors. They're changing some of their policies, which will give us some flexibility on how compensation is paid from sellers or buyers.

Joey: How so? Right now, the standard is, if I'm going to sell my home, I list it with you, and I agree to a commission for you and offer a commission to the buyer's agent.

Josh: There you go.

Joey: That's, like, standard.

Josh: Pretty standard.

Joey: Has been forever. But that's changing.

Josh: It's going to change. So right now, under the current arrangement, I come and meet with you at your home, your lovely wife, and you sit down with me, we have a conversation, we talk about what we're going to do to market your home and promote it, we discuss what we think the pricing would be. And then we review what we consider a commission, where I say, hey, Joey, here's what we'll charge you for the services we rendered. And just for this conversation, let's say. I was going to charge you 6%, right? And I say, now, Joey, when I charge you the 6%, with your permission, I'd like to offer half of this commission to the multiple listing service to incentivize all other brokers in the marketplace. I'd like to help them be enthusiastic about wanting to come and show your home as well. So we'll list it at 6%, but three of the percent I will offer to the cooperating broker. Are you okay with that?

Joey: That's standard.

Josh: Yeah, it's standard, right?

Joey: Yes.

Josh: And the sellers typically would say, okay, well, that's fine. Or they'd negotiate at 5%. These things are negotiable. And then, at that point, I would list the property for sale, and we'd bring it to the multiple listing service, but here's where it gets important. We would then publish on the multiple listing service for other brokers to see how much commission they would receive if they brought us an offer the seller chose to accept. And so it created this playing field, if you will, where even brand new agents could come into the business and not be good at what they do yet, but their commission was protected because it was already published to the MLS. So they didn't have to negotiate their fee. They didn't have to negotiate for it. In fact, in most cases, they didn't even have to do a good job because it was in writing on the MLS. And if the deal closed, they were still going to get paid. Does that make sense?

Joey: Oh, totally. Totally.

Josh: And that's the way it has been. What they've changed now, the two biggest things that they've changed, number one, is that no longer can you advertise that commission on the multiple listing service. And the second thing they've done now is they've come out and said that before a buyer views a property with a broker, they must first sign a buyer/broker agreement, which explains what services the broker is about to offer the buyer and what the cost will be in that relationship: Who's paying for what, how does an agent get paid, and who's going to be paying the agent.

Joey: So they have. So okay, so a buyer. If I'm going to buy a home, normally you and I meet, take me out, and show me houses. But every realtor has the horror story of showing somebody 20 houses, and they stopped at an open house one day without you. And the listing agent double-ended. And you're like, dude, I showed you 20 houses. Sorry, man. She told me if I didn't. I would lose that house if I didn't put an offer in right then. It sounds like you ran into a salesperson. Anyway. But now you're saying, before you even take me out to look at homes, we have to have a contract in place?

Josh: Yeah. I understand that what CARS or the National Association of Realtors is settling on is subject to change because the judge still needs to sign off on the settlement agreement.

Joey: Got it.

Josh: But the way that it's saying right now is that before an agent takes a buyer out to show them a property, they must first execute a buyer/broker agreement between the buyer and the broker that states, hey, here's what our scope of services are going to look like at this moment, here's how it will be paid if you decide to buy the home. And then, both parties sign this document. And so now, which is great, I think this is a really good thing, the buyers now get to actually actively participate in the negotiation of what the agent receives that they're working with, where before it was published to the MLS, so that's what the agent was going to get paid. Right? And in most cases, the buyers probably already knew it, but they also knew they weren't actively involved in that negotiation very often.

Josh: And so, as a result, they didn't get to negotiate what that fee might be for the agent. Now that's going to change. Now, the buyers will have the opportunity, if they choose to, to negotiate with the buying broker and determine what that buying broker deserves to receive for the services that the buyer is asking for. And so it's going to change things because a brand new agent without any experience, that's going to be a tough sell because now you're going to have to compare the services of a broker that might have been doing this for five years, 10 years, 15 years, 25 years, whatever. From a buyer's perspective, the question now is, how many problems do you know how to solve? How many issues have you been able to resolve? How good are you at reviewing title reports, negotiating contracts, and determining how to negotiate through repairs and problems? Because you're about to pay that agent. The buyer will pay that agent for those services in the future. And so I would call it "the TikTok stars probably aren't going to be as popular now" because now that they're paying for the service, or at least it's transparent, now that they're paying for it. Now it will be more like, I want to work with somebody competent.

Josh: One of the examples I would give you would be, let's say, that I had a legal issue, and I have access to two different attorneys at about the same cost. One attorney is brand new, a nice person, but brand new, or another one that's been doing it for 15 or 20 years and has a proven track record for resolving issues like mine. Which one will I likely hire?

Joey: Got it.

