Changes in Realtor Commissions

What’s going on with Realtor commissions and what does it mean? George G breaks it down and shares a three-step framework for how agents can start delivering more value!

Mar 21, 2024 | Blogs, Podcast

About the Episode

What’s going on with Realtor commissions and what does it mean? George G breaks it down and shares a three-step framework for how to deliver real value, how AI will impact the industry, and what changes to expect moving forward. We know you’re gonna love it. 

 

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Episode Transcript

Today, LIDAR today’s letter comes to us from little Steven little Steven writes, Dear George G. Dear George, do you would you rather would you rather go to a Bob Dylan concert or a flow rider concert? foof? Buddy, what a great question. Dylan or flow rider. I’m from Minnesota. So I have an affinity for Bob Dylan. And I’ve always loved flow rider, particularly the first time that I realized that flow rider says Florida, in the car sat on the radio mind blown. So appreciate the question. What a great question. If it’s today, I’m going to see my man flow rider, if it’s 48 years ago, I’m going to go see Robert Zimmerman, also known as Bob Dylan from Hibbing Minnesota, a short skip, and jump from my hometown of Duluth, Minnesota. So here’s the thing. The times they are always a change in, and it certainly does seem to be going down for real all the time. So thanks for the question. Little Steven, keep pulling on that thread. Because there’s big news out in the residential real estate world have you heard, have you heard about this, that the dream the American dream of home and home ownership is going to be changing? Not really necessarily, well, it’s gonna be changing for everybody really going to be changing. For real estate agent for agents for realtors, it’s going to change how they are compensated a big lawsuit, just got, I guess, closed, finalized, finished. And it’s going to be a big massive overhaul on how realtors are compensated, I’m not going to bore you with the nitty gritty details, because number one, I don’t want to get them wrong. And number two, I probably don’t understand them as well as other people might. But here’s what’s important. I’m going to talk about what’s important and more importantly, what that really means. Because I’m not just going to hash through news, I’m going to give you my thoughts and opinion very profound and thoughtful thoughts and opinions. So it used to be industry standard, talking about realtors, that when somebody bought a house, the buyer of the home would pay the sellers agent, so the person selling the home, they have a realtor, and I as the buyer have a realtor, I the buyer would pay the sellers agent, a 6% commission, which the seller’s agent would then take and split with the buyer’s agent. So if a $100,000 home was sold, the buyer in this example me would pay $6,000 6% to the seller’s agent, who would keep 3000 and then pay my agent, the buyer’s agent $3,000. Pretty straightforward. That being said, I don’t know if that ever made sense. Other than for the realtors? I don’t know that ever made sense in it appears that it’s just no longer going to be the case. But what will it be moving forward? What’s it going to be? That remains to be seen, but it just won’t be the way that it was? There was a great honor of his great there was a Wall Street Journal article on this. And there was a quote and it said that only agents that can show their true value will prevail in our industry, only agents that can show their true value will prevail. In our industry, a lot of powerful words there. It’s one heck of a quote. First, though, I feel like they’re telling on themselves a little bit. They’re saying that many agents haven’t been providing value. Shocking. Second, they’re only half right, the whole truth. The whole truth is that only some agents that can show true value will prevail. Certainly not all agents providing value will prevail. The actual truth. The truth is truth is that the dreaded often talked about AI robots are going to gobble up most of the industry. And the same way. It’s gobbling up many other industries, myself included. It’s going to finish the job AI is going to finish the job for many realtors, many agents that Zillow and many other real estate tech, real tech FinTech companies. It’s going to finish the job that many of us started. Am