Rising home prices suck for almost everybody even people that own their own homes are not really better off financially if they sell their overpriced home because they will just have to buy another overpriced home unless they want to live on the street if there is one group of people that actually are enjoying homes becoming unaffordable it's real estate agents realators across the country have used their surprising Market power to make this problem much worse and charge a nice fat commission while doing it but they may have pushed their luck too far and a new land
Mark antitrust lawsuit could radically change how we buy and sell our homes for Better or For Worse a new settlement could dramatically change the way you buy a home the price of buying a home in the US is going up according to new data out this morning Prices rose 62% over last year realators are more than just the people that open the door and tell you about the schools at an open house they are a shockingly organized group that has a lot of influence over how the real estate market functions real estate agents and realators
are technically two different things things all realators are real estate agents but not all real estate agents are realators they both buy and sell houses on behalf of clients for whom they act as agents but for a real estate agent to call themselves a realator they must be a part of the National Association of realators an industry group that represents most agents in America as part of their membership realators get access to the multiple listing service or MLS which is a database of all residential real estate listings in the area if you want to sell
houses as an agent you can't compete without access to this database and if you want to get access to this invaluable Market information you must register as a realator that membership is a pretty good investment anyway the N behaves almost like a union for its independent members ensuring that home sellers can't get agents to compete with one another for lower commissions the industry standard is 6% which gets split between the listing agent selling the home and a buyer's agent if the purchaser uses one the commission gets paid from the proceeds of the home sale before
the remainder of that money gets trans transferred from the sellers bank account this commission covers the expenses of selling real estate like running open houses posting on sites like Zillow taking photos of the property insurance and signposting the home whatever is left goes to the agency which has its own expense and then whatever is left after that goes to the Realtors themselves split between the buy and sell side according to data from the Department of Housing and Urban Development the average homesale price in America has risen from $272,000 in 2010 to $492,000 in qu 4
of last year since the realer commission is based on the sale price it means that the average commission paid to reers has doubled in just 13 years outpacing inflation by 120% it gets even better for real estate agents though because their expenses have not increased as fast as home prices which means they are keeping more than that 6% for themselves 10 years ago the average agent would have made about $5,000 after all expenses for selling the average home today they they are making $155,000 from the average home according to data compiled by statista from the
National Association of realators themselves this is created a gold rush as almost 600,000 new agents have signed up as realators in the last 10 years alone making selling real estate one of the fastest growing jobs in the country with so many new market entrance and such creamy margins commissions should be competitive an agent can make just as much money by selling a house with a 4% commission today as they could with a 6% commission 10 years ago but the National Association of realators won't let their agents undercut each other unsurprisingly this has come at the
expense of the people that just want to buy or sell their home realators have broken the already broken real estate market in three ways but poor market conditions not to mention a landmark lawsuit could actually make things worse for everybody including the reals so it's time to learn how money Works to find out how your most important financial decision ever is made for you this week's lesson is sponsored by soent soent is a complete nutrition brand with a science-based take on health and wellness they provide a great tasting perfect Synergy of macro and micronutrients backed
by science don't trust me trust the thirdparty clinical study supporting soilent one study found that a soilent diet increased the proportion of bacteria types in the gut that lead to Better Health I've been drinking the soilent meal replacement shakes for breakfast instead of spending time cooking it I found that it's an easy thing to just grab out of the fridge in the morning and enjoy good nutrition should be a right not a luxury and soent is an affordable way way to get that necessary nutrition every morning and they give back having donated more than 6
million meals through their soilent for good programs partnering with food banks homeless shelters and more I've been using soent for a few weeks now and it's pretty much replaced my breakfast in the morning get soent by using the link in the description below the first 500 people to use the link and code hmw3 will get 30% off their first subscription with soent the antitrust lawsuit will see the National Association of realators pay a fine of $418 million to a group as large as the N that could just be factored into the cost of doing business
but the lawsuit will also mandate changes in how agents sell real estate and how they get paid for doing it and that's the first way that real estate agents ruined real estate for themselves they made it not worth selling according to data from the National Association of realators the number of first home buyers in America as a share of all home buyers has been declining since 2010 now the number of first home buyers has haved and the most common type of buyer by far is someone who just sold their home and is looking to upgrade
or downsize the 6% reers Commission on the average home is now worth half of the average American's annual salary before tax if you are selling your home this expense isn't as easy to notice as paying your electric bill because it comes out of the proceeds of selling the home according to the case Shiller home price index homes have never been a higher multiple of average household incomes so 6% of the sale being taken out of your biggest assets could take you years to recover from without us you even noticing according to the National Association of
