NAR Lawsuit Updates: Insights with HousingWire's James Kleimann

Mike Mills

(0:08) Well, what is up to all you internet explorers out there. (0:12) So, did you know that right now 61% of Americans agree with the main idea of the NAR lawsuit, which is that home sellers paying the buyer agent commissions is unfair and an anti-competitive practice. (0:26) And 66% of would-be first-time home buyers indicated that they wouldn't be able to afford their agent's commission in addition to their down payment and closing costs.

(0:35) All of this according to a recent survey by Clear Real Estate. (0:39) But, you know what else, or you know who else's opinion matters? (0:42) The Department of Justice.

(0:43) So, what do they think about it? (0:45) And what effect is this going to have on the housing market going forward? (0:48) And oh, by the way, what role is AI going to play in all this as it's slowly taking over the world?

(0:52) Well, there's a ton of questions out there and unfortunately right now there's not a ton of answers. (0:57) So, what do we do? (0:58) Well, you've come to the right place.

(0:59) This is the Texas Real Estate and Finance Podcast and I'm your host, Mike Mills, a North Texas mortgage banker with Geneva Financial and my hope is to be here each week to sift through all the chaos and help you find your way in this ever-changing market. (1:11) So, on today's episode, we are here to help answer all those questions or at least, or at the very least, shed some light on what's happening out there and make you aware of everything coming your way so you can prepare your business for success in the new world of real estate. (1:24) And if anyone has a pulse on the housing market right now, it's today's guest.

(1:28) He's your inside man to the news authority for all things housing and he's here today to spill the tea. (1:34) So, however, before we start, I want to thank all you guys, the listeners. (1:39) Our little podcast that could has reached over 4,000 people now and we are growing by the day and it's all thanks to you guys.

(1:46) Now, this is usually the spot where I ask for like, you know, for you to like, subscribe, comment, and share. (1:50) But today, I just want to say thank you. (1:52) You guys have made this thing what it is and what it will become and I appreciate it more than you know.

(1:56) So, thank you. (1:58) All right, let's get the show on the road. (1:59) So, my guest today is obsessed with housing, narratives, data, macro, micro, all of it.

(2:04) And he spent over a decade in newsrooms across every market in real estate and has a reputation for breaking big stories and shedding light on what industry insiders actually say and do, not just what they put in the press releases. (2:17) He authors a widely read newsletter for mortgage professionals called Lending Life and also just happens to be the managing editor for HousingWire, the country's leading news authority on all things real estate. (2:28) So, without further ado, let's welcome to the podcast, our very special guest, James Kleinman.

James Kleimann

(2:33) Thanks so much. (2:34) I appreciate you having me here. (2:36) I really appreciate it.

Mike Mills

(2:38) Yes. (2:38) Well, thank you so much. (2:39) This is a big deal for me.

(2:40) Like I told you guys or like I told you before we started, I am a big fan of HousingWire. (2:45) I'm on there all the time. (2:46) I get a lot of my information on what I talk about on my show from there.

(2:49) So, I appreciate what you guys do. (2:51) Y'all are killing it right now and putting out a ton of great information. (2:54) So, if anybody isn't aware, if you're in real estate, you don't know what HousingWire is, then you really need to get out from under the rock.

(3:01) They have free information there. (3:03) There is a paid part to it as well, but I encourage you to check it out. (3:07) There's updated stories every day about housing trends, rates, if you're real estate, mortgage, title, insurance, appraisals, it's all there.

(3:14) So, if you want to know what's happening in our market, you have to check that out. (3:17) And James is the guy curating all of it. (3:19) Yes?

James Kleimann

(3:20) Yeah. (3:20) I'm assigning stories, editing stories. (3:22) I'm reporting my own stories, mostly mortgage focused.

(3:26) And we're really trying to provide people the full picture, not just the little piece of what realtors might care about or what loan officers might care about or maybe an appraiser. (3:35) We're really trying to put all of the little puzzle pieces together so that the industry professionals can do a better job of serving the American public.

Mike Mills

(3:43) Yeah. (3:44) Well, and you guys are killing it. (3:45) So, like I said, I can't thank you enough.

(3:47) I'm a huge fan. (3:47) I'm there pretty much every single day, multiple times a day checking out what's happening. (3:51) Now, before we get started on some of the recent updates, I do want to get your take on something.

(3:56) So, those survey numbers that I shared right at the start of this, which I got from you, by the way, so thank you very much. (4:02) Well, there was a few that I left out and it was that 82% of realtors believe that these changes will ultimately hurt homebuyers, which I personally agree with, and that 42% of agents think that it'll ultimately hurt home sellers also, which I can somewhat see as well. (4:16) So, housing is what pays both of our bills.

