March 28, 2024

JF3493: Racketeering, Collusion, and the Biggest Losers of the NAR Settlement — Best Ever Roundtable




This edition of the Best Ever Roundtable — featuring hosts Ash Patel, Slocomb Reed, and Joe Cornwell — turns into a debate of sorts as the hosts discuss the recently proposed NAR settlement. Ash shares personal stories of realtor experiences, both in residential and commercial, and argues that the proposed settlement could put an end to the “racketeering” and “collusion” that exists in the industry. Socomb and Joe — both brokers — take the other side, with Slocomb defending realtors and Joe highlighting who the biggest losers in the settlement, should it come to fruition.

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Ash Patel (00:00.922)
Hello, best ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel and I'm with our co-hosts, Slocomb Reed and Joe Cornwell today. Folks today we're going to dive into the NAR settlement. A lot of talk going on about that. We're going to turn it right over to Slocomb who's Slocomb hosted a meetup last night, a best ever meetup in Cincinnati. Got a ton of feedback. Uh, love to hear what happened last night and your thoughts on the NAR Settlements, Slocomb.

Slocomb Reed (00:32.01)
Yeah, absolutely. Thanks, Ash. So I, um, it was a good opportunity to start by asking, uh, some, uh, investors, some real estate agent investors, some realtors and brokers who dabble in investing what they're, uh, what, what questions they had, what they did and did not understand, and then get some opinions, but I'd like to do for this conversation is just start with a quick explanation of what this, um, national association of realtors settlement actually is so that we are on the same page as we dive deep into our thoughts opinions concerns perspectives and future casting based on what happened so on friday march 15th and they are announced a proposed settlement to one of their lawsuits in the moment i can't remember which one but they're staring down the barrel of several lawsuits right now settlement has two major components with regards to how NAR and realtors across the country operate beyond the financial settling with plaintiffs.

So before I get into what those two things are, first let me say that all of this would have to make it through the courts to the Department of Justice. It's still just a proposed settlement that the plaintiffs and the defendant have come to.

Uh, that, that is not official yet. Um, depending on who you ask, it could be made official and go into effect as early as mid July, uh, or other, other experts are saying that it couldn't even get through the DOJ until July and would go into effect after that. Uh, so nothing is going to change between now and then we're still talking about a proposed settlement that has to make it through courts and the government and we're looking at mid to late summer before it actually impacts the way that realtors operate in the way that people buy and sell homes or residential real estate so the two components of the proposed settlement are first that very concretely listing brokers will not be allowed to advertise a buyer broker commission on the MLS.

That is very clear. There are also other possibilities about what that means. There are it is not clear yet whether or not non realtors will be required, whether or not NAR and local boards of realtors will be required to allow direct MLX access to non-members of the board. Again, the word realtor means someone who is a member of the National Association of Realtors and their local board and has MLS access. That's not all licensed real estate agents. But there are also questions, not facts, but questions about whether or not listing agents and brokers can require a seller to offer buyer broker compensation as a part of their listing agreement.

Regardless, listing sellers will have the option to offer buyer concessions or seller buyer broker compensation. It's it's almost certain that will be part of what happens here is that will still remain an option available to sellers. The other piece of the proposed settlement that hasn't gotten nearly as much media attention because big media can't get as much clickbait out of it and sell as many ads on it is that according to this proposed settlement moving forward before a prospective buyer can be shown any house listed on the MLS by a realtor.

That prospective buyer has to sign a buyer agency agreement with that realtor before the realtor can open the door to them. So if you look at it nowadays, you can call the listing agent. You can click the sell my contact info for 50 bucks button on Zillow and have a random agent call you. You can call up your buddy and have them get you into the house.

Um, if you're not a licensed agent, if you're not a realtor, but, uh, this proposed settlement would make that no longer possible. You can't, you as an investor, uh, cannot, or, or as a prospective buyer in general will not be able to get access to a house listed on the MLS without signing an agreement to be represented by the agent who is opening the door for you. So those are the two major pieces of the proposed settlement, which again, would not actually go into effect until it makes it through the full legal system, which is probably mid to late summer.

Joe Cornwell (05:49.81)
And two other things here that I've, as I did my research on this and have been following it for the last six months or so, the question comes up, why would the NAR settle? Because I think the original lower court found a judgment of like 1.8 billion. Correct me if I'm wrong, but I remember that was the case and this was last year. It was appealed and part of this appellate process, they've obviously proposed this lower amount to settle. This is NAR's proposal.

