Are you feeling uncertain about the National Association of REALTORS® recent commission adjustments? Then this episode is for you! From strategizing property sales in this new era to understanding the long-term shifts towards passive investment models, we’ll guide you through making informed decisions in a landscape that's no longer what it used to be. Press play to hear more.

Key takeaways to listen for

• [00:59] A detailed overview of the lawsuit against the NAR
• [05:02] How the NAR lawsuit could impact new home buyers
• [10:02] The effect of the NAR lawsuit on real estate agents
• [17:12] Why you should shift to passive real estate investing
• [20:39] Importance of adapting to market changes and foreseeing opportunities in real estate

Resources mentioned in this episode

• [01:14] National Association of REALTORS®

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There's always going to be a strategic advantage, especially for desirable properties on the water, that you're going to use an agent. And those people are willing to pay commission for the buyer's or seller's agent because time is important to them.

Welcome to Truly Passive Income. I'm Neil Henderson.

And I'm Clint Harris.

So I wanted to bring Clint on here today because there's big news in the real estate industry around something that's recently happened.

It doesn't necessarily have to do with commercial real estate, but I think it's such a huge part of real estate that I thought it was important for us to come in and have a conversation about how it may.

It may spill over into commercial real estate, but especially how it's going to affect anybody who's buying or selling a house in the next year and anybody who is a real estate agent. So Clint is the uglier half of a fantastic real estate team made up of he and his wife.

So, Clint, why don't you take it away and tell us what has happened just recently and why it's such a big deal?

Sure. It's been brewing for quite a while, and in fact, it's not the first time this has come up over the years.

This has come up several times, but it's been brewing. And especially the realtors locally have been having meetings for the last four to six months on it. But it finally just hit national news this week.

The N was all over the headlines of all the papers and all the websites and everything like that.

And basically there was a short version is that the national association of Realtors is under fire for manipulating commission rates and basically fixing things so that if you're buying or selling a house, the only way that you have access to the MLS is if you're paying realtors. And typically the seller is representing.

They have an agent that's representing on their side, the seller's agent, but also they are typically the ones paying the commission that goes to the buyer's agent as well. So traditionally something like 5 to 6%. 6% is kind of standard here at the beach.

A lot of the properties are more expensive, and it's typically more like 5.

But traditionally across the nation, it's around 6% that the seller of a property pays, and 3% of that goes to cover their agent doing all the work on the back end, and 3% goes to pay for the buyer's agent. And I'll be the first to tell you, before my wife and I were both in the medical sales industry. We sold a house.

We decided to do it for sale by owner because we didn't understand everything that went along with it. Realtors work very hard and they do a very good job.

And if you sell a house and you're using an agent, typically you're going to sell it a lot faster and you're going to sell it for a lot more money than if you traditionally do it yourself. So basically what just happened is a lawsuit came in in one individual state and they had success and then spread to several other states.

And now it's kind of a nationwide issue where they're saying that you can't do that. You can't strong arm a seller to set fixed commission rates for the buyer's agent and the seller's agent.

That that needs to be negotiated independently. That shouldn't fall on them. They should have the ability to tell the buyer that they need to pay for their own representation.

And the way that it was presented was if we get this commission to go away or reduce, it's artificially inflating sales, home prices and obviously have a problem with home prices in the nation right now. So the lawsuit came together, they did find success. They basically established that it's equivalent to price fixing and that you can't have.

The only access that you have to agency and the MLS is if you set these pre approved commission rates. It all has to be individually negotiated, pay all that. But here's what really just happened.

First of all, the number one people that got screwed were the new home buyers.

Frankly, they're the ones that now traditionally they've had to come up with a down payment and depending on your state, earnest money and due diligence money. In North Carolina, we're a due diligence state. A lot of states you just have to put down an earnest money check.

But the first time home buyer or young homebuyer is saving up their money for a down payment, the earnest money, potentially due diligence money.