(4:19) So, obviously, we're going to have a little bit of bias here. (4:22) But that being said, I want to know your opinion because you look at this all the day, every day. (4:26) Why is there such a disconnect between what consumers believe about the results of this lawsuit and what professionals in the industry think?

(4:33) And if you were a realtor right now talking to a buyer or seller, what would you tell them to try to help bridge that gap a little bit? (4:39) Why do we have such a disconnect?

James Kleimann

(4:44) I want to be very measured in how I respond to this because I think it's a really important question. (4:50) The first part of it is, this is just one survey. (4:53) It's by Clever Real Estate.

(4:54) I have no reason to think that it's not done with the absolute highest integrity. (4:59) It's just one survey. (5:00) It is not- It's a sample of people.

(5:03) Exactly. (5:03) It's a sample of people. (5:05) I do think, given just the dynamics of real estate, most people are probably only going to transact a couple times in their lifetime.

(5:12) The average person just doesn't really know a whole lot about the ins and outs of real estate, of buying and selling a home. (5:20) Most people don't know what BPS stands for, and nor should they. (5:24) That's okay.

(5:26) But I think the reality is they probably read the headline, and they probably read the New York Times story, and they probably maybe saw something on the journal or wherever. (5:36) In big media, maybe CNN had a report, and they probably just gleaned from whatever that headline was and said, okay, well, what's actually happening now is if I'm buying a home, then I need to pay for my own agent. (5:48) If I'm selling a home, then I no longer have to pay for the buyer's agent.

(5:52) That sounds fair to me. (5:55) Going a couple steps further and thinking about all of the implications of the settlement agreement through Sitzer and Burnett, it's a lot. (6:03) It's complicated.

(6:04) There's still a lot of things that haven't really been determined yet that we don't even know. (6:08) You and I, Mike, are in the business, so to speak. (6:11) If we don't even know how some of this cake is going to be baked, why would anyone expect the average consumer, who's probably not buying or selling right now, to really understand exactly how to do it?

(6:23) Now, if I were an agent or a loan officer, I think this is a great opportunity. (6:29) The reason is because you can fill the void. (6:31) There is so much misinformation.

(6:33) There's disinformation. (6:34) I think there are a lot of people who want to manipulate the situation for their own purposes. (6:41) There's a big void here to be filled.

(6:43) If you're able to come to the table and say, as a buyer agent, here's what I'm going to get you. (6:53) I'm going to be armed with all the data, locally, countywide, regionally, whatever is pertinent to that home seller and the decision that they make in terms of listing the price or the approach they take in marketing. (7:09) I know this is so cliche because everyone has said it now.

(7:11) It really, no joke, is the time to explain why you're valuable, why anyone should trust you, why anyone should be working with you. (7:20) You're also probably going to want to start implementing best practices as an agent if you haven't already. (7:25) That means you're going to get a buyer agent agreement.

(7:28) You're going to determine from the onset what the commission will be if a seller agent does not end up contributing to your commission. (7:39) This is an opportunity to have a really important conversation. (7:42) If I were an agent, personally, again, I'm not an agent.

(7:45) I've never sold a house. (7:46) I've never originated a loan. (7:47) I'm just a guy in Brooklyn.

(7:50) Again, if I were in the arena as they say, I would be thinking about how do I become an advisor for you beyond the transaction? (7:56) How do I think about is this a starter home? (7:59) Okay.

(7:59) Are you thinking about maybe mom and dad have mobility issues as they're getting older and they need something in the next five years? (8:07) Maybe you want to think about an ADU if that applies in your market. (8:11) I want to think about how do I get them a better situation a couple of years from now?

(8:16) You want to be an advisor beyond just what happens between now and the closing table. (8:22) Because the best realtors in America, they get referral and repeat business. (8:26) The best way to do that is to provide really good fucking service.

(8:29) It's not that hard.

Mike Mills

(8:30) No, it's not.

James Kleimann

(8:31) And it's worth it. (8:32) Sorry.

Mike Mills

(8:33) No, no, no. (8:33) Please, go for it. (8:34) We can certainly do that.

(8:36) I do it all the time. (8:37) No problem at all. (8:38) I have a sailor's mouth.

(8:41) You're 100% correct. (8:43) That is the big push right now that we are trying to do as an industry. (8:47) What I talk about on the show all the time is having realtors understand this value proposition, which again is a cliched word.

(8:54) We use it all the time these days, especially with this lawsuit. (8:57) But it's so critical to the consumer out there to understand what you're doing. (9:02) Because like you said, they don't do this very often.

