If you are curious how attorney Mike Ketchmark and his team were able to win a landmark $1.8 billion class-action lawsuit on price fixing against the National Association of Realtors, Keller Williams, and HomeServices of America, you're going to love this podcast episode.
This was truly a David vs. Goliath moment that will change the real estate industry forever. Both home buyers and home sellers should benefit from lower commissions thanks to this verdict.
On March 15, 2024, the National Association of Realtors (NAR) announced a settlement with groups of homesellers, culminating in the end of landmark antitrust lawsuits through a payment of $418 million in damages and the elimination of rules on commissions.
According to TD Cowen Insights, real estate commissions are projected to decrease by 25% to 50%. If the standard rate was 6%, this translates to an average real estate commission rate of between 3% to 4.5%, which seems more reasonable.
Misaligned Incentives When The Seller Pays The Buyer's Agent
As I wrote in my real estate collusion post, back in 2017, I couldn't believe I was paying a buyer's agent 2.5% while he was trying to hammer me down on my asking price. The commission incentive structure was misaligned.
But my selling agent argued we'd have a tougher time getting buyers if we didn't pay their agents 2.5%. Sounded sketchy to me! But I went with paying an overall 4.5% commission rate because my son was born in 2017 and I wanted to simplify life.
After the sale, I promised to not sell another property until commission rates dropped further. In addition, I ended up buying the next three properties via dual agency. Paying the buyers agent a 2.5% commission left such a bad taste in my mouth that I decided to basically represent myself and earn the 2.5% commission instead.
Please note the vast majority of real estate agents are honest, hard-working people. The ruling isn’t anindictment against real estate agents. It’s an indictment against the price fixing system to prevent market forces from working to lower commission rates for consumers.
Mike Ketchmark's Previous Cases
I have a newfound respect for lawyers who work on a contingency fee. Ketchmark and his team don't charge a thing unless their clients win. Can you imagine working on a case for years and spending millions of dollars only to lose? Talk about taking big risks for what you believe in!
Prior to the brokerage litigation, Ketchmark was best known for a 2002 case involving pharmacist Robert Courtney. Courtney diluted 98,000 chemotherapy prescriptions for over 4,200 cancer patients in the Kansas City area. Representing the victims, Ketchmark sued drugmakers Eli Lilly and others. He claimed they were negligent in not uncovering Courtney's scheme.
Ketchmark won a $2.2 billion civil judgment against the companies. However, they ultimately settled for just $72.1 million.
More recently, Ketchmark represented a Kansas City doctor who was awarded $26 million in 2021. The doctor claimed an ER staffing company had fired him after he raised concerns about patient safety. Specifically, he took issue with having just one doctor covering both the regular and pediatric ER departments at the hospital where he worked.
My Conversation With Attorney Mike Ketchmark
You can subscribe and listen to the episode on Apple, Spotify or wherever you listen to podcasts. Or you can also click the embedded player and leave a comment in this post about your thoughts.
Share The Episode If You Want To Help Put Downward Pressure On Real Estate Commissions
If you own a home and/or rental properties, I encourage you to share this episode with everyone you know. The more we can spread the word, the more pressure we will put on the real estate industry to properly align the commission structure.
If you plan to sell a house, simply ask for a lower commission rate after this landmark case. If the potential listing agent puts up a fight, which they will, have them listen to my episode with Mike Ketchmark.
If you plan to buy a house, ask your buyers agent for a rebate on their commission, especially if you found the place. If they push back on a rebate, make them listen to this episode! I got a rebate in 2005 when I closed on my house purchase.
Successful Negotiations Down In Real Estate Commissions
Since the landmark case, I've observed a few real estate brokers reducing their listing fees from 5% to 3.5% in 2024. The listing agent then offers the buyer's agent 1% or $10,000, whichever is greater. With the lower-than-normal supply of home sales, this decline in commission appears to be gaining traction within the industry to stimulate more business.
At 28, I didn't know better and let my real estate represent me and earn a 2.5% commission when I was the one who found the property and negotiated the price. My agent was out of town for a month. I probably could have saved at least $10,000 if I went the dual agency route. But at least I got a $3,000 rebate at closing.
Let's let market forces decide real estate commission pricing. Here are the implications of the NAR settlement on commission rates and home prices.
Ultimately, residential real estate owners and investors are now richer. Prospective homebuyers will likely also benefit too. Everybody wins, except for the buyer's agent who won't make as much. However, the buyer's agent will still get paid.
Finally, if you enjoyed the episode, I'd appreciate a review! It takes hours to interview and edit each episode for you. Subscribe so you never miss a new episode.