And then the other question I saw frequently is why would any of these big brokerage houses opt into this settlement? So why would you basically tag along to pay penalties? And the reason, again, I'm not an attorney, but what I can summarize from all the reading I've done is that the brokerages that are tagging into this settlement and opting to pay a percentage of it are because it would then exclude them from future lawsuits.

So a lot of people are asking, well, why would Remax and Keller Williams and all these other broker houses proposed to basically, hey, I want to pay part of your fine. It's because then they are now excluded from future lawsuits. And there's actually over 20 pending lawsuits on this same topic. And another thing I read was that the initial finding of the 1.8 billion was also eligible for a antitrust suit, which also has a three times penalty on top of whatever the court order is. So it could have been, you know, upwards of five, $6 billion in penalties. So the NAR proposal is obviously a much lower amount, even though it's still got some sticker shock for people who may be just now reading the story.

Ash Patel (07:31.166)
All right, look, let's go back, man. You know, my mom was in, was a realtor in the eighties and I remember sitting at the kitchen table and having huge piles of paper listings that we had to alphabetize and, you know, put a numerical order based on street and back in the day in the eighties and probably the early part of the nineties, the realtor had to present all of the options to the home buyers. They had to use their car.

And there's no cell phones back in the eighties for some of you young people, but you know, you have to be glued to a phone. You have to do office hours in an office. So when, you know, husbands, wives, walking couples or individuals come into your office, you are ready to show them a property and go through the MLS books. Back in the day, realtors earned their 6% commission, right?

What's evolved over the years is the individual home buyers have become empowered through the internet to do their own legwork. And I can't tell you, you know, in my early 20s, I bought my first house, but a lot of my buddies would buy their first home as well. And I would ask them if they're getting a realtor, oh yeah, I, you know, I don't know what I'm doing, I need a realtor. I would say, listen, it's not that difficult. I can walk you through it. Oh no, no.

I think NAR in the industry made it seem a bit overwhelming in buying a house when the three of us who are very well experienced in buying real estate know it's not that big of a deal, right? You get the house that you want. And look, my first house, this was kind of crappy, but I did all the legwork and I told the agent to meet me there on Friday after work and I wanted to put an offer in. Well, she doesn't show up Friday. She reschedules till Saturday morning.

Saturday morning we show up and there's another showing as well. So now we have to get into a bidding war for this house. So she failed me on my first purchase and did no work but got 3% commission. And if you look at the past few years with the housing boom that we've had, especially post COVID, how many people became realtors and made a ridiculous amount of money working a very short amount of time? You both are realtors. Am I mistaken?

Slocomb Reed (09:57.43)
We're both realtors, yes.

Ash Patel (09:58.682)
Okay, how many hours did it take you to get your Realtors license?

Joe Cornwell (10:02.766)

Ash Patel (10:04.782)
Okay, and how many realtors do you know that got into the game the last four years and made a ridiculous amount of money?

Slocomb Reed (10:13.898)
Most of them didn't make a ridiculous amount of money. You know, the 80-20 rule here applies, but I get where you're coming from, Ash. Yes.

Ash Patel (10:20.466)
They made some easy money. Sorry to cut you off, but money was easy, right? And now that the settlement came across, the number of realtors that have gotten their license over the last few years has kind of saturated the market. So I think the pendulum is swinging back the other way. We went from those realtors in the 80s that worked night and day, earned their money, to when the consumers became empowered, did a lot of their own legwork, but because of intimidation and dare I say, racketeering and collusion.

Look, they brought down the New York City mob because they colluded. Tell me that realtors don't collude to get deals done and increase their commissions, right? And I'm not blaming the realtors, I'm blaming the system and NAR. Very passionate about this. And now the pendulum is going to swing back, right?

Ash Patel (11:18.642)
There are some rockstar realtors out there, both on the seller side and the buyer side. And I'll give you some examples from the seller side. We have those old established names that everybody just goes to them. And now we've got some newer, younger realtors that have moved in. They embrace technology, social media, marketing. They have teams. And they really put your home out there. From the buyer's perspective, it's the same thing, right? There's full service buyers agents or there's the buyer's agent like I had that just shows up at the last minute and Maybe gives you some recommendations where they get kickbacks from the title company or the mortgage broker gives them Christmas gifts. So I think people should be able to a la carte choose what they want to do You know for a flat fee listing which we've had around for a long time. You can list your house right to $300, get your house on the MLS.