(9:05) This is our job. (9:06) We do it every day. (9:08) We know the ins and outs, but the average consumer does not do this, but a few times in their life.

(9:13) And the only time they even get interested in the topic most of the time is when they're getting ready to do that. (9:18) The rest of the time, they're paying attention to their own life and they don't know what's happening. (9:22) And that kind of leads me to another (9:24) thing, which I'm curious, you being in media for so long and being a journalist for such a long (9:29) period of time, why do you think the corporate narrative is such that, because when I read (9:36) the New York Times, when I read the Washington Post and see these headlines out there, (9:41) it's talking about how renting is the new trend and how the next generation can't wait to be mobile (9:47) and rent and how housing is affordable and you're going to save so much money now that realtors (9:52) aren't getting paid.

(9:53) These are the stories that I see. (9:55) And so I'm curious if the general consumer is consuming this and they're seeing this stuff, of course, that's what they're going to think. (10:00) Why is that section of the media giving that story out so much if we don't feel like that's actually, we don't know, but those in the industry don't feel like that's where it's actually headed?

(10:11) Why is that happening?

James Kleimann

(10:12) I think the reason is actually very simple. (10:14) And it's one of the more challenging fundamental issues with media is that large publications, if let's say I wanted to work at the New Yorker or the New York Times or the Washington Post, usually you get a beat, right? (10:30) So you would start at maybe City Hall or maybe you cover breaking news, you go to what they call the mayhem beat, right?

(10:36) You cover fires and murders and stuff like that because it's how people cut your teeth. (10:43) But it's also how you learn how to navigate the situational aspects of just chaos and getting prepared to take on more nuanced roles. (10:53) And then you gradually climb up and you take different opportunities and different beats.

(10:57) And maybe you even end up getting into business reporting, right? (11:00) And business reporting is, I think it's the best there is. (11:05) The problem is that all these large publications, you don't have a lot of people who have been covering the same subjects, the same stories, the same people for 10, 15, 20 years.

(11:17) You don't have the institutional knowledge that I think you do have in a lot of the trade publications. (11:22) And this is no sliding. (11:25) One of the New York Times reporters on that beat has broken a lot of really big, important, serious, great stories.

(11:32) It's a really, really impressive work. (11:35) That's a little bit better work than I've done on those subjects for what it's worth. (11:39) So I just want to be very forthright about that.

(11:43) But when it comes to covering the more boring, more nuanced elemental side of how commissions are going to change legal structures, different types of brokerages, I just don't think they know enough about how the industry practitioners actually practice. (12:07) Most decent reporters know how a commission aggregate works, but I don't think that they understand the real small details. (12:16) And those small details really matter.

Mike Mills

(12:18) Well, I guess it's kind of like, I don't know if you can see, I'm wearing my Mavs shirt here because we got game one of the NBA finals tonight. (12:28) Sorry about the Knicks, by the way. (12:30) But my point is that you can have people that don't pay attention to basketball at all, and then they tune in for the finals, and then they have a bunch of opinions and thoughts about how it's going, having no previous information about how the entire thing had progressed to that point.

(12:47) And you're kind of like, okay, well, I appreciate your insight. (12:50) But at the end of the day, you're not in the weeds with us every single day on this stuff. (12:54) That makes a lot of sense.

(12:56) You have to report. (12:57) They have to have people talk about these stories because they're relevant and out there. (13:02) But a lot of the people talking about it aren't necessarily the authorities on it.

(13:05) They're just doing their job, basically.

James Kleimann

(13:07) It would be the equivalent of them covering whatever the divisional through the finals is. (13:13) You get to know some of the main players. (13:15) You know pretty early on who the stars are.

(13:18) A lot of that stuff is pretty obvious. (13:21) But you probably don't know the assistant GM. (13:24) You probably don't know that they were ravaged by injuries during the regular season.

(13:29) But a lot of those key players are back, or they really started gelling, or they're really good at threes now, or their pick and roll has really gotten better over the last couple. (13:37) That sort of thing you notice because you've been following the progression for a long time. (13:42) That's one of the areas in which I think there's a big advantage for being a trade publication or being someone who's...

(13:48) I've been covering this for 10 years now. (13:51) News of the NAR lawsuit is something that I've been thinking about since 2019. (13:56) This is something that they probably only just got to a year ago or less.

(14:00) I also went to the trial. (14:02) I went to the trial in Kansas City. (14:04) They didn't do that.

(14:05) I'm like, that's okay. (14:05) They don't have to do that. (14:07) But I think it does change your level of understanding on how the industry is affecting.

(14:14) Also, I don't think the New York Times gives a shit about the industry. (14:16) They're writing for an audience of 50, 60, 100 million people. (14:20) It's just a total...