Show Notes On Busting The Real Estate Cartel With Mike Ketchmark
- The NAR made itself a 501(c)(6) not-for-profit corporation to avoid paying taxes (4:30)
- Steering is a process where real estate agents steer their clients away from homes where commissions aren’t high enough (13:39)
- The real estate industry uses scare tactics to get home sellers to pay the commission fee. Unlike buying and selling cars, the typical homeowner might only sell twice in their lifetimes (15:00)
- Real estate commission takes a massive amount of equity built up by homeowners (19:00)
- Agents train buyers to say their services are “free”
- Real estate brokerages and agents are earning both sides of the transaction
- The NAR and other real estate brokers are afraid buyers will pay buyers agents what it’s worth (22:20)
- Google “your state + housing development commission” to see what type of free money there is for first-time homebuyers in your state
- When Mike thinks real estate commissions will begin to materially come down (28:10)
- The power of the 7th Amendment in forming a jury of private citizens to stand up to the most powerful people in real estate (37:30)
- Where was the Department of Justice and the Anti-Trust department given this ruling? Did they fail us? (38:40)
- The economics of being a trial lawyer on a contingency fee (41:46)
- First bill from expert witnesses for $1.7 million (44:10), then you're pot committed
- The process of the law firm actually getting paid after a win (46:45)
- Working together as a family to keep each other going (48:57)
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Through my research I have found that 50% of the buyers never would have used a buyer’s agent if they would have had to pay out their own pocket close to 50 to 60% of them only went to them because they were told it was free
Getting rid of the compensation in the MLS was a great move because now Realtors cannot steer but why would they allow seller concessions in the MLS it’s the same thing they’re already starting the work around that my question is why can’t everything be a flat out negotiation why do there have to be tricks involved a straight out negotiation the best price plus the lowest commission wins the deal
Make no mistake Mr. Ketchmark, our industry is coming after you.
Prepare yourself for a counter suit for defamation of our industry.
What exactly are the defamation examples? The lawsuit was about not letting the free markets work as price collusion is illegal. How else does one explain how real estate commissions have stayed elevated at 5% – 6% for decades while ever other industry has seen a decline in commission rates?
Nice content. I’ve sold 3 homes myself and it was easier then selling a car. You can hire a lawyer to provide and look over documents at a cost that is much less than a real estate commission. There are companies that will provide the service of listing on the MLS, Zillow etc… for a very reasonable rate. Our latest purchase was handled by a buyers agent that did nothing other than fill out paperwork. We had one week to find a home. We flew to the new location and when we arrived out “agent” had 0 homes lined up for us to look at. During that time he claimed that he had some personal issues. We found the new home on our own, he filled out the paperwork and collected his 2.5%. If I had had more time I would have found another agent or simply worked with the sellers agent and had them pay me the 2.5% (which was ultimately coming out of my pocket in the first place).
I suggest asking for a rebate from the 2.5% commission he collected. I did this with one home where I found it and did all the work as he was on vacation that December 2004. If I knew better than, I would have negotiated the entire deal myself and did dual agency.
After paying his broker, he made ~$30,000 gross and then cut me a $3,000 check. I should have asked for more. Oh how naive I was. It was after that experience where I’ve done my best to negotiate down commission and/or purchase using dual agency.
That’s absolutely ridiculous because there is work on both sides of a transaction and you need to have the proper legal forms to a sale. The process and negotiations for repairs and understanding of those matters is something an experienced agent would know. One mistake can be a huge financial loss.
I’m absolutely amazed at these comments here. Literally, it’s unreal.
He did little work. He was on vacation when I found and negotiated the deal. We did a walk through inspection together and that’s it.
So yes, ridiculous that he earned $30,000 for maybe 5 hours of work total.
As a real estate agent, you have to adapt to the new ruling. The market is moving toward lower commission rates. But you can still benefit too.
Related: Why Residential Homeowners Are Suddenly Richer
Thank you for sharing the information. I, like many others, were unaware of the issues surrounding this lawsuit, and it’s importance to future generations.
Seems pretty hypocritical that those attorneys receive 33-40% commission on their cases while suing over 6% that gets split to 2 parties. A litigious culture, promotes by these types of attorneys, seems far more detrimental to economics than real estate commissions. Without these commissions how can we guarantee buyers will get competent representation and protection?
Exactly, thank you.
Who will take on the case and try and make a change otherwise?
The change is for the worse. Now the fees will be hidden and sellers can discriminate, allowing some buyers a commission payment and others none.
This only benefits flippers and sellers downsizing. First time homebuyers are out of luck. VA homebuyers are not ALLOWED to pay commission.
Lawyers will have an uptick in business though. 400-600 per hour.
How about the day when we quit having those attorneys?
Who’s going to be willing to fight for the consumer?
I’d say a good agent fights more than an attorney. Unless you work with them regularly, you wouldn’t know.
Thanks for all your comments. Are you a real estate agent?
I’ve never met a real estate agent who would fight to lower their commissions to help a home buyer save money. It is very rare.
My parents have rentals and I have previously done FSBO, subcontracting, etc – so it was common sense to get my license. Jack, I’ve never met anyone who wishes to work for less, yet I’ve been known to take an hour on Saturday to help a buyer with their questions, specifically strategy and home improvements.
That’s absolutely untrue. Agents help people get into homes or sell homes by lowering commission all the time. When do you see attorneys lower their hourly rates? Never ,
Hey Sam,
I have enjoyed your weekly news letter for years. First let me thank you for your time, effort, and thought you put into your newsletter. I have been a realtor for 13-years. I have sold homes for clients and for myself. I have real life experiences on both sides. In 2017 when you sold your house. That buyer’s agent could have showed those buyers 100 homes or 1 home. Either way that realtor took on the risk of working with no guaranteed outcome. Risk/reward compensation. You ever worked really hard on a project and didn’t get paid? You could say that’s not my problem that’s the profession they choose. I would argue consumers will be hurt by this thinking and buyer’s receiving a lack of representation. You could say the housing process could be automated. I think some of it can be. But I would argue out of all of the hundreds of homes I have sold. No two clients or house are alike. What I recognize is most home buyers are not as savvy as you. Most homeowner’s will be involved in a housing transaction 3-times in their lifetime.
