Last year, a historic legal settlement resulted in sweeping rule changes that were supposed to lower the price of buying and selling a home across the country.But those changes would cost real-estate agents money, and so those agents, it turns out, have found ways around the new rules.Debra Kamin, who reports on real estate, explains how they did it.Guest: Debra Kamin, a reporter for the real estate section of The New York Times.Background reading: Home sellers and buyers have accused real-estate agents of blocking lower fees.The rule change was the result of a legal settlement last year by the National Association of Realtors.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. Photo: Jamie Kelter Davis for The New York Times Unlock full access to New York Times podcasts and explore everything from politics to pop culture. Subscribe today at nytimes.com/podcasts or on Apple Podcasts and Spotify.
Chapter 1: 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.
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Chapter 2: 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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Chapter 3: How did the settlement intend to change real estate commission payments?
So we were really optimistic that it was going to change things.
So let's talk about the big and then moment in this story of why all this promised superlative change has not come to pass.
I call it the great real estate workaround. Hmm. Very intriguing. Thank you. Explain. The settlement was designed to take away these conversations that agents were having about commissions. These conversations were happening over these channels, these databases. They're called MLSs, multiple listing sites.
Right. These are online portals used by real estate agents to basically list house.
Exactly. It's where home listings live on the internet. And if you're an agent and you're working with a buyer and you're looking for houses, you go to the MLS to see what houses are for sale. But each listing has information on it. The address, the square feet, etc. It also used to have a commission amount.
This is probably the place where we need to remind everyone that commissions tend to be split, right, between the agent for the buyer and the agent for the seller.
Yes, almost universally.
Even though it comes out of the seller's pocket.
The seller pays the commission to their agent, and that agent for the sellers then splits that commission with the buyer's agent. Right. That's how it has been done for a long time. And MLS just kind of laid it all out. Yes. And the key focus of the settlement was that should be no more. Moving forward post-settlement, the rules said that sellers pay their own agents, buyers pay their own agents.
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Chapter 4: What is the 'great real estate workaround' that agents are using?
Now, in the settlement, there are a couple of key pieces. One is financial. The other is rules. Now, let's talk about the rules.
The president of NAR made a video that went out to every realtor in the group.
Please hear me clearly. You will still be able to offer compensation to a buyer broker. It just cannot be conveyed on the MLS.
That said, to move these conversations.
If there's one thing I know about members, they will figure out how to efficiently communicate the information to see if there will be any cooperating compensation.
That video was backed up by NAR's head of legal, who has doubled down on the idea that in the settlement, the language says these conversations are banned only on the MLS.
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Chapter 5: How are real estate agents communicating commission information outside the MLS?
So just know that we're doing everything we can to continue to advocate for your ability to help buyers, sellers, tenants, and landlords all across our great country.
So where exactly do these conversations move to once the premier trade group of the realtor world says to them, go be creative and find a new place to have these conversations?
Michael, it's gotten a little bit wild. I've spent the past year following this very closely, talking to agents, talking to industry insiders. Remember, the 6% was split 50-50. So usually the seller and the buyer's agent would each get 3%.
I've heard stories of agents who, in listing photos, are putting three cookies on the kitchen table as a sign to a buyer's agent, if you bring a buyer, you'll get 3%, which means they'll get their 3% also. Oh, wow. That's quite...
Nefariously creative?
It's one way to put it. I've heard other stories of agents who've put movies on the TV screen in the living room.
During a showing of the house.
During a showing or even in the listing photo, there's a movie playing, but it's a movie that has three in the title, like The Three Amigos.
Oh my gosh. A real kind of open winking of defiance.
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Chapter 6: Why are realtors motivated to evade the new commission rules?
So this is pretty open and creative and perhaps legal flouting of this ruling and settlement. How much, Deborah, do you think that this represents real estate agents thinking to themselves, look, this is how we get paid? Our work is important to the process. We are essential.
And many people will tell you that they're, especially on the seller side broker, work their tush off, increase the value of their home. Maybe not everyone.
There's data that says that people who use real estate agents tend to get a higher price. There it is. There could be confounding variables to that data. Those people could have more money, could have higher priced homes. There's all sorts of things. But yes, there is a lot of data to back it up.
So isn't this the equivalent of agents creatively fighting to keep The equivalent of a waiter's 15% tip. It's like, it's what they need to live.
Yes, and it's important to understand this is not happening organically. In many, many ways, real estate agents are just doing what they've been told by the National Association of Realtors to survive in an industry that is cutthroat. Again, we're talking more agents than listings. There are not enough houses to go around. And agents do not work for companies. They're independent contractors.
They pay their own taxes. They split their commissions with their brokerages. For the people on the ground, this really is... a life or death moment for their career. So they feel we're being told we should have the conversations elsewhere.
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Chapter 7: What evidence is there that these workarounds are effective in maintaining commission levels?
And so they are.
Why would they not, right? It's their job. But if you talk to the legal team that argued the settlement, they would say sharing is caring unless we're talking about real estate commissions and then sharing is collusion. And the real losers are home sellers because the settlement was supposed to drive down prices.
Right. So how effective have the great workarounds that you're describing here been in preventing the reforms and reductions in price that we thought this settlement was going to usher in?
Initial data shows that these workarounds have been very effective at preventing the reforms. There have been a handful of studies in the real estate industry looking at how commissions may or may not have moved. The data is problematic because most of them are being carried out by people in the real estate industry, so they have a vested interest in the data.
That makes the data less than reliable for reporting processes. But one study by one real estate media company showed that in the months after the settlement, commissions dropped about half a percentage point across the board, which is a lot of money. It's not this watershed that we thought was going to happen, but it's something.
Two other studies, one was carried out by Redfin, which is also a brokerage, and one was carried out by a real estate accounting technology company, so they have a vested interest in this data, say commissions haven't moved at all. So the American home seller is not getting any relief at a time when they desperately need it.
So we can use that data, but we don't want to rely on it because of the conflict of interest. What is more telling are the conversations I've had reporting on this for the past year. I've talked to dozens and dozens of home sellers and buyers.
Right, the ones interacting most directly with the commissioners.
Yeah. So this is anecdotal data, but there's a lot of it. And they are all telling me that not only are there workarounds, they're more aggressive than ever and they're more frustrating than ever. Some sellers are so frustrated that they're saying, I'm just going to go it alone. I'm going to sell my house on my own and cut realtors totally out of the equation.
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Chapter 8: What challenges do home sellers face when trying to sell their homes without agents?
And I first became aware of him because a source sent me a video on Instagram that Mike had made.
All right, let's clear something up because from the first video, I think a lot of people assume I think realtors are useless. And the truth is I don't. But I do think that most drastically overvalue their services. And in Colorado specifically, they kind of operate like a cartel. So here's my take.
He created a handle called Realtors Hate Me, and he was chronicling the process of selling his house himself without an agent. Are you okay if I record our call? Yeah, that's fine. Okay. Fabulous. So I called him to find out what was going on, and he told me his story. Mike is a former professional athlete and entrepreneur.
I have no background in this whatsoever. I've been thrown into this, honestly. I didn't really think too much about the real estate industry until about four weeks ago when I decided that I wanted to list my house myself.
And Mike has a really nice house.
You know, I've got a great house. It's turnkey. It's in a desirable location in a desirable city.
It's worth probably about $2.75 million.
A really, really nice house.
Really nice house, turnkey, renovated.
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