realators the average down payment of a first home buyer is just 6% the same amount as the industry standard sales commission the average down payment for someone who has already sold their home and is buying a new home is just 177% which means almost half of the equity that potential new home purchases have in their purchase would be taken as a Real's commission if they sold it so people just aren't selling their homes a combination of these high transaction costs and interest rates locked in at low rates means that no body is selling their homes
if no homes are trading hands it doesn't matter how high a realtor's commission is because 6% of 0 is still 0 the 1.6 million realators in America right now are all fighting over a tiny handful of listings a survey conducted by alignable a small business Network in publication found that 45% of reals reported that they were struggling to pay rent due to slow sales other agents are giving up on the suggestion of the n and are undercutting their competition and commission just to get any sales they can and it's Sneaky tactics like this that are
the second way realators have ruined real estate for themselves there is reason I've used data from the National Association of realators five separate times in a video talking about the objectionable practices of the National Association of realators the reason is because their multiple listing service is the most comprehensive database of real estate transactions in the country the platform includes information on the price of the homes that realators have for sale the number of bedrooms bathrooms square footage and how much the property has previously sold for this is different from Real Estate sites like Zillow because
it also includes information about commissions that can be shared between the buyer agent and the sellers agent in America 89% of all residential real estate sales are made to buyers employing the help of a buyer agent again according to data from the National Association of realators in other countries this is far less common because buyers have to pay for Buyer Agents out of their own Pockets but in America it is paid by the seller of the property by splitting the 6% according to the antitrust lawsuit the realator MLS system lets agents advertise to Buyer Agents
how much of a split they would offer to close a sale a listing agent wasn't required to offer any cut of their commission at all but if they did that no Buyer Agents would advise their clients to purchase that property since there was no incentive for them this created a problem known as steering let's say you are a real estate agent trying to sell a property that isn't great you ask for a price above fair market value but you offer a nice big cut of your total commissions to any buyer agent that can convince their
clients to buy your shitty listing your listing is going to get more interest from buyers than a Better Property which is not offering a commission split because Buyer Agents are going to steer their clients towards the properties that are going to pay them more the law to alleges that not only has this cost regular buyers that were counting on the unbiased advice of their Buyer Agents it is also contributed to real estate price growth because it makes legitimate price Discovery hard when both sides on the negotiating table want a sale to get made at any
price a stipulation of the antitrust settlement is that the National Association of realators must remove any comp compensation information to Buyer Agents from the multiple listing service now if that sounds to you like it's going to fix this broken system then let me ruin that for you most realators and buyers agents in a local area have a very close professional relationship cultivating these relationships is part of their job just because they aren't allowed to list their commissions on the MLS anymore doesn't mean that they can't just pick up the phone and ask around for who
will give them the most money this could actually make things worse because at least the open information on the MLS Creed some kind of competition between agents Now deals between agents can be discussed in private and better deals can be made between agents that have an ongoing quid pro quo relationship and that's the third reason why real estate agents have ruined real estate for themselves online platforms like Zillow and red fin now offer a lot of the information that people used to rely on an agent for home buyers have shown a preference for doing more
research themselves using information that is available on these sites rather than asking potentially biased agents who want to push them into making a quick sale other agents outside of the National Association of realators are now offering fixed price sales as low as $1,500 for running a basic home sale the pressure is now on traditional agents to convince a limited pool of Home sellers that they can achieve a better sales price after their 6% cut than a seller using one of these lowcost brokerages sellers are unlikely to pass much of these savings along to buyers while
inventory is low but if people are going to give less of a cut to an agent then they might be more willing to put their home on the market according to the market data firm Adam the length of time that the average seller has owned their home for is now at an almost all-time high thanks to the cost of selling low interest rates in strong rental markets people are holding on to their homes for longer than ever if this lawsuit does reduce the control that agents have over the home selling process then this could incentivize
homeowners with multiple properties to move the homes they have been holding on to this could make the market a little better for regular home buyers but it will make it a lot better for institutional investors according to a survey conducted by John Burns real estate consultant institutional investors purchased 25% of the homes flipped in the third quarter of 2023 combined with independent investors they were responsible for a total of 44% of all home sales the transaction costs of trading real estate are one of the biggest weaknesses of a home as an asset class or as
a project that can be purchased lightly renovated and then flipped for a profit investors doing this take stock of affordable homes off the market and then charge a premium for a renovated property increasing prices if these transaction costs are reduced to a similar level to traditional equities it will likely push even more institutional investors and home flippers into the market easily outdoing any of The Price benefits of reduced commissions I am going to be writing a newsletter about institutional investors investing into residential real estate over on my completely free email newsletter compounded daily so make
sure to sign up for that using the link below if you still believe that real estate prices are overdue for a crash go and watch my video on why that won't get you any closer to owning your own home and make sure to like And subscribe to keep on learning how money works