Once they wrote an offer on your house. That realtor was part of your main objective. Selling your home. Now you can say you were paying someone to negotiate against you. I would argue you were paying someone to accomplish your primary objective selling your home. Similar to negotiating down commissions. You had the right to negotiate your windows concession or say no? But you did what you needed to do to accomplish your primary objective?
The DOJ objectives is to make housing more affordable and accessible to everyone. Now that most sellers will only pay for their listing agent. Are they going to allow the buyer’s to share in that savings by listing their home for less? In general sellers want to make the most the market is willing to offer. Thus the buyer’s are going to being paying something. Increasing the cost to homeownership and creating a greater barrier to entry for home buyers. Counter to one of the DOJs objective. Conversely a broker brought to my attention the flip side. Don’t let the housing market turn or you have a house sitting for a pro-long period of time. A buyer’s agent might ask the seller for 5% to 6%. If your house has been hard to sell would you say no?
Lastly, a little over a 1-year ago I was at an event where Jessica Lautz Deputy Chief Economist & Vice President of NAR was speaking. She was talking about the general state of the housing market and effects of COVID. At the end she says one thing she was looking at that was concerning is the lack of black home ownership. Fast forward black home ownership is at the lowest level since the 1960s 44% (graph attached). Compared to white homeownership at 72.7%. Now take into account the average realtor is a 54-year old white woman. Access to representation is already low and we just increased the cost of representation. I feel fairly confident in saying this disparity will only increase. It’s hard for me to see this being good for America in the long-term.
If you are already a home owner it’s a win. If you are trying to become a homeowner you just took a L. Thought’s?
Howdy! Good arguments and thanks for sharing your perspective. No doubt, a great real estate agent can provide a lot of value. The lawsuit is an an indictment against the hard work of individual real estate agents. It’s the entire business model of trying to keep the real estate commission as high as possible through collusion and controlling the market.
But the reality is, commission rates I’ve been heading to zero in every other industry that has a free market system. Lower commission rates are ultimately great for the consumer, because the consumer gets to keep more of the money in their pockets.
Let me ask you this. Why not work for free like me and find someone else to pay for your work? I haven’t charged you or anybody a dime to read my newsletters or posts for the past 15 years.
My other question to you is, as someone who appreciates my work, have you purchased Buy This Not That or How To Engineer Your Layoff? If not, how come?
I think the answer is the free market. Everybody want some thing for free nowadays or at least pay the least amount possible, and we all have to adapt accordingly.
But it’s not too late for you to support my work and pick up a copy of both of my books. I think you’ll enjoy them! Thanks
Many people rely on an agent’s income, and just as we wouldn’t berate a waitress being prohibited from making tip money, or a teacher getting free perks, I don’t understand the vitriol. An buyer agent doesn’t even receive the 2.5% – they split it with the broker and possibly another cut with zillow/realtor.com leads, ending up with as little as a 1-2k for small condos. Just before COVID, I made $800 on a transaction that took weeks. Perhaps you think that realtors are all Hollywood brokers, but that’s far from the truth. We answer calls on evenings, weekends and vacation. We pay for advertising, member fees, licensing, legal insurance, tech fees and associates that show homes for us while we are sick or away.
There are risks involved in selling real estate, and as many as 2% are victims of a crime. https://www.realestatenews.com/2023/07/29/agents-decoded-its-time-to-get-serious-about-agent-safety Additionally, agents are some of the most heavily regulated where even mentioning a church name, using words like “bachelor” or “family” can offend anyone and be a potential issue. Contracts must be accurate with no room for mistakes, discussions measured and legal timelines must be honored.
So I suppose what shocks me is the unmeasured disgust that I read, because in reality, the only one making out is Mr. Ketchmark – and kudos to him, but his win is going to hurt many, especially first time homebuyers. Trust me, no one ever lowers their price because they aren’t paying commission. It will be interesting to see the tables turn when it becomes a buyer’s market and incentives will get you a faster sale.
The verdict isn’t an indictment against real estate agents and their work. It’s an indictment against the real estate industry which participated in price fixing to keep real estate commissions high.
How is it that commission rates and fees have declined in practically every industry except for the real estate industry? This is a win for the consumer and so far, the only people against the verdict are real estate agents, real estate brokerages, and the NAR.
I can write an essay on this, or you can take a few minutes to listen to an interview https://www.youtube.com/watch?v=4KMJDQ9gPWE, where I listed excerpts below. The only counter argument I can see is dual agency – in a buyer’s market, the listing agent is more likely to participate if the home isn’t selling, but then it would be easier to just offer a buyer agent commission/buyer concessions to get more exposure, activity and subsequently, better offers. There’s a reason it’s illegal in some states.
It’s best to listen to the whole episode, but in the interest of saving time, here are the clips:
2:23 – 5:50 representation for first time home buyers (FHA, VA); evolution of case & transparency
7:03 – 9:58 consumer behavior, complexity of changes
14:22 – 17:15 dual agency; collusion accusations
25:21 – 28:39 fee for service; effect on home prices; inflation
Great perspective. I am not a realtor myself, my wife is. I certainly have some bias after seeing how committed and dedicated my wife has been for her client.
There is a huge difference between user centered realtor vs. salesman like real estate professional.
I get to see how hard my wife works and the relationship/network she uses to help client get reasonable deal. For example, she recently helped one of her clients to find an off market property that fits the family need very well. The appraisal came out about 100k/200k over the offer, which easily offset the commission. I honestly don’t think that the client would be able to find it on their own or even with some other realtors. She offered the perspective on the strategy, had regular meetings with the client after 10pm due to their busy schedule, etc.