(14:21) And we're writing for the Mike Mills of the world. (14:24) I don't care as much about the average consumer. (14:27) My audience is different.

Mike Mills

(14:30) Right. (14:30) Yeah. (14:30) You're trying to get to the people that are working in it every single day, not the general consumer that has very little knowledge on it as well.

(14:36) So yeah, that makes complete sense. (14:38) Right. (14:38) Well, all right.

(14:39) So speaking of the lawsuit specifically, obviously you're covering this all the time. (14:44) You're paying attention to this every single day. (14:46) There's been several developments that have happened just in the last week or so related to...

(14:51) There's been a couple of MLSs. (14:53) I saw recently that Northwest MLS on the West Coast basically said that they're not following what the guidelines were for NAR as far as the buyer commissions. (15:03) They feel like they have a better setup themselves.

(15:06) And then- They probably do. (15:08) Yeah. (15:09) Then there's one in the Northeast that is like, okay, yeah, we're going to comply.

(15:12) Bright MLS said, okay, we're on board. (15:14) We're going to do it. (15:15) And then slowly but surely, and this is really where I'm going with this.

(15:18) The Department of Justice has started to give... (15:22) There's have some attorneys said this at this particular trial. (15:25) I've seen little blurbs here and there.

(15:27) And I get the feeling, and I've said this from the beginning, but it hasn't come to fruition. (15:31) And I hope I'm wrong, is that I feel like the Department of Justice is dancing around the idea that they really want to throw their hat back in the ring again. (15:39) They're opening this case back up and then they want to completely decouple agent commissions between buyers and sellers, where even if it's not advertised, you just can't pay their commission.

(15:51) And of course, within the industry, we all know that that would be very bad for many, many reasons, or it would at least dramatically affect how we have to do things. (15:59) So what are you hearing right now? (16:01) What are the most recent developments?

(16:03) What's going on in that world?

James Kleimann

(16:05) So I think it's really instructive to think about a couple of key dates, and maybe that will provide the good framing for where we go next. (16:13) And so why don't we start off with June 18th. (16:16) Now, this is the opt-in deadline for the NAR settlement.

(16:20) And so let's say you're a brokerage or a multiple listing service, and you are not covered by the $418 million NAR settlement to opt into the deal and just avoid further litigation related to these commission lawsuits. (16:38) That's the deadline to which you must comply. (16:41) So there are about 90 brokerages, and these are firms that did more than $2 billion in annual sales volume.

(16:48) And there's about, I think it's like 30-ish MLSs that are not wholly owned by the Realtor Association. (16:57) So Northwest MLS, which Mike, you just referenced, they're in Portland and Oregon, and they're coming up with their own series of rules. (17:05) And to be clear, they've been ahead of the curve on pretty much everything that the lawyers have gone after NAR and the brokerages about.

(17:14) And so they feel like they have a better shot, and they have not been named to any of these lawsuits. (17:20) By the way, there are more than 20 lawsuits at this point between buyers and sellers, and they've been A-okay to date. (17:28) Now, it's also part of a financial calculation.

(17:31) So one, they don't like a lot of the terms of the NAR settlement. (17:36) The biggest being that removing it from the MLS is okay to NAR, and it's okay to the plaintiffs, but they don't feel like this is going to promote best practices by just pushing it somewhere else to a different platform or maybe just- Creating like a shadow industry almost if you're not completely taking it off.

Mike Mills

(17:58) It's like you're creating this other little siloed information that you don't have control over.

James Kleimann

(18:02) They're basically just saying it doesn't promote transparency by just pushing it somewhere else. (18:06) And so that's fair. (18:08) I think that's a reasonable position to take.

(18:10) The big one is just the number. (18:11) It's $3.5 million. (18:13) So the way it works for the MLS is you're basically paying, I think it's like $100 per seat or per member that you have in the MLS.

(18:22) And so you multiply that. (18:24) And so they have about 35,000 members at Northwest MLS. (18:28) So they would have, if they had opted into the settlement, had to pay $3.5 million. (18:33) MLSs do not generally, I mean, some of them are very well capitalized. (18:38) I have no reason to think that Northwest MLS isn't doing pretty well, but- But they're not rolling cash.

Mike Mills

(18:45) Yeah, yeah.

James Kleimann

(18:45) Yeah. (18:45) And they don't have to, right? (18:46) They're not a party to the settlement because they haven't been sued.

(18:49) They're not realtor owned. (18:52) And they've also taken a lot of issues with some of the Department of Justice positions on commissions and the study of steering, right? (19:02) That's another major subject that no doubt we'll get to at some stage.