Now you're saying that they have to potentially save up the money to pay commissions in order to have representation, to have a real estate agent guiding them through the process, make sure they're not overpaying, scheduling inspections, negotiating fixes and all the things that go along with that. They're going to be on the hook for paying that.

And if they can't afford it and they go unrepresented, they will have situations where they're going to leave a lot of value on the bone or they're going to be taken advantage of. So what just happened Is like, it looked good. You know what? Sellers shouldn't have to pay that.

But you've got a couple of people that were really, really affected. And before we get into that, a little bit more. The original settlement for this lawsuit was something to the tune of like $400 million.

200 million of that is going to the attorneys that argued this and pushed it through.

The other 200 is split up between people that sold houses between about a five to seven year period and to each individual owner, like if you go in and you sign up and you get the funds that are supposed to be sent to you, it's the equivalent of like 250 to 300 bucks.

Right.

So who's the big winner here? Right, it's obviously the attorneys were the ones pushing it.

As soon as they had success, they immediately got filed in multiple states and now it's a big nationwide movement. But here's what's going to happen. It's not going to be an overnight light switch.

New home buyers and younger home buyers just got screwed because a seller can now say, well, we'll pay for our real estate agent to market the property out there, but we're not going to pay commission for a buyer's agent. You're going to have to negotiate that separately. And so those people, depending on the market, it could be a buyer's market or a seller's market.

They might be willing to help out with that, pay a little bit more. They might just say, no, absolutely not, that's on you.

And those younger buyers are going to be expected to come up with that because the agents aren't going to work for free. The other people that really just got affected is young and inexperienced real estate agents.

If they don't have several years of track record to show and justify why they're worth what they're worth and the value that they're bringing to the table, why would anyone use them?

Why am I going to save the down payment and then another 8, 10, 12, $15,000 to pay for your services when I'm not sure exactly what you're providing for me? So I think that over time it's really going to reduce the number of agents that are in the market.

Now, what does that mean in the grand scheme of things? In Wilmington, there's over 5,000 people that are licensed to practice real estate.

You can't throw a rock without hitting three realtors in this town. Because the reality is like, everybody sees property values going up very quickly in an area that's surrounded by water. It's a limited commodity.

Prices are always going up around here, especially on we live on an island. So on the island it is certainly so those people get licensed with the idea of they're going to do some real estate on the side.

The reality is most of those people have a license and they never use it.

Or the people that are just doing a little bit of real estate or fairly inexperienced and sometimes there's some lazy agents around as there is anywhere in the country.

Those are the people that are probably going to get squeezed out and they're going to go back to doing something else, office job, bartending, waiting tables, whatever it may be. But they're going to have to fight for every commission payment that they get. Now North Carolina was a little bit ahead of the curve in this state.

There's already paperwork in the agreements that hey, you agree to representation, I'm representing you for the purchase of a house. In the event that the seller refuses to pay the commissions, you're on the hook to pay the commission for all the work that I'm doing in this.

So everybody's going to adopt something like that and it's probably going to be under the radar for a little while until sellers start refusing to pay for the buyers buyer's agent commission. And then it's going to blow up and people are going to have to read the fine print. So for us it's a conversation that comes up ahead of time.

My wife has been doing real estate for a little while. Most of our friends are white coat professionals and people that are buying higher end houses.

A lot of our friends that move to town in the cardiology field, they get out of med school and fellowship and they buy their first house and it's in the 700 to $1.2 million range. A couple years later they make partner, they're selling that and they're buying the one that's 1.5 to 2 million.

Sometimes they're having kids, they need a bigger house. A couple of years after that they're buying something in the 1.8 to 2.5 or $3 million range.

So we're kind of in that realm where her clientele is people that understand that they're going to sell their house faster or find out about the new deals coming down the line quicker off market stuff.