I’ve also seen her working through last Christmas and New Year to literally serve her client as a personal assistant, purchase/coordinate carpet installation, meet with contractors for estimate of repairs, etc. I had to complain to her about taking some time off during the holidays.
With the above said, I’ve used realtor back in early 2010s that wasn’t worth the commission and, still to date, felt that they didn’t add as much value in relationship to the commission they earned.
Like many things, there are always 2 sides of the opinion, and a lot of our opinions are based our past experience.
Very true, and thanks for sharing your perspective. No doubt, a great real estate agent can provide a lot of value. The lawsuit is an an indictment against the hard work of individual real estate agents. It’s the entire business model of trying to keep the real estate commission as high as possible through collusion and controlling the market.
But the reality is, commission rates I’ve been heading to zero in every other industry that has a free market system. Lower commission rates are ultimately great for the consumer, because the consumer gets to keep more of the money in their pockets
Please explain the benefit to first time home buyers that get taken advantage of? Commission rates have gone done, and there ARE discount brokers.
As a very hard-working Realtor in the Bay Area, this is an extremely one-sided post. For starters, the MLS that I’m a member of has ALWAYS allowed commissions to be negotiated by the seller. In fact, it’s a part of the listing agreement that a seller must review and sign. Secondly, 6% has not been the norm in Northern CA for many, many years. 5% is the norm which is then typically split equally between the listing broker and buyer’s broker. So let’s get the facts straight. Thirdly, Sam you have mentioned many times that you worked so hard at Goldman Sachs working 60-hour work weeks and how difficult that was to maintain and how sick it made you. I can assure you, I easily put in that much time and work 7 days/week. If I were to calculate the hours I put in for a deal, I’m probably close to minimum wage. In addition, real estate transactions in CA are extremely complicated and require vast knowledge and care to avoid potential lawsuits later. There are tons of disclosure requirements, inspections to be ordered an evaluated, an enormous amount of paperwork that has to be understood and explained, hand holding, emotional support providing, talking to half their family members and listening to all their opinions, negotiator, etc. Unless you are in the industry, you likely have no idea about everything that transpires behind the scenes between the buyer’s agent, seller’s agent, buyer’s transaction coordinator, seller’s transaction coordinator, the title officer, the title officer’s assistant, the lender, the lender’s assistant, and so on. I don’t let on to all that info to my clients because I know they would be overwhelmed and the process of buying & selling real estate is already extremely overwhelming to most people. The other problem is the lame real estate shows like Selling Sunset, Buying Beverly Hills, Million Dollar Listing and the like that make it look so easy and effortless, getting rich overnight. That’s NOT reality and, frankly, bad for our industry. On another note, if sellers don’t think real estate agents are worth their cost, they have always had the option of selling it themselves as For Sale By Owners. You can go to Zillow and list your property yourself. I personally would never recommend it knowing what I know about the complicated nature of selling a home here. You can miss one little detail in the sale and next thing you know, the buyer comes back and sues you. It happens often, even with representation. It will definitely happen more with no representation. I also don’t think taking the option away from a seller to pay a buyer’s agent is good for them. It’s restrictive and many sellers believe it the power of marketing their property. If a seller wants to discount commissions, the agents willing the list the home will be the bottom-of-the-barrel agents who are desperate and do crappy work. I’ve seen it. When you are selling or buying the most expensive thing in your life, you should consider that YOU GET WHAT YOU PAY FOR. Now I admit, there are some really shoddy agents out there that don’t sell much, don’t bother to educate themselves and/or are lazy who really don’t deserve to make 2.5%. I think the better option is to make it much harder to get a license and to renew it. It’s way too easy and that has hurt the industry with the flood of lackluster agents. I also think it is a better option to simply put a ceiling on commissions for a transaction. For example, if an agent lands a $20k listing that sells in a week or two, I’m not sure it’s worth paying $1M in commissions. It should be capped. And another thing, you said most buyers can find properties themselves online…..that’s because you don’t realize that MANY homes aren’t even listed on MLSs and, therefore, never populate to public websites like Zillow. The only way to know about these homes is through an agent’s network. I get emails daily about local listings that are OFF MARKET. Don’t want to pay an agent, then you won’t ever know about these properties. Trust me, it’s becoming more and more common to simply sell off market through a real estate agent. In a nutshell, I think that if home sellers and buyers want to pay less, they will get less service. It’s like, do you want to go to a discount eye doctor for surgery or a discount attorney? I don’t. Buying & selling a home is usually the biggest transaction in your life, don’t be cheap. /Users/heidi1/Desktop/Screenshot 2024-03-16 at 12.03.04 PM.png
I love your response. As a hard working agent in Pennsylvania, I completely agree. If you’ve never been a real estate agent, your opinion doesn’t amount to anything.
Agreed Natalie. Everyone is making real estate agents out to be crooked and corrupt. It’s a blanket misjudgment and it’s wrong. The only people who are going to win in the end are the attorneys who are basically winning the lottery. Nobody else will win. Homes won’t suddenly become affordable and buyer’s agents will still get paid, most likely through concessions made from the seller in the offer. It’s just a waste of time and has villainized the industry.
I hope this is not the case. There are plenty of hard-working and honest real estate agents. The vast majority are.