Josh: And I think that's kind of what that side of the equation is going to look like going forward. And then, on the opposite side, the listing side, the sellers will likely be in a position where they can choose to have an agent list their home for sale. The agent's going to list the home based on what they're going to charge for the listing side, and then they'll bring the home to the market and then, probably based on demand, will dictate how much the seller feels they need to compensate a cooperating broker, if at all.

Joey: Because I'm thinking that the property itself is going to have an impact on that listing.

Josh: Absolutely.

Joey: If you have some obscure property that's just. There's not a lot of buyers for it. You will try to incentivize the buyer's agent more to try to find. You're just trying to open up the net more, versus there are some properties we've talked about, like the minute the sign hits the street, it's sold. Why? Because everybody wants that house, it's just. And so the idea that one standard commission would be offered regardless kind of makes sense.

Josh: It makes total sense. And this is where. As a company, we'll lean into this hard. We are super excited about it because the cost associated with a real estate transaction is too high. Most people in my position who have been doing this for a long time probably feel the same. When I started selling real estate, the average sales price in the market was $108,000. Right?

Joey: Yeah.

Josh: And commissions, let's say, just for the sake of argument, we're 6% at that time. That means that each side was receiving about $3000 compensation. And then you had to split with your broker, and then you had the cost associated with even doing the transaction, which is your gas and your time and everything else, but the fees were set at a pretty nominal amount because the cost for homes was a lot less back then. But here's what it was like to sell back then. This is what's different, too, and this is what's changed in 25 years. Back then, the multiple listing service was not online, so we would run black and white classified ads, a buyer would call, we'd show them a home, and if they liked the home, great, we brought an offer form. And if they didn't, I'd have to show them 25 other homes because there was no internet to preview. So they had to see everything before they felt educated enough to say, okay, I like that one the best, right?

Joey: Yeah.

Josh: Today, the buyers are doing most of the work. Buyers are going out and looking at all the neighborhoods. They're looking at all the homes online. They're seeing all the photographs. They're already narrowing it down to three to five homes they're interested in. You know what I'm saying?

Joey: Yeah.

Josh: And so the agent's not doing as much as they used to, yet the fee is still the same.

Joey: No, I agree. We joked. I've said that before, that I felt like the real. The professionalism in real estate was varied. It was just. It was heavily varied. You'd run into some. A lot of people think about real estate, and they forget about it. You've touched upon a little bit like there's a lot of legality in there, a lot of gotchas, inspections, and understanding how to read title and escrow truly. And a lot of it is when you brought up the TikTok star. A lot of it's that, just being able to market a personality. And that's a tiny piece compared to if it's even a piece.

Josh: Well, it has been a piece lately.

Joey: It's been a piece in what we live in. We live in a social media world, so it's been dominant. But that idea of, hey, upon further review, we need to negotiate the price of this house if I'm representing the buyer. Why? Well, because you'll have to replace this, this, and this, you don't. You don't see most of that until you get into an escrow and start. That's the whole reason you do these inspections, and that's why you get these professionals involved. And that's a. I don't even think people think. The average person doesn't think about that when they think about real estate. They think marketing and sales.

Josh: And I think part of it's because of the way the industry had been set up in the past. Having the published commission on the multiple listing service allowed a lot of inexperienced agents, if you will, to participate because they didn't have to be skilled to get paid.

Joey: That's right.

Josh: And now the industry is shifting to the point where it's going to be based on merit. You must truly display your ability to help a buyer or seller solve their problem at the highest level, at the best possible cost to them. That's what's going to happen now. That's what's changed. And from a seller's perspective now, it will likely save them quite a bit in terms of compensation. If you think about it, if you're a new home subdivision, and let's say I have buyers that are lined out my subdivision wanting to buy my home, all of my homes, I don't have to, as a builder at that point, offer a lot of concessions. I may not be willing to work with your broker. I may not be willing to do a buyer credit at closing. I may not be willing to accept some of those contingencies.

Joey: Absolutely.

Josh: Now, if nobody's coming into my subdivision and nobody's coming.

Joey: Script flips.

Josh: The script flips. Now I'm heavily incentivized to increase my compensation to a buyer, maybe saying, hey, I'll pay some credits towards your closing cost, or, hey, I would be happy to pay your broker if they want to bring us a buyer, or, hey, I'd be willing to do this or do that. And so it will come to your point, as you said a little earlier. It's going to come down to the product itself. Now, you will have a more custom-designed marketing plan based on that unique property. You know what I mean? And to your point earlier, if I have a high-desire property in a subdivision that's priced well and shows great, as a seller, I may only list my property at half the fee I used to list it for, and I'm not. I may not offer an incentive to another office. It doesn't mean I won't receive an offer from another office through my agent requesting some compensation, but whether or not I'm willing to agree to that will come down to how much activity I have on the property at that point. You know what I'm saying?

Joey: Totally.