Same thing from the buyer's perspective. Do you want somebody that just unlocks doors for you or somebody that holds your hand through the inspection title lending? And that's where I think consumers will become empowered and will be able to make better, more informed decisions and not blow their money on an archaic system that was heavily defended by political action committees.

And let's not get this twisted, political clout out there, right? They have their packs. They choose which candidates protect them, which ones are against them. And they've got a million plus members. So sorry for rambling, but I'm very passionate about this archaic system that seemed to be changed for a long time.

Slocomb Reed (13:07.37)
Well, Ash, if NBC, CNN, or Fox News are hiring right now, I'm pretty sure you're a shoe in.

Joe Cornwell (13:07.415)
Alright, go ahead, Slocomb.

Ash Patel (13:14.454)
Look, man, you know, again, I go back, I'm probably passionate because I remember how hard my mom worked in the 80s. And then, you know, this business that she loved became something where it was low barriers to entry. And the commission should have been reduced according to the workload being reduced as well. And that never happened.

So you can't tell me that somebody that had to do all this legwork back in the day versus somebody that barely has to unlock doors and again, not picking on all realtors, but probably a lot of them. You know, how are they getting paid the same, right?

Joe Cornwell (14:03.35)
Well, so here's the thing. Every deal is different, right? And when I was trained as a new agent and I've been in the business eight years, when I was trained as a new agent, the way it was explained to me, and let's say I'll even, I'll even give you, you know, the word justified to me is that for every deal you have where you go and unlock a couple doors and you make a 3% commission on, you know, a relatively expensive property.

And this is more like in the retail space, you know, meaning, uh, owner occupied housing, single family housing there's going to be that next client where you show them 200 houses and they don't buy any. So it is a situation like, like Socom said, you could apply the 80 20 rule to every aspect of the real estate business because the ones where you put in 20% of the work are the ones that are going to pay you 80% of the profit, or there's the ones you put in 80% of the work, you're going to make 20% of the profit.

Then obviously that, you know, goes down at every layer and the fact that technology has made the business easier. I think every real estate agent could agree with that. Obviously, all of us who grew up in the 90s and later on saw the transition of technology and how it impacted every aspect of our lives. So I don't think there's anything denying that marketing real estate is easier than it's ever been. Access to the information for consumers is easier than it's ever been.

Our job as agents is definitely quantified exponentially buy access to our phones and all the apps and software that we have access to as agents. So there's no denying that. But when you talk about effort as a value proposition to the client, I think that's where it becomes highly situational. And I know Slocum and I have different businesses than most of the agents that we know. And the value that is derived from our services are not tied to any particular form of technology.

And I don't think that they are going to be tied to technology. You know what I mean? So that the service you bring through experience and knowledge within a niche of real estate is going to be excluded from something you can just get access to on a software platform on the internet.

Ash Patel (16:08.154)
100%. Look, you guys are certainly at the top of your craft and you care deeply about your clients, the industry, and your very experience, right? But I've literally had realtors where I paid a big commission to and I'm like, you know what, man? How many hours did it take you to do this whole deal and what did you make? 50, 100,000, whatever it is? They're like, yes, but I'm getting paid for all those people that I had to spend hours and days and weeks with that I never got commission on.

And to me that's the dumbest thing ever. I'm paying for that? All those people you wasted time with is my fault and I got to pay for that? Get the hell out of here with that, right? That's the dumbest thing ever. What system do we have? Look, man, if I go into a car dealership and I buy a car but they mark it up because they haven't had any sales that month, does a dealer get to sit down with me and be like, listen, man, it's been a slow month?

We've had a lot of tire kickers in here and because of that, I've got to make my nut this month, I've got to make my commissions, so I'm going to jack up your price. Bro, that's not a real thing. That's not real life, except in the realtor world.

Slocomb Reed (17:22.678)
So it's been over two years now since I considered myself a full-time transactional real estate agent. I'm still a full-time real estate agent when you consider property management, but not transacting. And maybe worth saying here that no one is proposing any changes to the way that property management works, even though it's done primarily by real estate agents and residential property managers primarily done by realtors, members of NAR.