The verdict is against the commission structure, which has not faced a free market like practically every commission based business.
Consumers have always had the option of using lower commission agents. Redfin is the perfect example. They have always offer both buyers and sellers commission rebates. Did you use a Redfin agent for your own real estate deals? If not, why not? I can tell you that Redfin’s share of the market is abysmal. Want to know why? Because their service is extremely sub par. They put little effort into the process and everyone is just a transaction, not a relationship. Everyone has the option of going that route but most people don’t. As I said previously, you get what you pay for. Most people are willing to pay 5% on the most important transaction of their lives in order to feel confident that they are being well cared for and have the best possible representation. It’s a very complicated transaction involving many different parties and a lot can go wrong. You can also use discount brokers like homecoin. But I bet you wouldn’t use them. They are crap. That’s why nobody uses them. All this does is hurt buyers because now they will be required to sign an agreement with an agent promising they get paid in order to see homes. If they want a home that the seller refuses to offer buyer agent compensation, the buyer will be on the hook for the commission. They are already facing high interest rates, high home prices, and a decades-long lack of inventory. Let’s make it harder for them! And that means you, in your next purchase too. Don’t let the greedy attorneys’ spin control you. You should know better. They have one goal in mind, a big payout. You seem so invested in their arguments yet you don’t seem to be too interested in the other side of the story. It’s perplexing.
What’s perplexing is that the only people complaining about this court ruling are real estate agents. Why do you think that is?
Homeowners and home sellers are rejoicing. Homebuyers will have to figure out what a home buyers agent is worth and pay accordingly.
I have cut out a buyer’s agent for my last three purchases where everybody won.
See: Dual Agency And Why Some Real Estate Agents Hate It
I can see why you would cut out a buyer’s agent. You are more knowledgeable about the process than most homeowners and buyers. You have stated many times that you feel real estate is the best investment and you have invested a great deal of time understanding the process and you have obviously bought and sold more real estate than the average person. The average person buys a home every 10 years. But in my area, that’s a much larger number. Most of my neighbors haven’t bought a home in 50+ years. They would have no idea where to start in selling their homes right now. Proper representation is important. Dual agency can be a detriment if you aren’t savvy. The listing agent’s primary fiduciary duty is to the seller. That’s who they have a contract with. That’s who they are supposed to make the most profitable. The buyer who uses that person in a transaction is at risk of getting a bum deal. That’s not what most homeowners should do. The negotiations will definitely be tilted toward the person they contracted with in the first place and the buyer could ultimately pay too much or end up with lousy terms. I would suppose if you were willing to provide all your expertise to a buyer who is less knowledgeable, then they would be ok. But then again, you would want to be compensated for that, right???
I believe the buyers agent is very useful, especially to first time homebuyers and buyers who have not been in the market for decades. Nobody is disputing this. It will just be a different way of paying them. One fee structure example I highlight in my post on the NAR settlement.
The other point I make in the NAR settlement post is that listing agents cannot lie or mislead intentionally. So when you talk about buyers getting burned, you are also implying the listing agent is going to try and hoodwink buyers into paying for problem homes.
So ironically, if you believe your industry is full of shady real estate agents, then, yes, a buyers agent is very important. But if you believe your industry is full of honest real estate agents, then the need for a buyers agent is not as high.
What do you believe?
I say you have to learn to adapt or you perish.
Sam, please don’t put words in my mouth. I certainly didn’t say that I believe the industry is “full of shady real estate agents.” That was a sweeping generalization on your part. My point is, would you hire an attorney to represent you in a case that you knew was also representing the person you are suing? I’m guessing not. It’s a big conflict of interest. The same holds true for an agent representing both buyer and seller. How can you act in the best interest of both parties at the same time? It’s virtually impossible. My husband and I rarely double end deals except in rare and unusual cases. Most buyers working with an agent chose them because they know and trust them, or someone they trust recommended them. When you go straight to a random listing agent you don’t know from Adam, do you really expect them to fight the most for you versus the person who chose them to list their home and signed a contract with them? People are human and what is being asked of a dual agent is difficult at best. That’s just reality whether people agree with it or not. You are talking about your biggest asset. Don’t you want the best representation? Here’s how I see it….you can pay $20 for a substandard Supercuts haircut or pay $40 for a salon quality cut. Either way, at least a bad haircut will grow out in a month or two but a bad real estate transaction can harm you for years to come. GREAT SERVICE IS EXPENSIVE, BAD SERVICE CAN COST A FORTUNE. Let me reiterate what I’m trying to explain: Representation: The listing agent represents the seller’s interests. Their primary goal is to sell the property at the highest possible price for their client. Having your own agent ensures you have someone advocating solely for your interests throughout the buying process. By the way, this doesn’t imply the listing agent is lying to the buyer.
Negotiation: Real estate transactions involve negotiation. Your own agent can negotiate on your behalf to secure the best possible price and terms for you. Without representation, you may be at a disadvantage in negotiations, as the listing agent is duty-bound to prioritize the seller’s interests.
Access to Listings: While it’s true that you can browse listings online, your agent will likely have access to properties not listed or have insider knowledge about upcoming listings. They can help you find properties that meet your criteria more efficiently. Like I said before, I get emails from agents daily about off-market properties. Without a buyer’s agent, you won’t know about them or have an opportunity to compete for them.
