Power Up Wealth podcast – Is 6% Dead? – Episode 68 transcript:
Sharla Jessop 0:00
There’s been a shake-up in the real estate market. What could this mean to you? I’m Sharla Jessop, President of Smedley Financial Services, and my guest and colleague, Parker Thompson, will share insights on the changes in commissions for real estate transactions.
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
Parker, thank you for joining me today.
Parker Thompson 0:48
Happy to be here.
Sharla Jessop 0:49
Parker is a wealth management advisor on the Smedley Financial team and he holds a Certified Financial Planning designation. Parker, give us some background on the changes that have occurred in the real estate market.
Parker Thompson 1:00
Yeah, I’ll bring everyone up to speed here. This happened a couple months ago. The National Association of Realtors, so the body that kind of oversees all the the realtors in the US. They had an antitrust lawsuit that they got mixed up in that they eventually settled on right. So $418 million, which is a large number. It’s not so much the number of the settlement. But it’s more the changes that are going to take place that come with this settlement. The grand federal jury found that this National Association of Realtors had been quote-unquote conspiring or trying to influence and inflate real estate agents commissions on buying and selling homes. And so essentially, for those who are not familiar with the National Association of Realtors, they have a service called the MLS, which you may have heard if you’ve bought or sold a home. This multiple listing services is where typically you would go and look for the home or see the listing. And that’s where they would start to put on the commission rates, what you can expect to pay for that house to the seller, right, to the selling agent, They were finding that these listings were not advertised as negotiable. The commission rates were not advertised as negotiable. And they were always demanded of the seller. And so this settlement is changing a few of those things.
Sharla Jessop 2:12
That’s good. So what does it mean to people who are looking to buy a home?
Parker Thompson 2:15
I see two main takeaways, two main impacts that could really affect. Sellers are no longer going to be responsible for paying that full commission, as they once were expected to be. And rates are negotiable, where maybe people didn’t know that they were before. I think those are the two main takeaways that we will see impact the regular buyer or seller of a home.
Sharla Jessop 2:36
So then who’s going to pay the commissions? Because certainly, real estate agents do a great job and they deserve to be compensated, no, we’re not, we’re not diminishing their value, they’re really valuable. If anybody who has ever purchased a home will tell you don’t do it without a real estate agent by your side.
Parker Thompson 2:53
Right.
Sharla Jessop 2:54
So who pays the commissions now?
Parker Thompson 2:56
It is no longer fully on the sellers. They are expected to shift some of that responsibility over to the buyer, which typically so on a sell of a home, you typically pay if you’re going the typical 6%. That seller of the home out of whatever they sold their home for they’d pay 6% as a commission, that would then be split between the selling agent and the buying agent. So whoever the buyers were represented by would get 3% of that, half and a half. That no longer is going to be demanded. So that 6% may not be required to be paid by the seller of the home. The buyers of the home may have to kind of shoulder some of that brunt. And make sure that they’re paying their agent that they select. So to your point, our agents are very important nowadays, right? They always have been. Anyone who’s bought a home knows that they the work that they do is very important, and it helps out a lot. But we’re gonna have to be a lot more selective about the agents that we pick, because we’re going to be paying out of pocket. For the sellers, this is good news, because it means less out of your own pocket from what you get from the home, when you sell your home, you have to pay that full 6% You may only be on the hook for 3%. Now, which means more money in your pocket.
Sharla Jessop 4:03
It makes me wonder for a seller, you know sellers typically raise the price of their home to cover that expected commission. So it seems like they’re probably going to get the same. And it’s and the buyer who has typically had to pay more for home isn’t going maybe to have to pay quite as much. So it might be a level playing field in the end. It’s just both parties are now paying a commission.
Parker Thompson 4:27
Yeah. Now we’re getting into what may be the effects of this change. Right. And there are two sides of the coin. There is that side where okay, maybe if there’s less of an incentive to raise the home price to cover that commission that home prices go down and then maybe the buyers have to pay less for it. But because there’s a smaller piece of the pie for that real estate commission now do they inflate the home prices even more to be able to compensate for getting less of a commission. The other side of that is for homebuyers, you may get a cheaper home price if price decides to go down but you may have to pay more out of pocket because you’re paying the commission for your agent now. Flip of a coin whether it’s going to be more of a cost bearing on the seller or the buyer or whether home prices will be affected either way.