I have a feeling, uh, either Osh or Osh's mother is going to pull their hair out, hearing what I'm about to say. Um, but, uh, I'll start by saying that, um, there were certainly transactions where I felt like, um, the money was easy. When I was working with a client up front, um, whether determining whether or not I was the right fit to be their buyer's agent or their listing agent, I Was very clear that the level of effort time that I was committing to the transaction was not going to be the reason that they hired me it was going to be their expertise, especially with buyers and especially when I was working With many buyers at once which you know, let's call that 2015 2018 maybe 19.

I told them very explicitly, even when they were my own family, that they were going to see homes they were interested in before I was, because they would be spending more time on websites like Zillow and than I could for them. The reason they were hiring me was for my expertise. My understanding of the market for owner-occupant home buyers, my understanding of whether or not that house would actually have what they wanted.

What it would take to get that house or get a good deal on it if it was more of a buyer's market, what it would take to win in multiple offers and whether or not that was a good option for them instead of just losing out to other buyers over and over again. And then specifically with representing investors, making sure they understood their own goals, the outcomes that they wanted and whether or not a property was going to help them accomplish those goals, make sure they had realistic expectations of what it would take to execute on a business plan and what the recent trajectory of the neighborhood had been and forecasting again, this gets into opinion, not fact, but forecasting the future trajectory of the area around their investment and what the, how that would impact the asset that they were spending their money on. So those kinds of things again,

You know, I got my license in 2014, so now I can say it's been, uh, 10 years, but, um, the expertise built over time. The fact that unlike most realtors who work with investors, uh, I'm doing my own deals at the same time. And I'm personally invested in a lot of the neighborhoods that my clients were interested in. It was personally speaking, my expertise was the reason why I was being hired by my clients, not my level of effort. Now that also means.

That's also because I had transaction coordinators and listing coordinators. And I had other people on my team who were getting a piece of that commission who were doing a lot of the legwork, uh, and putting me in a position where I could focus on my expertise, uh, even saying all of that, there were still transactions where I felt like the money was easy.

So I, what, what I hope for from this, Ash is that, um, the compensation that real estate agents receive returns to being proportional or commensurate to the value that they are providing to their clients. I don't think it matters as much how many hours are worked by an agent in a transaction as the result the client receives from having worked with the agent. But I can definitely see I can go into this if you want but I can definitely see where these kinds of changes coming down the pike will make more valuable realtors better compensated and less valuable realtors less compensated.

Joe Cornwell (21:45.874)
Yeah, I agree with that completely. And that was a great synopsis of your experience, very similar to my journey. And obviously, you, Socom and I have very similar businesses. One thing I wanted to add though, Ash, to your point on the technology side, okay? You can look at every single business in America that has benefited from technology.

So something that just came to mind when you made that comment, surgeons doing these robot surgeries and 10% of the time that it was 20, 30 years ago. Look at mechanics where they have, they can plug into the car's computer now and tell them exactly what's wrong with the car in five seconds. Have you had a surgery bill in the last five years? Have you had a mechanic bill in the last five years? I can promise you they're not getting cheaper than they were in the 80s or the 90s or the 2000s.

So my point is that I don't think the ease of industry through the development of technology should correlate to, specifically correlate to a lower cost or lower compensation for the the people involved in the business. So that would be my retort to your point on that. But as Slocum said, so as Slocum said though, the way we value real estate agents, the tie to their expertise, and this is such a broad topic, it's really hard to even cover it all in one episode because there's so many niche parts of real estate. We all know that, we all invest in different aspects. And that's just in the investment side. Then you get in the retail side.

Ash Patel (22:48.612)

Joe Cornwell (23:12.834)
There's a large wide variety of agents and expertise within just the retail side. So it's, there's, there's so many things that we could break this down to, but I would be happy to see the value being tied to the individual agents in that individual situational aspect. And I, I'm totally, you know, on board with that. If that were a outcome of this, I don't think it necessarily will be, but I think we would all be happy with that.

And the other side is, you know, if you want to look at this as like, your therapist billing hours, your attorney billing hours, any of those architect, they do the billable hours, any industry that does that, if agents were going to do it that way, I think a lot of agents would be okay with that. And there's going to certainly be deals that you make less money on. But there's also gonna be a lot of those deals that every agent who does a lot of volume has done where you spent hundreds of hours working with a client and made no money.

If you think of all those tens of thousands of dollars that you would have recouped in billable hours over that time that was wasted. I don't think it would be as an inverse relationship as you might think by it being commission-based on sale.