By using an agent, there's always going to be a strategic advantage, especially for desirable properties on the water, that you're going to use an agent and those people are willing to pay commission for the buyer's or seller's agent because time is important to them. They're going to sell or buy the property quickly.

If they're selling it, they're going to sell it faster and they're going to sell it for a lot more money than if they try to do it on their own or sell it to somebody that doesn't understand the comps in the market.

So I think agents that have been doing it for a while and have justified their worth and it's well established and they're doing 10, 12, 15, $20 million in sales, I don't expect that to change that much.

People doing 5 million or less, especially the people doing 2 to 4 million, they're probably going to have to start fighting hard for everything that they're getting. And I think over time it's going to drop out some of the competition.

Anytime you're in sales and you're working for commissions, you have the ability to make really good money when the market's up. But you also have the risk of that being able to be taken away from.

Well, let me ask from a consumer standpoint, we talk a lot about how it's going to affect agents and you touched on a little bit on how it's going to affect the consumer side.

Speaking.

Speaking selfishly, I'm selling a rental property. You're selling a rental property.

Now, I think you're probably representing yourself because you're an agent, but as someone who's just an average property owner who's selling a property, how's that affect me?

I think right now it doesn't because this is very, very new. If it was two, three, four years from now, that remains to be seen.

You're selling a $200,000 rental property, your property probably right in that wheelhouse where there's a lot of people looking for a property in that price range in the area where you're selling it a lot, kind of starter home area, and they might be willing to jump on that. And you as a seller might be able to get away without paying the buyer's agent commission.

That having been said, it likely could take you longer to do it.

If you had a property that you're listing, you might have five agents that are representing someone that are going to jump on that and get you in a multiple offer situation and push it up higher.

Whereas if you're not willing to pay that, those people are naturally going to steer their clients away from properties where they're not going to pay a commission unless their people have are well aware and ready to pay them. So I think it's more likely that you would get a single offer and it might take a little bit longer.

As of right now, it doesn't really change anything. Now you bring up the property I'm selling right now. It's kind of an interesting example because it's a quadplex in a really desirable location.

And so we never listed it. We're selling it off market, which is kind of funny because my wife is a real estate agent.

She made me get licensed during COVID when you could do it remotely because she had ambitions of us working together and me running around and being her gopher, which is what I do sometimes when I'm not doing nomad stuff. But basically, like on that deal, we were going to sell that property.

I know it needed to go to someone that really could operate it in a really good way. And there's some really cool features about that property right on the Ocean Access quadplex. It's a fantastic Airbnb short term rental spot.

So I made three phone calls, found someone that I knew was going to do a great job with the property. We negotiated a deal. It's off market, under contract. My wife is doing the paperwork and all the work on the back end.

We're not paying a buyer's agent on that. And because of that, he knows he's getting a little bit of a deal. We know that it's going to go to somebody who can afford it.

Somebody's going to do a great job with the property.

And also, I don't have to deal with the hassle of four individual rental units that are actively and wildly rented out right now because we're in the rental season already, getting inspections done and people in and out of that. I didn't want to deal with an open house and putting it on the market and the zoo that would happen there.

And along with that is I probably could have sold it for a little bit more. I know it would have been in a multiple offer situation. But the way it is, I handpicked my buyer.

I was like, look, this is the price, this is what I need. And it's coming basically as is. We're going to punch list it, we'll do some things, but you pick the inspector, all that.

We'll do the paperwork on our back end, but this is it. So it was the better situation for us to move along in a timely manner with the next projects. Like, I'm going to shift, right?

I currently own 14 Airbnb units, but we are in a shift towards purely passive investment strategies. We're Moving all in nomad projects and then eventually going to be diversifying into other LP positions. And I'll tell you why.

Well, there's a lot of reasons why, but one that's very apropos to this conversation.

I want to get into that, but before you move on, I just want to make sure I understand. Is that what it sounds like you're saying now? Is that now going to become negotiable whether or not you're going to pay the buyer's agent?

