This is a free Financial Samurai newsletter that was published on March 18, 2024. Every week, I come out with a free weekly newsletter to help readers achieve financial freedom sooner rather than later. Join 65,000 other readers and subscribe here. This way, you'll never miss a thing.
Financial Samurai began in July 2009 and is the leading personal finance website today with over 1 million organic pageviews a month. Everything is written based off firsthand experience because money is too important to be left up to pontification.
Sam is the pioneer of the modern-day FIRE movement. He attended The College of William & Mary for undergrad, got his MBA from UC Berkeley, and worked at Goldman Sachs and Credit Suisse for 13 years until he retired in 2012 at age 34. Sam is one of the rare personal finance writers who actually has the background and experience in finance.
You can learn more about Sam Dogen by clicking his About page.
Financial Samurai Newsletter: NAR Settlement, Sacrifices For FIRE, And Why We're Gloomy
Dear Financial Samurais,
The most significant news of the week broke on Friday when 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.
I urge you to read and listen to my podcast with Mike Ketchmark, the lead trial attorney for the lawsuit, to understand the stakes involved. Although the NAR does not admit to any price fixing or collusion, the settlement agreement is a victory for both buyers and sellers of residential real estate moving forward.
The agreement will fundamentally alter the current homebuying and selling business model, where sellers pay both their broker and a buyer’s broker, which I believe was fundamentally misaligned. In my own experience selling a house in 2017, I encountered challenges during escrow regarding a $25,000 concession to repair some rear windows.
I couldn't help but question why I was paying a 2.5% commission to the buyer's agent, who was hammering me down on price for his client. 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.
Real Estate Commissions Were Already Coming Down Before The NAR Settlement
Even before this settlement, this year, I have already seen instances of a 3.5% total commission being paid by the seller. For instance, to sell my old house, one husband and wife team offered to earn a 1% commission while paying the buyer's agent 2.5%.
While I initially found this arrangement unfair to them, they were content with compensating the buyer's agent more. This uneven split highlighted to me the significance of financial incentives in motivating buyer's agents to promote listings favorably to their clients, a rather disheartening reality given that most buyers discover listings online themselves.
Regardless, real estate commissions are finally poised to see substantial decreases nationwide. If you intend to sell, I strongly recommend negotiating for a lower commission rate post-settlement.
The other implication of this settlement is that it is bullish for home prices. Firms such as Zillow and Redfin were down 13.5% and 5% on Friday, respectively. Their financial loss is the consumer's financial gain.
Here's a detailed post regarding the NAR settlement and why I believe real estate commissions will come down significantly and home prices will see a boost.
The Sacrifices We Make Today Will Be Worth It Tomorrow
One of the most common questions I receive from reporters during interviews is whether I made significant sacrifices to achieve financial independence early.
My response remains consistent – yes, I made sacrifices. I dedicated myself to working an average of 60+ hours a week from age 22 until 34. This demanding schedule left me with limited time and energy for socializing or indulging in extravagant spending.
However, truth be told, I never really cared much for spending $100 on drinks in NYC or San Francisco during my younger years. I had my fill of partying back in my College of William & Mary days with Milwaukee's Best beer.
Growing up in a household with modest means, I was more inclined to save and invest as much as possible, especially after four years of scraping by on little-to-no income in college. Delaying gratification is a crucial aspect of the FIRE journey. Yet, as you reach middle age, this delay becomes more challenging as time dwindles.
Everybody Is On A Timeline
Female readers sometimes mention their “biological clock” when discussing parenthood. Well, I feel a similar urgency with what I call a “provider's clock” once children enter the picture.
I have a limited 18-year window to ensure they have the best upbringing possible and to cherish the time spent with them before they embark on their own journeys.
In July 2023, I felt the weight of this provider's clock when faced with the decision to either secure the forever home we now live in or wait another 2.3 years until the seller's daughter graduated high school. The seller planned to move back in with his daughter if we could not come to an agreement.
Waiting 2.3 years in my 20s or 30s wouldn't have been an issue. However, waiting that long with a three-year-old daughter represents a 77% increase in her age and a 38% increase in age for a six-year-old son.
After putting our lives on hold during the heart of the pandemic, I wasn't willing to delay any longer in buying a nicer home. For those who have been able to hold out and enjoy more gains in the stock market as a result, I applaud you. I simply couldn't risk missing out on the opportunity to secure the home we now call ours.
See: The Sacrifices We Make To Achieve Financial Independence
Life Insurance Eases The Worry Of The Primary Income Provider
If you are the primary breadwinner, it's natural to worry about how your family would cope if something were to happen to you. This concern is one of the reasons why I've been urging my wife to re-enter the traditional workforce.
As parents, our fundamental goal is to be there for our children until they reach adulthood. However, life can be unpredictable, as I was reminded when a fellow dad at my son's school suffered a brain aneurysm. The incident prompted a collective effort from the parent community to support his family through meal donations. Fortunately, the dad is on the path to recovery, but it served as a stark reminder not to take life for granted.
Recently, I received some insightful feedback from a reader regarding our matching term life insurance policies obtained through Policygenius during the pandemic. The reader shared how his own policy provided his family with financial security in case of his untimely passing. This feedback prompted me to revisit our own life insurance coverage.
I had been so focused on encouraging my wife to return to work that I had overlooked the financial safety net our policies provided. If you're the primary earner in your family, I strongly recommend securing life insurance coverage that provides a death benefit equivalent to at least three years of your gross annual income. This ensures that your surviving spouse has ample time to manage the estate without financial strain, as death benefit amounts are typically not subject to taxation.
The psychological relief from having a life insurance policy is worth it. Read: Life Insurance Is A Reason Why Your Spouse May Not Need To Work
Why You Might Be Feeling Gloomy During A Bull Market
Finally, if you're wondering why you're not feeling happier with stocks, real estate, crypto, and other risk assets at or near all-time highs, you're not alone.
I wrote that I don't feel happier after climbing to the top of the property ladder based on my homebuying guides. I should be happier because the home is great and has likely ticked higher in value since October 2023. But I attribute my lack of happiness to hedonic adaptation. Instead of feeling happier, I feel more satisfied given my responsibility to provide.
Despite locking down our housing, I still worry about the cost of everything else, mainly college tuition, the cost of Mandarin immersion school, and healthcare costs. We also pay $2,500/month in healthcare premiums and still have to pay an arm and a leg when we visit a healthcare provider. It turns out, plenty of Americans are feeling the cost burden of everything as well, especially families.
Just look at the cost of college tuition, hospital services, childcare, and medical services in the chart below. In my new post, Understanding the Silent Recession, I go through the main reasons why more Americans are feeling glum and offer solutions to get out of our financial funks.
The reality is that regardless of your income or financial status, you'll probably return to your baseline level of happiness. Therefore, it might be wiser to pursue satisfaction rather than chasing after fleeting moments of happiness.
To Your Financial Freedom,
SamÂ
See: The March 24, 2024 Financial Samurai Newsletter
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