Ash Patel (24:23.006)
All right, a lot was said there. I agree with a lot of it. You guys, you two certainly are in the top 20% in that 80-20 rule, and you give your clients a ridiculously awesome service, especially when it comes to investment properties because that's what you focus on. I agree with both of you. You should get compensated based on the level of effort. The whole mechanic thing, man, doctors, lawyers, mechanics, they don't have lobbyists, they don't have political action committees. There's still a barrier to entry to become a doctor or lawyer or mechanic, right? There's education and experience. They're compensated based on their level of acuity in that profession. But let's go back to realtors, right? Forget all these other professions. They literally brought down John Gotti for racketeering and colluding.

Now, realtors talk to me about what they do with for sale by owners. So let's go back to that very first house that I bought where the first realtor screwed me because she didn't show up on Friday. I had overpaid for this house on Saturday. When it came time for me to sell that house a few years later, I did a for sale by owner, right? And now look, I was young in my 20s and I thought I was being smart. You know what I did?

I did a flat fee listing and I gave the buyer's agent 7%, not 3%, not 4%, I gave them unheard of 7%. And then I did an email blast, every Realtors email address, I could find hundreds of Realtors. And again, a buyer's agent would normally get 3% for bringing a client to a property. If they brought a client to my property, they would get 7% commission, right?

As I emailed all these Realtors, I'm sure I still have some of these emails, but they respond back. That's really stupid what you're doing. I can list this house for you and I'm only going to charge you 3% and I'm like, okay, do you not understand what I'm trying to do? I'm trying to incentivize buyer's agents to bring clients to my house versus any other house. Can you two, being a realtor, foreshadow what happened with that whole thing?

Ash Patel (26:46.606)
Any ideas what happened with that 7%?

Slocomb Reed (26:48.726)
Well, I don't think you'd be telling the story if it went smoothly. Did you end up listing it and, uh, procuring your own? Did you end up putting it online yourself, procuring your own buyer?

Ash Patel (26:52.046)
Okay, so you know what happened?

Well, okay, so there's a whole story here. So look, The listing is on the MLS, right? Not a single realtor brought a buyer to my house. You know why? Because they collude, for sale by owner, cuts realtors out of the market. The protectionism that NAR has built, they are so anti for sale by owner. So I finally got a buyer. You know how I got this buyer?

Because they were looking at a house that was listed by a realtor down the street. As the realtor was driving them past my house to the highway, the couple asked the realtor, hey, wait, what is this house? She's like, oh, you don't want to see it. Well, no, I like the location. I like the corner a lot. Trust me, you don't want to see it. And they insisted on it. So they said, look, if you don't show it to us, we'll just call the number.

She's like fine and she admitted to her clients that they don't show for sale by owners Because it goes against the NAR family right back to that colluding and racketeering so That's the only way I was able to sell this house. What kind of nonsense is that man? You're you're purposely not being a good steward to your clients by only showing them MLS listed by realtors only instead of and look, yeah, go ahead.

Joe Cornwell (28:28.694)
All right, Slocomb, do you want to respond to this or do you want me to?

Slocomb Reed (28:33.334)
Well, I mean, my first thing is if I'd have seen a 7% commission in the MLS, I would have done my research. I would have called Osh and fit and tried to make it work for my clients. Um, not to try to get them into the wrong house, but I absolutely would have shown it and I've shown for sale by owners and I've shown, you know, it's still pretty common, you know, have, uh, someone who wants to FISBO and pay, uh, some agent, like a three or $400 fee to hit the MLS, I've got a couple of buddies who are doing that right now.

And having pretty bad experiences not necessarily with not getting the property shown but with not understanding the expectations that First time homebuyers going to have on the condition of the property

Ash Patel (29:11.126)
Or is it because the realtors refuse to show for sale by owners?

Slocomb Reed (29:15.106)
Well, he's got, he's gone under contract twice. He's looking at going under contract a third time. Um, so I think it's more about having incorrect expectations about what, uh, buyers are expecting and the way that buyers are being coached by their agents and their inspectors, especially.

The yeah, I get where you're coming from, but especially if you were offering, um, I mean, 3% plus, uh, if you were offering less than 3% and my client were interested in it, I'd call you until you pay 3% and I'll come show it. Um, but I'm definitely putting the Reed family before the NAR family. I don't feel any sort of loyalty to only things that agents list. I would have, and I did this with some, uh, Fizbo's who put their stuff on the MLS.