Market Expertise: A buyer’s agent typically has a deep understanding of the local market conditions, trends, and pricing. They can provide valuable insights to help you make informed decisions about which properties to pursue and what a fair market value is for a given property. By the way, dual agency is illegal in many states and may soon become illegal in CA. So then what will you do?
Hi Sam,
Just wanted to reach out regarding the NAR settlement. I’m not sure how familiar you are with UK (or European) real estate but I see the US shifting towards this model. When I moved to London and bought a home, I had no agent, instead there is only one agent in the whole process and they technically represent the seller. In total commissions are often 1-1.5% which is inanely cheap compared to America. The entire time I felt it reflected a truer home price (not inflated by 6%) and never felt that dealing directly with sales agent put me at a disadvantage at any point (I’m also in a sales leadership role so very comfortable negotiating).
Ha there are loads of other issues in U.K. with real estate but this I feel they got right! Let’s see if it does have a correlated impact on real estate prices in the future. I feel the homeowners will stay high with their asking prices and just pocket this difference (which is better than creating a substandard industry of real estate agents).
Great work as always and love seeing you get all this press!
Loyal reader – Chris.
Chris, would you say the average citizen in the UK earns less overall ceteris parabis? All things being equal?
Impressive up-to-date information from a first-hand source.
As a licensed real estate appraiser I was licensed to tell the truth but increasingly hired to lie about condition and value. Over time I increasingly lost business since my truth-telling sometimes killed deals. Because of that, after 20 years I had to close my business. That was in 2006. Then I did about 1000 new construction pay-out inspections for banks, gathering information on materials, suppliers, subs, and budgets while also taking 1000’s of instructive photos along the way. That prepared me when I became a builder with GC and HVAC licenses. I built one house then the housing crash… but by then I was already becoming an expert in what became code ten years later – building envelope standards. I currently run an energy efficiency contracting company (commercial, multi-family, residential) but I’m getting too old for that physical work and planned on finally starting to help people buy their home starting in 2024. (I have held a managing broker license for over ten years but never used it outside of family and friends.) Over the years I met many so-called “real estate professionals” who are primarily sales people who know people much more than they know real estate and I wanted to add value to that profession while profiting from my years of knowledge and experience. This ruling appears to begin to set right an industry that I have long considered to be fiscally bloated and unnecessarily tied to one trade organization but as a current outsider to the actual necessities of professionally assisting home buyers and sellers I know that I am unaware of what will be necessary to protect buyers and sellers going forward. Certainly more flexibility regarding negotiating fees is a big plus but a race to the bottom could harm a lot of new buyers and sellers.
The Appraisal Institute, also located in Chicago, used to primarily be the sole credentialing entity that banks trusted. When states started to require real estate appraisal licenses (and other developments) and banks decoupled their reliance on Appraisal Institute designations, the professional standards of the industry were corrupted. For instance, in Illinois, when the appraisal division was put under the authority of the banking division the budget for investigating appraisal fraud was slashed. It was a race to the bottom and we all suffered for it. However, the Appraisal Institute is not the NAR. It has always maintained professional standards. There is a societal benefit to maintaining non-governmental trade organizations that uphold professional standards. I doubt that the NAR can ever lift that banner, especially after this ruling.
BTW, Mike Ketchmark, the way to change the perception of class action lawyers is to lower your own commission to a reasonable percent. ( 36:40 & 36:55 ) What you, your team and the jury did here is laudable and definitely will boost the public’s perception of your field but simply and willingly and voluntarily lowering your commission will do much much more.
So should I proceed to become a buyer’s broker? I will. People need help on that journey.
Sam,
Thank you for posting this incredible interview! The real estate industry has had a stranglehold over the MLS and the home selling/buying process for way too long. It’s a monopoly, and it’s illegal.
What can homeowners do now to help change the current system? I plan on selling my home in the next several years. Listing a home in the local MLS is the #1 marketing tool. A listing agreement with a Realtor is required for our home to be listed in our local MLS, with compensation given to both the listing agent and buyer’s agent. When selling my home, I can negotiate down the listing side but must keep the buyer’s side at 2.5% – 3% or real estate agents will steer buyers away from my property. Hopefully, decoupling of commissions will happen, but there is no guarantee that this will happen anytime soon. Any thoughts?
Contrary to Mike Ketchmark’s comment at 20:36, not every house on Zillow is part of the NAR commission structure. It’s not easy to find them but Zillow does allow FSBO properties to be listed. For your situation you could go that route and deal directly with the general public. I don’t know how effective a FSBO listing on Zillow would be but the more your home is EASILY comparable to other houses (a common model home, one of thousands of homes built by the same builder) the easier it would be for a buyer to not need the assistance of a real estate agent.
But the general public does not pre-qualify themselves. That means lots of unqualified interest and therefore a waste of your time. (I went through that with a rental listing of a unique house I own. 90 showings to people that had no intention of renting.)
One thing not mentioned yet on this whole topic is the financial benefit, to the general home-buying public, of, essentially, mortgaging 80% of the cost of paying for realtors to assist you, the buyer, in finding the house (listing commission) and acquiring the house (buyer’s agent’s commission). You might think, like I do, that mortgaging that commission is insane but that type of thinking is what the general public does when it pays a premium for an already renovated house. Most buyers think, I can’t afford to buy a house (20% down /80% mortgaged) and then ALSO afford to fix it up (100% down/0% mortgaged) like I want to so I will buy a house that is already good to go (house plus renovations both lumped into the 20/80) and that route only raises my monthly payment by $x. So, essentially, the decoupling of the buyer’s agent’s commission from the transaction will raise the cash-on-hand necessities of the general buying public. For housing sectors typically purchased by cash-strapped people that scenario will diminish property values since their down payment will then need to be lowered in order to pay for their broker.