(19:06) But they just don't feel like it's a bargain for them to hitch their wagon in R. (19:11) And by the way, we're only talking about home sellers right here, Mike. (19:14) So there are pending cases of home buyers.

(19:18) I don't think their cases are as strong.

Mike Mills

(19:20) Yeah. (19:21) They didn't pay anything.

James Kleimann

(19:22) Well, most cases they didn't pay anything, but- I mean, so just to cut that off the stage, the vast majority of people who sell the home are also going to buy a home. (19:34) Now, the judge in the Sitzer-Burnett case in Missouri that really has gotten a lot of the attention here for being the one that settled is, the judge basically said, look, if you're a buyer, but you also sold, you cannot be a part of any class. (19:51) So this is only going forward.

(19:53) So whatever is covered under the $418 million settlement with NAR, that's pretty much done. (20:01) I mean, it's not finalized. (20:02) That'll be probably going to take place in November.

(20:05) But the first upcoming date that I think people need to look to is June 18th. (20:09) So we're going to figure out which brokerages are going to be opting in, which MLSs are going to be opting in. (20:15) Now, the next major dates are June 20th or potentially the 21st.

(20:21) So just a couple days later, and this is the deadline for the Department of Justice to weigh in on several of these court cases. (20:29) And as you rightly noted, they've kind of been, I don't want to say wishy-washy about it, but they've said, we want to be very clear that we don't support just moving it off the MLS. (20:40) But they have also not made any indication that they're going to intercede in these cases.

(20:46) And for Sitzer Burnett, they could write a statement of interest. (20:50) They could basically write a nasty letter and say, we don't like this. (20:55) We think you should stop this.

(20:56) And the judge can basically say, yeah, don't care. (21:00) This is a totally reasonable agreement between the plaintiff and the defendants and noted, kick dirt. (21:06) See you later.

Mike Mills

(21:07) Thanks for your opinion, but pound sand. (21:09) We got it. (21:10) We got it.

James Kleimann

(21:10) Exactly. (21:11) Now they have taken interest in another case out of Boston called the No Select Case. (21:15) They've also taken interest in a case out of Illinois.

(21:19) And I think there is a very good chance that the DOJ doesn't ultimately send any statement of interest or try to get involved in these actual cases. (21:33) But yes, but there's a big asterisk here. (21:36) The big asterisk is the Department of Justice recently won a really major case that allows them to open up their own investigation against NAR and some of the practices.

Mike Mills

(21:47) So if the practice- Any time there's a limit on that?

James Kleimann

(21:49) Anytime. (21:50) Yeah.

Mike Mills

(21:50) I mean, the DOJ- Do you think that's a factor where an election year has anything to do with any of this?

James Kleimann

(21:55) Yeah, of course I do. (21:57) Yeah. (21:58) I mean, even the most cynical person has to think that there's certainly good reason- You don't want to ruffle too many feathers, right?

Mike Mills

(22:05) You don't want to piss off too many people, especially in such a big industry like real estate, by going and messing with their stuff when you need them to go to the polls and vote, right?

James Kleimann

(22:13) Well, I think there's this sort of image and it's a false one because we know that the vast majority of real estate agents, one, they're part-timers. (22:20) They maybe do a couple of deals a year or fewer, right? (22:22) In recent times, in a lot of cases, they've done zero or one deal over the last 12 months.

(22:28) And these are often the PTA mom or somebody who got their license because they wanted to do deals on their own or all kinds of random part-timers in the industry. (22:40) And then you have the full-timers, right? (22:42) And they're not the Ryan Serhants of the world.

(22:45) They're not the Frederick Eklunds. (22:48) They're not these dudes who have TV shows and are showing up in Bentleys and selling giant-ass penthouses in Beverly Hills, right? (22:54) That's the life of the 0.001%. But I think there is a perception that you're a full-time real estate agent. (23:02) And also, real estate want to project success, the agents. (23:06) So, I think they also, in some ways, play a role in why there's this perception that they're...

Mike Mills

(23:12) They're flexing a little too much. (23:14) They need to slow down a little bit.

James Kleimann

(23:15) Yeah, me, right? (23:15) And I think they're a little bit more like Annette Bening in American Beauty, right? (23:19) Do you ever see this scene?

(23:20) She's staring in the mirror. (23:21) She's got these little... (23:23) She's talking to herself and she's like, you will sell this house today.

(23:25) You will sell this house today. (23:27) And I think that's more representative of the actual agent experience of a full-timer. (23:32) But again, my point being, it's not popular to think that the agent is just this everyday PTA soccer mom who's out there trying to help people buy a fucking home.