I wrong? I don’t know. Do you not think that there’s going to be or isn’t already in AI that can tell me within a certain geographical area. The number of four bed three bathroom homes with a pool walking distance to a park by an A rate Get Schooled in an area with very little crime without a homeowner’s insurance Association, within a mile of a grocery store. Within a certain price range, you’re telling me that that doesn’t already exist, that I can’t put in a list of different parameters. And it’s going to spit out the options for me, and be able to take me on a really nice virtual tour of it, and everything else and gather reviews of the area and testimonials and stuff like that, you’re telling me that that’s not going to exist? If it doesn’t? Okay, very well. Of course, there is, or there will be. And of course, the same phenomenon is going to be fun in my business, as it already is. That used to be that there were only active investment managers, only active portfolio managers. So as a human being, making decisions over which stocks and bonds to buy and when to buy them and all that stuff. Enter indexing index funds, the vanguards of the world, enter target date funds, robo advisors, and it’s put most active money managers out of business over the past 2025 years, the proof is in passive investing, eats the lunch kicks the crap out of out out of active managers, and those that are still hanging on are going to be put out of their misery by artificial intelligence in short order as well. Again, you think that it a super smart AI? Is it going to be able to make better, less emotionally biased investment decisions with all the information, computing it in a way that our brains can’t even fathom? Of course not. So it’s going to change everything, but in the context of this certainly certainly going to continue to disrupt, which is such a dumb word, it’s going to have a profoundly negative impact on the majority of real estate agents. So go back to the earlier quote on value, you’ve heard and you know that price is what you pay and value is what you get. Here’s something else. That’s true. Most people have no idea or had no idea how much they’re paying for things. If you’ve ever bought a home, you probably have no idea all the fees and the expenses or the Commission’s that your real estate agent or the other agents made on the deal. That goes for financial fees and commissions and, and everything else. I think that that’s a good thing. I think that the more transparency, we can get into how much everything costs, who’s getting paid what it’s going to go to motivations and behaviors, it’s going to change my motivations and my behaviors, as a professional as a consumer, and everything else. When I made the decision, I guess in I guess it doesn’t matter, like 15 years ago, to start working in the world of 401 K’s I did so because I started to learn about them. And the thing that really motivated me to get involved was that it was impossible to tell how much everything cost, it was just clear as mud. It was opaque. There was just fees and levels of expenses and comp going to the professionals and the financial company and the fund managers and everything else has like this is so gross. And what made it gross. What made it gross is that people were getting paid and doing nothing and doing nothing and just receiving just cashing checks. And it was at the expense of the of the investor. Like this is gross, this needs to change. And fortunately, a lot of transparency has happened in that space. So I think that I think that this is nothing but a good thing when it’s more transparent. And I’m sure that it’s I’m sure that it’s I’m sure nobody’s hiding anything. But I’m also sure that it’s not the most clear obvious thing who’s getting paid what’s in a real estate transaction, at least to the actual buyer and from from the seller could be wrong. I’m Ronald bought a lot of stuff but the financial industry has undergone a ton of changes in the way people are compensated and the way people make money. Yes, people still make commission people are still charging asset under management fees. But now people are charging hourly, they’re charging flat fees. People are doing just financial coaching as opposed to financial planning. It’s just industries are constantly changing and evolving. And the market is what dictates what is going to be successful and what is not. Right now we