Josh: And these buyer broker agreements will most likely have the cost being placed on the buyer, right? So let's say that a fee that's half of what it used to be now, a fee for a buyer broker representation, but they'll try to negotiate it when they make the offer on the property, they'll try to negotiate it with the seller to have the seller pay it. But if it's not agreeable, the buyer has to decide whether I will pay my agent.

Joey: The two things that come to mind when you were saying that were. Number one is lenders, usually because there are constraints on the type of loan you get, where you get seller credits, and things like that, so that will start to come into play. And the other thing I was wondering is if the buyer's commission is going to be registered as part of the sale price because if it's not, then suddenly the price of homes is going to come down, I don't know, around two and a half percent on average, right? Before, if I sold my house for $300,000 and I said I was offering 6%, it would record at $300,000, and that would come out of it. But is a buyer's commission still going to be recorded?

Josh: No.

Joey: Has that even been addressed, or is that going to be a separate issue?

Josh: Well, I mean, now you've got the county assessor going, oh, wait a minute, everything's going to be reassessed.

Joey: I don't know. Yeah. Is it?

Josh: Well, I think. To your point, a percentage of the buyer's transactions will ultimately come out of pocket and pay for a pipe for their buyer representation because he would rather keep the tax basis lower on the purchase. Right?

Joey: But then does that mean that it can't be part of the loan? There are a couple of little legal moves here.

Josh: Yeah, some things that have to get figured out, but I'm not. I'm not as hung up on how to get someone paid. I'm not because, let's say, I. A house has been on the market for, let's say, a month, but it hasn't sold yet. Let's say that the agent that has that listing listed it at a commission that didn't offer a cooperating broker commission.

Joey: Okay. That's fine.

Josh: My buyer broker agreement I have with my buyer states that I'm going to be charging them, let's say, two and a half percent or whatever for broker services. And now I'm going to make an offer on that listing. I'm going to include in that. I will include a compensation agreement requesting the seller to pay me a commission so my buyer doesn't have to pay me. Do you get what I'm saying?

Joey: Totally.

Josh: And these agreements, the way they are today, that's how it works, but they might change that between now and July, how they're going to introduce that. Now, the question that people might ask is, what happens if the buyer also needs credit? That's fine. Just write your offer like you do today and include a credit to the buyer at closing. So, there will be many different ways, and lenders may change how they cap out on total credits. One of the things somebody asked me recently was, well, what happens if the lender only allows for a 3% credit? How do you do it? Well, then, have yours. Request your broker commission for your commission portion and then still ask for the credit for what the buyer needs to get their loan. So there's going to be some maneuvering in there. But I think that. Fundamentally, the cost for the consumer, which is what I'm super excited about, is that the cost for the consumer will go down, and it should.

Joey: I think so too. The two things that I thought were, number one, the cost to the consumer will go down just a little bit, probably a couple of points. But the other side is that the, I don't know the right way to put this, the professionalism of the buyer's agent is going to go up dramatically.

Josh: It has to because when the buyer gets to participate in the negotiation of what their agent is being paid, then that agent had better be good at what they do. Otherwise, you do not have to be able to justify that fee. It's just like sellers today. Sellers typically interview three or four agents, which is a competitive interview. They evaluate the marketing plan. They evaluate the pricing strategy. They evaluate the agent and determine who they think will likely get them where they want to be in the best position they can be in. It's competitive. And I see that happening now on the buyer side at a much higher level than in the past because we can argue about who has been paying. Some people say, well, no, the seller has always been paying. And some people say, well, no, the buyer does pay it out too because if. Because if the seller weren't paying, then the buyer would be. There's all those exchanges of conversation.

Joey: Totally.

Josh: And I think we can debate that, but I would say that there's one thing for sure that probably nobody would debate. Fees are going to go down, and they're going to come out of the agents.

Joey: Yes.

Josh: You know what I mean?

Joey: And I also think like just. I haven't. Because I was a real estate agent, one of the hard things when you're the buyer's agent is how you can work with people. And if you. Some people would understand that the buyer's agency agreement is not new. It's been around. It's just not the most common practice. You don't normally. You don't get it. But the horror stories of you working with buyers versus when you work with a seller, as you said, the seller interviews three agents, and they go with who brings in the best marketing plan, et cetera, et cetera. Buyers, we're much more product-focused, so that's why they could just be driving down the road, and even though Johnny has shown them, or Lisa has shown them 20 homes, they're like, hey, look, house for sale. Sorry. And it. I felt like it. What's the right way to put it? It dampened the professionalism of the buyer's agent. It got more of that, just like, hey.

Josh: Highly transactional.

Joey: Exactly. Exactly. And I feel like, no, this is going to.

Josh: More relational.