I also do with his bows who didn't, uh, the house showed up on Zillow, but not the MLS and my client sent it to me. Um, I, I gauged that for sale by owners, um, interest in selling, uh, and whether or not I believed we could transact, uh, over the phone before we showed it, uh, cause there are a lot of people who go for sale by owner because they believe they can get more for the house than an agent will get them. Uh, and that's because they have above our above market expectations.

That's not necessarily the conversation we're having right now. But the point that you're making about collusion among realtors is exactly what this proposed settlement is supposed to strike against, or at least the part of the settlement that is intended to satisfy the most people outside of NAR with the buyer broker.

the required buyer broker commission going away. That's the origin of the lawsuit in the first place. And I get it. Not sure how I wanna end that thought, but I think there are circumstances in which it is in the seller's best interest to offer to pay

Slocomb Reed (31:28.386)
The buyer's broker. Uh, there may be circumstances in which it's not in the seller's best interest, but, um, I, I think it makes sense to see that go away. Now, um, the, go ahead.

Joe Cornwell (31:41.194)
Yeah, I mean, so I was like, can I, can I like, here's the thing that I've heard no one talk about, and this is, I think probably one of the most frustrating aspects for me is that you hear all these people saying it's not fair for sellers who are listing a property, you have to pay a buyer's agent to negation against them. I understand that in principle. People are saying that it should be up to the buyers to pay for the run representation. I understand that, but if you follow the flow of money, and this is something I've had, I've heard no one else talk about.

The flow of money in a transaction is the buyer buys the property from the seller. The seller and the title company receives the money and the title company disperses the whatever the listing agent agreement or the listing broker agreement was in the co-op to the buyer's agent or buyer agent broker's agreement was, and they disperse that money to those parties. And then the seller pays off whatever liens they may have and they keep the proceeds. The buyer is paying for all of that. The buyer pays the listing agent 100%.

Now the only exception to that maybe, and this is very rare cases where maybe you're upside down on a property and you're not actually paying off whatever you owe and then the seller is coming out of pocket to pay their agent or co-op agent, which is obviously in today's market a very, very rare occurrence. So the argument that sellers are paying the buyer's agent technically is not correct in most cases.

The issue here is that the most exposed, the most vulnerable aspect of this entire business is the first time or the low qualified buyers, right? So in America, our government stands for the last 50 years as we wanna qualify as many people as possible to buy homes, right, in the retail space. And the biggest loser of this lawsuit, if it were to go through as stated, is that it's now going to be more difficult and challenged buyers to buy homes.

So there's FHA, 3.5% down, the lower income, VA, USDA, all of those programs that allow buyers to have little to no money out of pocket are now going to either be unrepresented or there's going to be a case where they're going to have to totally change the dynamic. And we could talk about some of those proposals of what may change if you guys want to cover that. But to me, that's my frustration with this entire, entire case in all of the media and commentary around it.

Ash Patel (34:09.546)
Valid point totally agree with you. You want to hear my frustration with all this? No one's talked about commercial brokers, right you guys have mentioned Slocomb, you know, sometimes you felt a little dirty because that deal was too easy and you made a lot of money. Well, I I'm paraphrasing. I'm telling you what I heard. So you want to talk about feeling a little uneasy about getting easy money.

Slocomb Reed (34:23.879)
I didn't say dirty. I said the money was easy. I didn't say I felt dirty.

Ash Patel (34:36.778)
And this is why I've always encouraged residential realtors to go into commercial. When you go into commercial real estate, it's the opposite of dealing with those first time buyers. You're dealing with people like me, where as soon as you introduce the deal, step aside, and they always do, we run with it. The next time you hear from me is when we set a closing date, literally introducing the deal. Now, our latest example that we're going through today is we have a national tenant represented by a broker.

We have 40,000 square feet of vacancy in a strip mall. And this broker brings a tenant to us and said, hey, this national broker, I won't tell you the name, is interested in your property. Are you guys interested? Well, yeah, we'd love to have them because they're incredible. It's a great tenant. He said, fine. My commission is $6 per foot.

This is new to me, just made this one up. What is 40,000 square feet times $6 a square foot? I gotta pay this guy $240,000 for literally making the introduction because he represents this national brand, right? I get it, it sucks, man. Like, I have to pay it because it's gonna help my center. But talk about easy money. On top of that, we have listing realtors that get 3%.

Ash Patel (36:02.098)
They get 3% on the life of the lease. So this lease has been signed already. They signed for 50% of the lease.