Sharla Jessop 5:08
You know you said something that really caught my attention. And that is that people didn’t know that commission rates are negotiable. It’s not a set absolute on anything.
Parker Thompson 5:19
Like most things, most things in life are somewhat negotiable. That’s the second takeaway is that for those who didn’t know, rates have always been negotiable. And this is for those who are real estate agents, they’re looking at this settlement saying, well, we’ve always known this is negotiable, but the consumer, not necessarily, they haven’t necessarily known themselves. And it hasn’t really been listed on the MLS as being negotiable. It’s usually just saying, we’re expecting two and a half, 2%, 3%. In this case, you’ve always been able to negotiate with your agent, whether you’re buying or selling a home what you’re going to pay them as a commission. And I think that’s more power into the consumer pocket, it’s more power into us who are buying the homes are selling the homes that we can have put more on our pocket and our buying or selling of the home is a cheaper process.
Sharla Jessop 6:01
So what do you think that this means for housing prices? And I say that because we’re recording in Utah, and Utah has just been ranked as the third highest in the United States for housing prices, right behind Hawaii, which we know is very expensive and California, which is very expensive.
Parker Thompson 6:19
Yeah it seems that more and more, the West just gets more and more expensive. So yeah, it’s more pertinent now than ever, how can we save on costs of buying home. It is, if not the most, one of the most are some of the most expensive purchases you’ll make in your entire life. And so why not be informed as a buyer to be able to get some of that money back in your pocket. As far as the macroeconomy look at it, or whether it’s gonna affect home prices, I don’t know if it’ll affect prices too much. I just know that for each individual situation, what money you can save in this process may be a change for you, the individual. In the case of like we said, you could have home prices adjust downward to compensate for these changing of fees and negotiable prices are negotiable commissions, which means more in the pocket of the buyer, the seller. As a seller, you may be able to keep more of your equity, right, which is a positive. But as a buyer, your out of pocket expenses could be more so that’s on the other side of the table. You can also have home prices rise to compensate for lower commissions if rates are negotiable. And people have typically got 6% split two ways. So 3% for both agents. If they realize all of a sudden that my clients that I’m working with are only asking me to do one or 2%, they’re going to try and get that high, the high price out of the home sell or the home buy to be able to compensate for the loss commission that they used to have. So your guess is as good as mine, whether it’s going to affect the entire economy, or the prices of the house one way or the other.
Sharla Jessop 7:41
There’s so many things that are impacting housing right now, interest rates on top of that.
Parker Thompson 7:45
Yeah, and this is one more shift in the direction of the shrinking of fees. We’ve seen it in our industry. We’ve seen it with the mutual funds that have gone to no load or no fee funds. The ETFs that are low costs. No commission trades for stocks. I think the way of the world is going towards less fees, or at least negotiable fees that kind of benefit the consumer more. And this is one of those moves in that direction.
Sharla Jessop 8:07
And transparency. I think transparency is very important. That’s been big in our industry, and also we’re fiduciary. So transparency is a big thing for us, so that everybody knows exactly what’s being paid and who’s benefiting from what they’re paying.
Parker Thompson 8:19
Right. And that’s the bottom line, this settlement. It wasn’t that there was some smoke and mirrors behind you know that the National Association of Realtors way that they posted on MLS. It was just that we needed to know as consumers that things were negotiable and that it wasn’t always going to be brunt of the commission was not always going to be borne by the selling consumer. It was going to be both ways. One of my key takeaways is that be be very selective and age in the US. It’s my opinion that you should use one. But make sure that you’re choosing the right one and that they’re they’re worth what you’re paying them.
Sharla Jessop 8:49
I agree that. It’s my opinion you should use one as well. Parker, thank you for joining us today.
Parker Thompson 8:54
Thank you, Sharla.
Shane Thomas 8:55
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Securities America. Inc., Member FlNRA/SIPC. Roger M. Smedley, Sharla J. Jessop, James R. Derrick, Shane P. Thomas, Mikal B. Aune, Jordan R. Hadfield, Registered Representatives. Investment Advisor Representatives of Smedley Financial Services, Inc.®. Advisory services offered through Smedley Financial Services, Inc.® Smedley Financial Services, Inc.®, and Securities America, Inc. are separate entities.
Is 6% Dead?