Whereas before it pretty much wasn't. It was pretty much you had to pay it as the seller.

So now it sounds to me like it's the kind of thing that's going to shift anytime there's a buyer's or a seller's market. Like if there's a seller's market, then chances are the buyer's going to have to pay that commission. If it's a seller market.

If you want to buy a house, you're probably going to have to pay it because it's going to be multiple offers regardless of whether or not somebody's paying that. But once it shifts more to a buyer's market, now the seller is probably going to be faced with having to pay that.

Yeah, it is. It's going to shift back and forth, the ups and downs as to who's got the advantage given the demands of the market. But here's the thing.

It's not just about money that's being paid for no reason. You're paying agents to do a pretty stressful job. Like, there's a lot to that.

And so if I'm a seller's agent and we're not paying a buyer's agent and they want to hold out and they're refusing to, and so the buyer pool is going to be smaller unless it's a buyer that's willing to pay for their own agency. If a buyer shows up and is ready to buy the property, I just got asked as the seller's agent to do twice the work for half the pay.

You're doing both sides of the deal. You're scheduling everything if you want it to close.

Those people are going to be a little babe in the woods situation in terms of all the details of what happens on the back end, the deed registry, the inspections, looking up the county zoning, and make sure they can do what they want to do. I just got asked to do twice the work for half the pay. And it's the other way around.

Like if you have a seller who's not going to pay anything to anybody. And you have a buyer with an agent come up, same thing. That person's getting paid by their buyers.

They just got asked to do twice the work for half the pay. Right. And it's twice as time consuming. It's a lot to it.

You know, it looks glamorous when people see some of the price tags on the homes that are selling. The reality is, most of this work is done on nights and weekends. It's a lot for the agents that are really moving things.

And I can only imagine what it's like for the agents that are selling a ton of two to $400,000 houses when your average price point is close to a million. You're basically doing one at a time. You're working with one buyer at a time, and it's a little bit more palatable. But that's not your average agent.

These people work very hard for a little bit, and they're getting paid one time. Now you're potentially asking to double the work and half the pay for some of these agents. It's going to shake out in the long run.

But that's kind of the point with all of this. It is about money, but it's also about time.

My point is, like, this is a job ultimately where you are trading time for money, and these people potentially just got a significant haircut.

All right, And I interrupted you when you were talking about your reasoning for starting to unload your Airbnb portfolio.

Yeah. And it's going to happen over a period of years.

Like, I have one of the properties that is tied to my children's education that I set it to pay off when my oldest son is 4 years old, when he turns 16, that's paid off. Going to allow us to refinance the pay for his college, med school, Whatever he decides to do later on, there would be enough for that. The reality.

So it's going to be a slow shift, but the reason there's a shift for me is because as I get older, the thing that becomes more important to me is time. Right. I think we all have.

There's this linear thing, like when you start out and you're really young, a lot of times you have lots of time, but you have no money and you have no experience. And then they're like, your money and your experience is going up through life, but as you get busier, your time is going down. Right.

And there's this intersection.

Typically around the time you're married and having kids, where you don't have a lot of time, you've got some experience and you got a little bit of money, but not a ton. But those are ships passing in the night. And eventually you get to the point where you're very successful in your peak earning years.

You probably do have experience, or at least certainly more than you have before. You have some money, but you have no time. And if you're talking about getting into a new asset class, then you probably don't have experience, right?

So now all of a sudden, you got one out of the three things that you're looking for. So for me, obviously, this is the world that I'm living in.

But ultimately, what we gained with our Airbnb properties and our property management is that we reached the level of financial independence, but we did not reach time and location independence.

So I am in the process of making a shift to passive investment strategies, mostly syndication, nomad deals and the self storage projects that we're doing. But also I'm going to diversify across different projects, different operators, and different assets and different debt structure.