Slocomb Reed (36:07.718)
Ash, can we dive into that first example where you're paying 240 grand to someone making an introduction? Okay.

Ash Patel (36:12.494)
Yeah, but let me finish 100% but let me also finish by saying we're also paying our listing brokers because the way that commercial listing contracts are written, no matter where the buyer or tenant comes from, we have to pay them 3% of the entire life of this lease. So this is, let's, it's about a $280,000 a year lease times 15, $4.2 million.

Divide that or sorry multiply that by 0.03. It's roughly is that right $126,000. They got to pay my listing realtor, whatever the hell it is. Look, I'm paying, you know, three $400,000 to land a tenant. How does this make any sense? Right? Why are commercial realtors not in this NAR settlement?

Slocomb Reed (37:07.126)
I got two questions you gotta let me ask both Ash. The first question and let me give a plug for Ash here. I've been to his invest beyond multifamily conference. It's fascinating to see the deals that Ash and some of his people are doing and understand better their mindset when it comes to non-residential commercial real estate. Two questions here. The first one is signing this national brand to be your tenant in 40,000 square feet of your property. How much does that increase the value of your property by comparison to another tenant who doesn't have the same clout as a tenant for you and your

Ash Patel (37:57.106)
Great question. The answer is by millions of dollars. I get it. It's a win, win for everybody. However, how are you making a quarter million dollars for making an introduction?

Slocomb Reed (38:09.826)
So question number two is, is their compensation commensurate to the value that they are adding to you for paying it?

Ash Patel (38:20.638)
I would say yes, but they're veering from the normal 3%, 3%. This broker knows because he represents this big brand and I don't think this big brand knows what he's doing behind the scenes, right? So he's coming in saying, hey, look, if you want my brand that I represent into your shop, I want six bucks a foot. Now I'll just take the normal commission. It's almost like a crazy side deal, man.

You know, look, I get it. Look, I get it.

Slocomb Reed (38:50.83)
It also sounds like you're getting what I just said I was hoping for, where agents are getting compensated commensurate to the value they provide.

Ash Patel (38:58.582)
Um, so sorry, not effort, but hold on. There's a difference. It's not the effort that they put in earlier. You talked about, they wanted to get compensated based on their effort. It's not effort. It's value. Yeah.

Joe Cornwell (38:58.697)
Yeah, and here's another thing.

Slocomb Reed (39:08.682)
Value, I said value.

Joe Cornwell (39:10.678)
Value. Yeah, well, again, effort and value are two different dynamics. But here's the thing. If you look at this situation, we can use this as an example, these commercial brokers who do leasing, it is a much longer, tedious, drawn out process. The ones who are really good at this, and this is their entire business, they travel all over the region, all over the country, looking at these centers.

They spend tens of thousands of dollars on marketing, on expenses. They usually have big teams that they pay for. So my point I'm getting to is that while that $240,000 commission has sticker shock, and I understand that, they could have spent a hundred, $150,000 just to get to this one lease. So you don't really know how much of that is actually going in that individual agent or broker's pocket. And so that, and that exact scenario can be played out in almost every aspect of real estate, you know, the average consumer just doesn't see, you know, the, the time and the effort and costs that goes into getting to a closing.

Ash Patel (40:17.41)
Yeah, he got a master's degree in strip mall shakedowns. I get it. Look, again, I don't like it, right? I don't like it, but it's the world that they're in and I'm hoping that it gets usurped just like what's happening with residential real estate and realtors and commissions. I'm hoping at some point they, you know, the Crexi,

Joe Cornwell (40:21.55)

Ash Patel (40:46.838)
is the commercial version of Zillow. I'm hoping Zillow or one of these other tech companies educate the entire market on buying and selling houses and separate those rockstar agents from the masses. And consumers are now empowered to make better decisions, have their money better spent. And I'm hoping that translates at some point into commercial as well.

I mean we picked the wrong topic for me today. This is not uh, I've been pissed off about this for Huh?

Slocomb Reed (41:18.891)
I believe you picked this topic, Ash. I'm pretty sure you're the one who wanted to get us together to discuss this.

Ash Patel (41:24.414)
That's true.

Slocomb Reed (41:26.878)
I have, I have one anecdote I'd like to end our conversation on. Well, I want to hear from each of you as well, but I think my, my final thoughts on this with regards to the NRA NAR settlement are, um, I'm going to go personal, the, uh, let's pretend that we were much closer to mid July or that we were talking during a time when the settlement could have been gone and enforced.