This will take some time to unwind itself and then to realign itself into a sustainable alternative. Your best bet might be to go to a very very large brokerage that might have a buyer already in place. When you list with them then perhaps they would be more willing to negotiate sales commissions more in line with your expectations.
If you sell and pay 2.5%, then upgrade, are you going to use the seller agent? Just curious.
Great interview – hope he goes after the medical industry next
The NAR says this lawsuit will have little to no effect. While they can drag the (initial) lawsuit out, eventually there will be a power shift from the realtors to the American people, which is exactly what the realtor companies don’t want. Normal market forces being exempted is no longer.
I wouldn’t expect the NAR to say anything less. They have to, to protect their position.
From Ketchmark in the interview: “I wouldn’t be filing cases and spending money and doing things like that unless I believe in them … isn’t that the essence of the free market? If you have somebody like me and my team willing to invest their time and money and effort into this, hoping that we can prevail at trial, then we’re going to work harder to get the story across and put the best case forward. Thats the economics of it” “The goal is to refund the money, to give the money back to the people it was taken from”.
Interesting and enlightening statements by Ketchmark. Can’t wait to see how much these homeowners actually get, vs how much Ketchmark gets paid. He goes on to claim that he has a 30 Million LOC that needs to be paid back, I call BS on that.
Setting the obvious hypocrisy aside (what’s Ketchmarks fee % again?), it’s pretty difficult for me to understand how someone can voluntarily hire someone to perform a service, agree on their fee, receive the service, and then afterwards claim they were duped. Sell it yourself! For sale by owner isn’t a new concept. Neither are discount brokers. Nobody is putting a gun to these people’s heads. Even in the comments below I read words like “bullied”. Where are all these people that got bullied to hire a real estate agent?? Don’t want to pay an agent, great! There are options for you, more now than ever before.
The vast majority of Real Estate agents, contrary to Ketchmark’s statements, aren’t criminal masterminds or conspirators. They’re moms and dads, sons and daughters. They perform a service and get paid because the market deems that service valuable. Every industry has it’s bad actors, I’m not in any way proclaiming that RE is immune to that. And I can also say that the barrier to entry is very low and there are a lot of people with Real Estate licenses that have no business representing anyone. But thats a licensure problem not a commission problem. Make it harder to get a RE license, fine. There is also an 80% failure rate over 4 years so those people eventually find their own way out anyway.
Sometimes, people hire an agent who is willing to do the same work for less money, and usually that ends up biting them in the ass because in all things you get what you pay for.
The verdict in this case isn’t likely to change what the market is willing to pay for a top agent, because it’s market driven. It’s the same reason why someone will hire me at full freight even though they just met with an agent who charges less. It’s a value conversation. I can show people why it benefits them to hire me vs the competition. This verdict may add a few more documents and disclosures to the process, at most. But for argument sake let’s say it does change the gross fee. Let’s imagine a world where agents don’t charge 6%, they charge the 1.5% Ketchmark claims is standard in the rest of the world (interesting theory, did they collude to come up with that worldwide number?). The best agents (read: salespeople) will not sell Real Estate in that world, they’ll simply find something else to sell where they can make the money they deserve. Good salespeople are essential to every business. Ideas are a dime a dozen, but every good idea needs a great salesperson. Thats why most businesses (and real estate agents) fail, because the entrepreneur didn’t realize that he/she had to also be a salesman. So what’s left in that Real Estate world is the bottom of the barrel. Tell me who the winners and losers are in that world? The agents who used to earn good money in Real Estate and now earn good money in literally any other industry? Or consumers who are stuck choosing from a pool of agents who aren’t good enough salespeople to earn their keep elsewhere? And lets not forget about the vast majority of home buyers who cant afford to pay their own agent out of pocket. But Michael says that those people don’t deserve to be homeowners because they “cant afford it”, while going on to talk about free government money to help these same people buy homes. IF buyers end up having to pay their own agents, that will set Real Estate back to pre fair-housing era conditions as it creates a brand new barrier to entry for the lower middle class that the wealthy won’t even bat an eye over.
SO many holes in his logic throughout this interview that got zero pushback by the interviewer.
Thanks for your feedback. Are you a real estate agent or brokerage owner? It helps to get each reader’s background for better context. Thanks
Chris,
Your comments are informative, relevant and obviously based on a lot of real-world experience. They provide necessary counter-points and clarifications to the information presented in the interview. I wish you would have also spoken to what aspects of the case’s outcome you agree with, for instance, possibly, collusion on commissions. Some of the market forces on competition have been throttled over the decades in a way that is not in the public’s general interest. But other than that, I really appreciate your informed and experienced perspective.
If you were a seller, would you lower your price?
Love it. Can’t believe it has taken this long. Look hiring a person to help sell your house is a short term limited contract similar to having someone do a landscaping job or installing a pool. It is a fixed rate per hour work or per job for a set dollar amount. If you install a pool do you sign a contract for 1% of your home price??! Forget about percentages, just go with a flat fee for a set dollar amount.