But the reason I'm doing that is because I don't care if you're orthopedic surgeon, if you're a pacemaker, sales rep, if you're a mortgage broker or a real estate professional, whether it's wholesaling, real estate agent, house flipper, whatever it may be, the core of it, all of those jobs are trading time for money. And if you were in a job where you were trading time for money, what that means is the day you stop working is the day you stop getting paid.

And there are a lot of real estate agents out there right now that might find themselves over the next 24 to 48 months where the ability for them to get paid for what they're doing is going away, diminishing quickly to the point that it's not worth it. And the day that they stop doing that job is the day that they stop getting paid.

With the exception of anything they already had under contract for work they've already done up to that point, the day they stop working is the day they stop getting paid. So I think this reiterates to me and the importance to everybody. Number one, we can't save our way to retirement anymore.

And number two, if you're in a job where you're trading time for money that could eventually be taken away from you, or as you get older, there will come a time where that time is worth more to you than the money you were getting paid that you're trading it for. If that's the case, the only off ramp from that is some kind of passive investment strategy where you're not trading time for money.

And that means taking what you do have, which is typically capital or money, and investing that with somebody else's time and experience so that that money is getting up and going to work for you. That money is getting up and going to buy future days off.

The idea that, you know, you should be getting up and creating value for your family, that capital should be waking up in the morning and going and creating more capital for your family, because it's buying opportunity in terms of the way that you want to use your time down the road. Eventually, the idea is that that replaces your income, and so you get to choose how you want to use your time.

But one way or the other, inflation is taking the value of your dollars away that you're saving. You have to turn around and put those to work with.

The idea of that can act as an insurance policy if you are in a position where you are trading time for money because eventually it's going to get taken away from you or you're going to decide that it's not worth it unless it's something that you absolutely love.

But still, eventually, in that situation, we all run out of time if you continue the graph long enough, and at that point in time, you stop providing value for your family. So that's why I'm making a shift away from something that requires us to be here in the summer and something that requires a certain amount of time.

Even though we have a property management company, we still have to manage that. So we're making a slow shift to passive strategies where we're out of the business of trading time for money.

Which is ironic because my wife is a real estate agent and I am actively working as a general partner in syndication. But the reason I'm doing that is because I don't collect a paycheck. I'm getting paid down the line.

After all the investors, we get equity there and that will continue to multiply. And we're also putting money into the deals.

And the money that she's making from real estate, it pays for our lifestyle and it goes into syndication deals.

And we are slowly taking the equity that we built and converting that over as well to get to the point where the money that we make has nothing to do with the amount of time that we have to put into it.

All right, man. Well, listen, it's been an interesting discussion. I think it's a little bit different than what we normally talk about.

We thought it was such big news in the entire industry that it was worth chatting about and worth having our audience educated on. So thanks for clueing me in on that.

Obviously something I'm going to have to deal with coming soon because I'm about to sell a property and it's good for people to know about.

Yep, absolutely. We'll just continue to keep our eye on it, see what's going to happen. I don't think you're going to see any changes immediately.

It's going to be a lot of chatter over the next few years. The landscape is going to change.

I think that that will probably not be as soft of a landing as it once was for new agents that want to get into the industry. But if you look at things, you zoom out a little bit, you see the whole perspective. There's still opportunity.

And it doesn't mean that real estate is a bad investment strategy. In fact, it's always been and always will be a good investment strategy. But you need to be aware of what that means.

And there's never a way to time the market. But you're going to be hyper aware from now on, whether it's a buyer's or seller's market, because the agents are going to let you know.

Well, thanks again for listening. We're doing this all again next week, and until then, thank you so much for listening and watching the Truly Passive Income podcast.

If you liked the show, if you think it would be useful for someone else, the greatest compliment that you could give us would be to share the episode. Leave a comment down below or leave us an honest review. If you have any questions, don't hesitate to let us know down below.

And remember, with Truly Passive Income comes freedom of time, place, and the freedom to pursue your higher purpose.