Right now I am flipping a house that is very much starter home friendly. We're talking about an ARV of 140 to 145. So, so there are two, there are two main prospective buyers. You have, you have investors who want something single family that is stable, everything's renovated, won't have to fix things, it should cashflow. And then you have first time home buyers.

And one of the reasons we talk about first time home buyers getting, um, it being so severely impacted by, uh, the prospects of this settlement is that they are, uh, with, with whatever loan product they're bringing to the table, they're looking to put down zero to three and a half percent of the purchase price. Closing costs can be negotiated onto the seller side of the settlement statement.

Um, these are the least financially solvent buyers in all of real estate. Um, and so the prospect of having to bring 3% to the table to pay their agent, uh, is, is going to make it much more difficult for these less financially solvent first time home buyers to buy homes. I am, uh, planning to list this thing myself. I'm the owner and I am 100% going to offer to pay the buyer broker, the buyer brokers commission with regards to however, however I need to do it.

Because as the seller, it is in my best interest to pay that buyer's broker commission to make sure that as many first time home buyers as may be interested in my house, have the capacity to buy it. I see it as being in my best interest as the seller to be selling, to be paying the buyers.

Slocomb Reed (43:51.318)
Brokers Commission because it's going to bring me more buyers. It's going to increase demand for my property and likely bring me a higher purchase price, possibly even by more than 3%.

Joe Cornwell (44:02.474)
Yeah, couldn't agree more. I, you know, all of my listing consults that I'm going to be doing the, you know, during the next six months or so are going to be the same advice. And unless we see something drastically change within the market here in our local market in Southwest Ohio, I cannot imagine my advice being different than offering to compensate buyer's agents in, especially in most cases and most price points and most asset types.

Now there could be situational, things where that doesn't make sense, but I don't see the industry on its face changing at least in the short term and I think for the further reasons so come to said from his own personal perspective I'm I would be doing you know, I have a couple of my own properties. I'm selling same thing I'm offering buyers agents compensation because that is going to net me the highest Sale price and at the end of the day if you're selling property, that's you know, it's most people's goal.

And in the same back to the, you know, for sale by owner thing, the last thing I'll say on that is that the data supports the fact that when, when for sale by owners sell by themselves, they net less money than when they list and pay a listing agent. Uh, and, and you know, we can, we can pull up the, the stats on that. But the point is that there's a reason why that happens. It's because the lack of knowledge, the lack of agent involvement and the lack of motivation from, from buyers and buyers agents drop down the offer prices.

Ash Patel (45:27.522)
Yeah, the study was probably done by NAR and it's because you people collude and don't show for sale by I'm going to stop. Listen, I love you guys. Yeah, you people. You know what I mean? Look, I love you guys, even though you probably think I'm like a step brother you don't want to see very often. I respect the hell out of you two. Love this conversation. I'm glad you brought up those low income first time buyers because both of you are right. Nobody's talking about that.

Joe Cornwell (45:37.167)
What do you mean you people?

Ash Patel (45:54.73)
They're talking about the big settlement, the changes and blah, but nobody's really talking about that. So gentlemen, look, great conversation. I'm probably going to get canceled by a lot of brokers and realtors. I'm not against. Well, no, I hit them all today. I hit them all. I'm not against realtors, right? It's the system. It's set up that way. Why not take advantage of it? Change the system, man. And I'm hoping that starts to happen. If I was a realtor, I'd do the same thing.

Slocomb Reed (46:08.214)
Yeah, but those are residential brokers. They don't matter to you, right, Ash?

Joe Cornwell (46:12.418)

Ash Patel (46:24.858)
So I'm not blaming the individuals, blaming NAR, really. I'm solely blaming NAR. How about that? Look, you guys are awesome, man. Thank you for putting up with me today.

Joe Cornwell (46:35.646)
Yeah, thanks for having us.

Slocomb Reed (46:37.13)
Yeah, great conversation.

Ash Patel (46:37.894)
Best ever listeners, hey, I hope you will stick around for another episode after this because we enjoyed this conversation. I hope you guys enjoyed it as well. If you enjoyed it, please leave us a five-star review. Share this podcast with someone you think can benefit from it. Also follow, subscribe, and have a best ever day. One last thing, use the code connect for the Best Ever Conference 2024. It's coming up in April. We're all gonna be there. Would love to see you there as well. Thank you.

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