I agree. Competitive market rate flat fees make sense for both the buyer and the seller, as offered for almost every other service out there. Percentages just don’t make sense, especially if they are being bullied as a need to seem or keep to a standard. If someone say lives in a luxury neighborhood, and feel they want special add-ons to that flat fee (such as a particular tier of various flat fee options), then they can pay for those add-ons or desired tier. Or anyone else for that matter. Buyers can pay also pay for whatever add-ons or tier package they need based on their comfort, or not pay for by relying on technology available today. Pay for only what for you want, don’t use percentages, and make it more of a competitive market by letting normal market forces play out as is life.
Except for the fact that if your house doesn’t sell the agent gets ZERO. You willing to pay an agreed upon amount up front, regardless of whether the home sells or not? How about a $/hr fee for time spent, whether the home sells or not? I know plenty of agents who would be happy to take either scenario. Pretty sure your pool installer or landscaper doesn’t work on contingency… not the same at all.
Chris, (I am just trying to walk these ideas forward, not oppose you.) There are two separate issues here: 1) fixed fee vs. percentage and 2) sale-only renumeration. Fees could be fixed to approximate any percent of the final sales price. They would likely appear to be too high at first but that route would provide more transparency. (Under that scenario most current real estate salespeople would find a different product to sell.) On point two, this business sector routinely offers free photography, free marketing, free financial consultation, free security (showings), free staging (I am unsure if this is free initially) and free referrals (title, mortgage, lawyer, handyman) with payments only becoming a contractual obligation if the product sells. Kind of crazy but I suppose it is like auto sales, clothing stores, Home Depot, etc. except that this product is worth 10 to 100,000 times more. While the marketing and professional costs are similarly high they are not similarly high to the same degree. Nevertheless, because of the high dollar sales-related cost I can see why it is best for everyone to tie that payment to the residual value of the property.
If a pool installer couldn’t easily guarantee you a pool, like a sales agent can’t guarantee a seller a sale, then the wannabe pool owner should tie the completion of the project to at least a very sizable portion of the cost. So I agree, not the same at all.
In your analogy of hiring a Contractor to install a pool, or do any other work on your home, then you are paying for it in a COST PLUS model, but just don’t realize it. A Contractor determines material costs and labor costs and then adds a % profit margin to it. You, the customer, end up with a flat rate price with the 25 – 50% profit margin baked in.
The % margin they are including will be based primarily on how bad they want/need your business. If they are desperate for business a.k.a. a brand new contractor or a terrible contractor that cant; get work, then they may only add in 15% margin. If they have a fantastic reputation and do some of the best work in the area, they may be adding in 40-50% margin.
Now take this model to Real Estate. If you want a flat rate from a low cost brokerage, you are going to get what you pay for. You may get unexperienced Agents trying to build a name and contact list, or someone who doesn’t mind making around $18/hour when the work is done, because they look at it as better than driving for Uber. But you are not going to get the experienced agent who knows how to negotiate, how to write effective contracts, or how to manage the problems that arise during transactions.
Full disclosure – my wife and I own a real estate brokerage in FL.
That being said, there’s an absolutely ridiculous amount of real estate agents in FL as you’d imagine. A large percentage of them never actually have a sale except maybe a one off for a family member/friend/etc. Most have no idea how to do their actual job much less run a business due to inadequate training…. usually from the big players in the industry.
I could care less where commissions end up because there will always be a way, in my opinion, in which value will he compensated. IE. Mike, i’m sure despite not guarantees, he’s over 2.5%
Point is, if you want to last and do your job as a professional, you can spend potentially thousands on marketing, staging, open houses etc. especially if it’s in tough shape or a tough sell to begin with. You are also able to maximize value for your buyer/seller by negotiating the right elements of the deal not necessarily just price.
I would like to think the majority of folks buying/selling would prefer to have someone working on their behalf that is competent correct? Not simply the discount, uneducated, unexperienced agent taking 1%?
Anyway, a lot more complex imo than is being eluded to. I’m sure selling sunset has done a lot of good for our industry…
True. No doubt a lot of work can be involved in selling or buying a home. Some agents take years to find a property for a buyer and close.
The hope is that we let normal market forces determine real estate commission prices, not an oligopoly or monopoly. That’s what’s happen with the entire private sector.
Also, as you will hear in the podcast, Mike and team didn’t go after local brokerages. It went after the larger, national brokerages like HomeServices of America which has been methodically acquiring local brokerages to better control real estate commission prices.
Absolutely love that point and couldn’t agree more! Normal market forces will absolutely help, hopefully it’s negotiated more transparently. I suspect lending will have a role to play especially w/ VA & FHA but excited for change and being a smaller boutique we like to think we’re pretty nimble.
I think I caught some of our agents off guard suggesting this would thin the ranks more and welcomed it lol, but it’s the truth. I’ve followed your blog for years and there’s no question you’d handle transactions / negotiations better than most. There definitely needs to be considerably more training and education imo.
Totally agree, they were quite literally teaching/suggesting those talking points regarding “free buyers agent” – but I still think it’s funny how much the attorneys make so I had to throw it in there lol.
We get hounded by all those guys constantly to sell, never gonna happen… There’s no value there, we’re plugged in locally and our agents are educated and professional. Not to mention the revolving door of agents they capitalize on for their first and potentially only deal etc.
Absolutely fascinating interview and wow what a win! It’s so true that because people may only sell one or two homes their entire lives that this price fixing commission debacle has been able to go on for so long.
Technology has changed every other industry. And the US is the only country still doing things in such an archaic way?! It’s time for change in real estate and to lower costs!