(23:44) The Department of Justice and I this framing as a large cohort of these agents have been stealing from you. (23:53) They've been stealing from sellers. (23:56) They've been stealing from buyers because they're getting these commissions that are 5%, 6%.

(24:01) And it's not deserved because they're just cashing in on the equity that is accumulated. (24:07) And that's your hard-earned money, right? (24:08) That's the market that has benefited you.

(24:11) And why should they be taking $30,000, $50,000 out of your pocket when the job actually hasn't changed meaningfully in the last 20, 30 years? (24:21) I don't think that's strictly accurate. (24:23) I do think that commissions are higher than they used to be because the equity positions are higher.

(24:29) That's math, right? (24:30) Yeah.

Mike Mills

(24:31) Price can go up, you're going to make more money.

James Kleimann

(24:32) Well, the same thing for devious people who have been sitting together in these smoke-filled rooms and saying, fuck John Brown. (24:40) We're going to get 6% into that idiot. (24:42) He's going to say, can this be negotiated?

(24:44) And we're going to say, yeah, only up. (24:46) And he's going to buy it. (24:47) He's going to pay me $40,000.

(24:48) I don't know.

Mike Mills

(24:49) It just seems like- Well, they don't see the life. (24:51) They don't see the buyer's agent that goes and shows, especially when we were at the period of time when housing was so in demand that you're showing 30 houses. (24:59) You're writing 15 offers because there's 20 offers on every house and you're trying to figure out.

(25:04) And oh, by the way, that person might just decide one day that they don't want to buy a house. (25:08) And now you've spent hours and hours and hours of your time trying to help this human and they don't want to buy and you make $0. (25:15) And that happens all the time.

(25:16) So there's so many different layers to it that the average person just doesn't see. (25:21) And unfortunately, now I do think there's an argument for is 3% of $500,000 and 3% of $200,000 when the job is very similar, not the same, but similar. (25:34) Is there a little bit of something there?

(25:37) Maybe so.

James Kleimann

(25:37) Reasonable question. (25:39) Yeah. (25:39) I have no issue with people picking nits at that one.

(25:42) That makes sense to me. (25:43) Is the job, should he be getting 3% if it's a $20 million house?

Mike Mills

(25:50) Probably not. (25:52) It's a lot of money.

James Kleimann

(25:53) Yeah. (25:53) And in a lot of cases they don't. (25:54) In the luxury space, you don't get the full.

(25:57) That's not normal. (25:59) But again, we're tying the value of the service to the value of the property, even if the service is not meaningfully different than something at a much higher price point or a much lower price point. (26:11) And so for one of those, I do think that means we're going to see changes in the construction of these agreements going forward.

(26:18) I do think people are going to be a little bit more likely to negotiate those fees starting in August. (26:25) We didn't get to that major date, but August 17 is the date that these NAR rules, the new NAR rules will go into effect. (26:32) And I think it's going to be a wild ass month personally.

Mike Mills

(26:36) I very much agree. (26:38) And I think the reason for that really is, and this is a function of what the market's been, not a function of people's ability to have this conversation. (26:46) But in the past, when a buyer calls you and says, Hey, I want to go look at homes as a realtor.

(26:53) You're like, great. (26:53) Let's go look. (26:54) When are you available?

(26:54) Here's the times, here's the houses. (26:56) Let's go check it out. (26:57) Right.

(26:57) You're great. (26:58) Oh yeah. (26:58) I want to help you.

(26:59) Let's go do this. (27:00) Okay. (27:00) Well now, before you go show them that first house, you have to have a rep agreement signed and you have to have it completed.

(27:09) And in that rep agreement, it has to say how much money you're going to make for their service. (27:14) Okay. (27:14) Or for that, that agent service.

(27:16) And in that agreement, it has to be specific. (27:19) And so if you say, well, I'm only going to charge you 1%, but the seller is offering three, they can't offer it, but let's say it's somewhere else that you can get three. (27:27) Well, you can't, you can get one.

(27:28) And then you're also going to have to explain to the buyer that, yeah, we're going to try to get the seller to pay this, or maybe that's the conversation. (27:35) But if they don't, then you're going to pay me that. (27:38) And then they're going, wait a minute, I'm going to have to pay you 1%.

(27:41) So I'm going to pay you 3,000, 5,000, whatever that number is. (27:45) And that is a hard conversation that you're going to have to have with someone before you even step foot in the first house that you look at.

James Kleimann

(27:51) It's going to be so much more difficult to get a buyer to sign a contract. (27:56) And we also know that in most cases, people don't interview like four or five or six different agents. (28:02) If you get to them first and you have an actual presentation, you have an actual plan.