are seeing that the market is sick and tired of this 6% getting charged and then split up in ways that it’s not super clear. So it’d be really interesting how real estate realtor compensation ends up shaking out but little Steven what I really want to talk to Out is value more specifically delivering actual value. So telling people you have to provide value is essentially telling somebody to just do it. But if they have no idea how to do it or to just do it, they’re not going to know how to go and provide value if it’s not something that they’ve ever done ever before, to expect them to all of a sudden start delivering value or to do something different than they’ve been doing is ridiculous, a fool’s errand, not going to work not going to happen. All those are true. So how does one actually go about providing value. And I’m talking to all my realtor, brothers and sisters out there my perspective on it, you have yours, I’m going to share with you mine. Step number one, know what the problem you are solving is, embrace it, internalize, understand everything about it. Step number two, know who it is that you’re solving this problem for. Step number three, understand the process, or how you solve that problem. So the answer is, I sell homes to people. And I go on the MLS, and then I take them to open houses, that’s not going to get the job done anymore. That is no longer not that it ever was providing value. It certainly was valuable. Back in the day, were the only person who had access to the MLS, the multiple listing service, so the only person that could see what houses were on the market or for sale, were realtors. So is that an access problem? It was an information problem, then it was a value. But you can’t keep that stuff to yourself forever. Try as you might. So just saying, I help people buy homes, I go through listings, and I show them homes, that’s not going to get the job done. You say? Well, I do more than that. Maybe you do. So number one is what’s the problem you help solve? So I help new families find and buy their first home. Great, that’s a hard problem these days. That’s a hard problem to solve. Why? Because home values have gone through the roof, that’s a bit of a pawn, interest rates are higher than they’ve ever been, just means the price or the cost of homeownership is way higher than it was five years ago, two years ago, a year ago. And then general inflation, everything’s more expensive. Therefore this process is a lot harder. So in that example, we answered both one and two, the problem you solve it, who you solve it for, because again, it’s helping new families find and buy their first home. So we’re killing two birds with one stone or feeding two birds with one. Stone. Nice. You like that one? I think it’s funny. So finally, how do you do it? This is the real question. This is the real question. This is where value lives or doesn’t live where it is absent. Remember, AI is going to do a lot of the heavy lifting for you. And if AI is doing a lot, a lot of the heavy lifting. What are you doing that is worthy of compensation. Now, I’m not a realtor. So I’m just guessing, but here goes nothing. First thing I would do would be to potentially tell them to wait to hold off on buying the house till interest rates go down, which I expect them to when well, not tomorrow, but maybe next year. So that means or maybe home values will go down. I don’t know. But it means you’re not going to get paid for a while. But that is value could be the right approach. Second, you could work with them with your buyer to help increase or improve their credit score. You could work with them to get more cash on hand to help them increase their emergency funds to save a larger downpayment. Next, you can educate them on the total costs of owning a home property insurance to homeowners insurance, property taxes, utilities, everything else, there’s a lot, then you could develop a process where you help clients to better understand their motivations for buying a home. Are they doing this out of FOMO or YOLO, or something like that, or even better, help them develop a larger plan and how the purchase of this home fits into that larger, larger plan. Now, I’m not telling you to become a financial adviser, I hear you. But this could involve with working with other professionals like financial professionals and insurance agents and accountants and attorneys. This is not rocket science. I’m not asking you to give them financial advice. I’m asking you to simply ask them questions and help them self discover and put this very, very, very important purchase into the context of their greater situation. Is this going to help them get to what they actually want? I don’t know the answer. don’t have that question. I wonder if you do I wonder if they do, which is why we asked the questions. Sounds like a lot of work. It is, you know another term for what that is? value. So, here’s another question. Is that even necessary? Do people really need this kind of help? Yes, yes, they do. There’s a new study by clever real estate said that 93% 93% of recent homebuyers 93% have regrets. have regrets about buying a home said that the majority of Americans think it’s a bad time to sell a home and an even worse time to buy a home. They found that more than half of homebuyers have felt in over their heads. Financially, almost two thirds have struggled to make mortgage payments on time. That means that nobody took these people through the process that I just outlined. On top of that, more than 25% claimed their overall financial situation and their debt burden have gotten worse since purchasing a home. So these people are now house poor. They’re in a terrible financial situation, because they made bad financial decisions. More than half of these people have taken on additional debt to maintain their lifestyle. So you made money you got paid, but you certainly didn’t provide any value you essentially fuck these people. So here’s some other things. Here’s some other findings 33% said that my quote my house requires too much maintenance or 30% I bought it too quickly. 20% I spent too much 28% interest rate too high. 26% I bought a fixer upper. 23% I was pressured to make an offer Cuf 22% I don’t like the location 21% I don’t like my neighbors 80% I bought it without seeing it 15% I don’t like my home. Oh my gosh. There’s a giant need. For professionals who can deliver value. There is a giant need for professionals who can deliver value. I’d like to say another word on professionals. There are way too many unprofessional Realtors way too many on professional realtors. There are way too many amateurs running around calling themselves uppercase Realtors that’s pretty funny by the way uppercase because it’s trademarked you’re gonna work in this space. Stop treating your business like a toy. Stop treating like a toy. Start acting like a professional. Go full time. Take it like you mean it. development process. Understand the problem you solve understand who you solve it for understand how you actually solve it. you’re well on your way. All right. Feel like a nail this one. Thanks again for the letter little Steven I appreciate it. Finally, finally, friendly reminder. Never gonna be anybody more interested in your financial success than you are. So my friend, act accordingly.

 

 

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