Joey: This is going to be way more relational. And somebody who does focus on being a buyer's agent is, believe it or not, even though their commission might come down, they're going to benefit from this because I think a lot of the. There's a lot of anxiety for buyer's agents because they're put in. They'll do so much work and not get anything and have it taken away from them at the last minute. And I think that that. That's not a healthy thing for that group of people because I've. We can sit here and say that there's a lack of professionalism sometimes, but on the other side of the coin, I have met a bunch of agents that work their butt off and get burned.

Josh: Yeah. That's a really good point you bring up. And well, to your. To your point, the National Association wrote that, as part of the settlement agreement, its members must execute a buyer-broker agreement before showing a property.

Joey: I think that's a good thing.

Josh: Yeah, I think it's going to memorialize a relationship. It's going to explain the process. It will talk about how people get paid and who pays them, and very transparent, which is what I'm really excited about. And I think that ultimately, where we're going to go with this is that you're going to unfortunately likely see a certain amount of agents likely leave the business as a result because now skill and experience are going to matter, particularly on the buyer agent side.

Joey: I think it's also going to be. This was. We were already seeing this, but I think the lone wolf McQuaid, Agent McQuaid, the lone wolf agent. It's harder because a good team includes the people who are the legal people versus the people who are much more about going out in the field. And in the past, like one agent all by yourself, you were expected to wear many hats. That's tough. And it will help build these teams a bit better because this one agent's great. Hey, I'm going to show you your house. What about the legal? Hey, hold on. Let's get the legal agent and marketing agent engaged in our office. And we work as a team now. And when that happens, you just. Whether you're selling or buying, the consumer gets a way better experience.

Josh: Oh yeah. No, the value proposition is going to strengthen as a result. As I said, the agent's quality and experience will improve. And not that you can't get into the business as a new agent and be able to build through those ranks, but you won't be able to get in there and be a fly-by-night agent that's just running around and enjoying how easy it is the way that things were set up in the past.

Joey: I think the comparison between real estate and legal is. You see it a lot. And when you think about legal, you usually see a partnership, and there are partners and senior partners. Junior partners come in, shadow senior partners, and they work as a team. And in real estate, that exists here, but also, the lone wolf, the cowboys that can just. And I've often thought. And like you said, it's not to put down new agents at all, but I think it's really hard to come into real estate and be a master at something you just started.

Josh: Yeah. As you said, you better have a mentor and be surrounded by middle-level partners or senior partners and people willing to invest and pour into you to help you grow, learn, and develop. Because again, I think the consumers now, with this transparency that we're about to see bestowed upon us in July, which is going to be a good thing, I think it's going to come also with a heavy burden of contract proficiency, a legal mind, and the ability to navigate clients through problems and situations that pop up. And they're going to want to see that track record. You must articulate your value proposition at the highest level going forward.

Joey: So I think in closing, I don't know if there's anything else you want to address because we went over, like, the main points are like, this is a. This is a big deal, and people are running around like the sky is falling, but it's like, no, calm down.

Josh: Yeah. Well, and it's fresh. It came out on Friday, but you and I discussed it before the podcast. What do you want to cover? And I'm like, this is all we're hearing about right now. The consumers were in the marketplace. They were all asking us questions about what this means. And so this is our first shot across the bow. This is what we think it means. And I can't express this enough. I agree with everything we just discussed in this podcast. I'm not saying that it will fall into fact by any means. Consult with your attorneys about this stuff going forward because this is just a podcast with some ideas of how we're interpreting it. But there's a lot of ground that has to be covered between now and July. And there are a lot of wrinkles that will need to be ironed out between now and July. We'll better understand how the industry will navigate this issue at that point. But so far, I'm really happy and excited about what I see.

Joey: Yeah. And even though this just came out Friday, this has been in the works for several months. There's been. Several things have happened that said, hey, this is coming. There's been legal action. There have been settlements. There's been a lot going on with different entities. And so this isn't blindsided; it's not like, Thursday, no one thought anything was coming. This is. Everybody's been like, how is this going to play out?

Josh: No, The professionals have been paying attention.

Joey: Yeah. And this is a big step. They'd have worked on the settlement for months if they had the settlement.

Josh: And some of the most astute brokers in the country have been on mastermind conversations and calls for months, waiting to see how this thing was going to unfold. And honestly, I don't know if the way it's unfolding could have unfolded any better, but it's a good thing.

Joey: Right on. Okay. Well, in closing, is there anything to the consumer, to other agents or anything you'd like to convey? I mean, we've hit it.

Josh: Well, and watch the whole podcast in its entirety, if you can, because I think that instead of trying to rehash the last 30 minutes, I mean, you'd probably want to dissect it. It's a lot. But more to come. We'll be covering more and more as we go forward.

Joey: Awesome. Well, Josh, I appreciate your time, and I'll see you in about a month.

Josh: Sounds good, Joey. Thanks, buddy.

Joey: Bye.

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