(28:08) In most cases, the prospective home buyer is already going to have identified a bunch of homes on Zillow or Realtor or Homes.com or whatever platform they like best, but they're going to be wondering. (28:20) And again, keep in mind, half of them nowadays are going to be first-time home buyers. (28:24) So you're going to need a lot of handholding.

(28:25) What they're going to be wondering about is like, okay, how does an inspection work? (28:29) Okay. (28:30) If there's a crack in the foundation, like should I be worried?

(28:33) Should I know a guy to fix it? (28:35) Do I need to? (28:36) You're going to be a troubleshooter and maybe you'll be a good negotiator and you'll have to really understand how certain programs work.

(28:43) Like TPA, if you can help the buyer with just some of the major, I'm a first-time home buyer. (28:52) I don't know what I'm doing. (28:54) Help me.

(28:55) How do I figure this out? (28:56) So for that reason, I actually think, Mike, and I know this is a bit of a contrarian deal. (29:00) I think this is going to be in the long run, an amazing development for professional agents.

(29:06) I think my aunt Sally, who does a deal a year, who doesn't know what down payment assistance even is, who is just going to take you and give you the form contract and collect her $5,000 or whatever it ends up being, doesn't provide enough value to make it in this market and what will end up being that market. (29:25) And so if you can actually deliver the goods, if you can help them get better financing, if you can help them- Navigate the process. (29:34) Yeah.

(29:35) That's worth its weight in gold. (29:37) And like, that's not going to go away. (29:38) I also think that most sellers are still going to see the value in someone bringing them a qualified buyer who will actually buy that freaking house.

(29:47) I think in the vast majority of situations, the seller is still going to pay. (29:52) And I don't think the splits are going to change that much, at least for the first couple of years.

Mike Mills

(29:56) Yeah. (29:56) It's going to be bumpy, but I think it'll level out at some point and will stay. (30:00) Again, as long as the DOJ doesn't decide to come in and make any kind of sweeping changes, I also agree.

(30:05) It's going to. (30:07) The real impactful time will be when mortgage rates fall again, which they will, they're going to come down at some point. (30:15) I mean, we can argue all day.

James Kleimann

(30:17) I mean, I think- How long have we been saying that though, Mike?

Mike Mills

(30:19) Yeah. (30:19) Well, I mean, but right now you look at inflation, you look at the jobs report, you look at all this stuff that's trending in the opposite, in the wrong direction for the economy, which is generally good for rates. (30:29) We're not getting to 2% or 3%.

James Kleimann

(30:31) By the way, I think we're going to hit 6% tomorrow if everything breaks right. (30:37) Unemployment? (30:37) No, no, no, no.

(30:38) I'm sorry. (30:38) The rates, mortgage rates will be in the sixes tomorrow. (30:41) That's what I think.

(30:42) I mean, they're already pretty close to six, nine.

Mike Mills

(30:45) Yeah, I agree. (30:45) I think you're right. (30:46) I think the unemployment rate is going to come out.

(30:48) I think (30:49) it's going to be in the fours, which I still believe it's actually higher than that because (30:54) when you go back and look at all the revisions that have been made over the last six to eight (30:58) months, I mean, I don't know, I'm sure you're aware of this, but in 2023, I think, and I'm going to (31:03) get the numbers not exactly right, but in the third quarter of 2023, the BLS showed that we (31:07) added something like 780,000 jobs.

James Kleimann

(31:09) This is the Bloomberg report I saw the other day. (31:10) Yeah.

Mike Mills

(31:11) Yes. (31:11) And now they've revised that number. (31:13) And of course, it's only in little headlines here and there, but it's now revised back to where we actually were down like 150,000 jobs.

(31:20) So it was like 800,000 jobs swing once the actual numbers came out.

James Kleimann

(31:25) Yeah. (31:25) It's like, you ever see the, there's this amazing HBO show came on forever ago. (31:29) It was called The Leftovers.

Mike Mills

(31:31) Yes. (31:31) Yes. (31:32) Yes.

James Kleimann

(31:32) So good. (31:33) And it was just like people randomly disappeared. (31:34) It's like that for the job.

Mike Mills

(31:35) It just went away. (31:36) Nobody knew what happened. (31:37) Yes.

(31:37) Yeah. (31:38) Yeah. (31:38) Well, and then, you know, I, I'm a, I don't know if you know who Danielle Demartino booth is, but she's been on this unemployment, um, uh, kick for a while.

(31:47) She's been talking about it for almost, you know, not quite a year, but we're getting onto where she's been hammering that on. (31:52) She's on Fox news all the time talking about, look, the layoffs have been happening. (31:55) They're underreported.

(31:56) You know, these people that are getting severances from the tech companies on the West coast, they're not even being factored into some extent for six to nine months because they get these big severances, but you know, they're going to be filing for unemployment. (32:07) This is all going to start to kind of snowball and it's going to happen at once. (32:10) And it's kind of one of those things where, you know, she says the fed kept rates too low for too long, which I a hundred percent agree that they did.

(32:17) But now she's kind of heading into the, now we're keeping them a little too high for too long because we're at some point it's going to get out of control. (32:24) And we're, you know, we're even, you know, they're, they're starting to talk about the, the hated stagflation, you know, which is really bad. (32:30) If we get to that point, we'll see, but you know, time will tell.

James Kleimann

(32:33) Yeah. (32:33) I mean, like also, if you look at the way that they determine, you know, like a housing inflation, it's, it's like somebody created with like an abacus in 1962 and like said, like, ah, fuck it. (32:44) Like we don't need to fix this one.

(32:46) It's so, so crazy. (32:47) We have such better information. (32:49) Like the modeling is, is really, really outdated.

(32:52) So we're looking at like 12 month differences. (32:56) Like there's no good reason. (32:58) It's, it's so poorly constructed.

(32:59) And like, it's one of the major, it's like 40% of CPI.

Mike Mills

(33:03) Well, you know, uh, you know what owner's equivalent rent is, right?

James Kleimann

(33:05) Yeah.

Mike Mills

(33:06) So the, for anybody that doesn't know what owner's equivalent rent and owner's equivalent rent is a big piece. (33:16) It's like 30% of the housing, 30 or 40% of the housing number that's factored into the CPI. (33:21) And all it is, is a, I don't know if it's a phone call, an email, I'm not sure even how they get the information, but they reach out to owners that are not real estate professionals.

(33:32) They're not landlords, they're not investors. (33:34) They don't do, they're just some dude, you know, and his wife, she's a teacher. (33:38) He works at Lockheed mart, whatever.

(33:39) And they say, Hey, if you were going to rent your house out today, what would you charge for rent? (33:44) No context whatsoever. (33:46) And if they say, ah, charge five grand, you know, well then, okay, cool.

(33:49) So your house is now this rent, this owner's equivalent rent, because they don't factor in mortgages into the CPI numbers. (33:55) So this owner's equivalent rent, which is kind of substituting that is just somebody's opinion on what they think they would rent their house out. (34:01) That is a ridiculous statistic.

(34:03) Like how can you use that to tell the American people that inflation has gone up this per this amount, you know, over an amount of time, it blows my mind. (34:10) It still does.

James Kleimann

(34:13) Statistics. (34:13) Yeah. (34:14) What are they saying?

(34:15) Am I right?

Mike Mills

(34:17) You can just mess with numbers all you want. (34:19) So, all right. (34:19) So obviously when August 17th hits, it's going to be crazy for a minute.

(34:24) Things are going to get a little wonky. (34:26) Let's assume that, that we stay on this trajectory of rates. (34:29) Let's say by the end of this year, rates are in the sixes, right?

(34:32) Whether it's six and a half, six, seven, whatever it is. (34:35) But I think overall right now, everybody's kind of thinking that's about where we're going to be. (34:39) Cause I don't think we're going, we're not going in the eights direction.

(34:41) We're headed in the sixes direction if anything. (34:43) Okay. (34:45) What do you think, where does this push the market?

(34:48) Because what I was saying a minute ago is I think that all of this shifts when rates, if rates do come down to say low sixes, maybe even fives. (34:55) And now the demand picks back up again because not this year, but maybe next year, the demand picks back up again, because people are like, okay, it's not 8%. (35:02) I can buy a house with this.

(35:03) I don't want to get out of my four, but I got to move. (35:05) Right. (35:06) That's when this really starts impacting it because we still have a relative shortage of homes.

(35:10) I know inventory is getting better and that's what I want you to talk about, but inventory is improving, but we're still overall short in the market. (35:16) So if something triggers more people to want to come in and buy like lower rates, that's when this buyer side commission deal becomes a real factor because now as a seller, if I've got five offers, I can say, Hey, I don't think I have to pay any of these agents. (35:29) Right.

James Kleimann

(35:29) If I want to pick this deal, I'm going to be the agent who says, you don't need to pay me. (35:33) My buyer is going to cover it.

Mike Mills

(35:35) Yes. (35:36) So where do you see all this trending with, especially with what inventory is doing? (35:40) I want you to talk a little bit about where inventory is headed, where it's at.

(35:42) And then what do you think we're looking at into this year and the next, just in general?

James Kleimann

(35:46) So the good news is inventory is getting better. (35:49) The bad news is it's not getting that much better. (35:51) You know, it's like, okay, we had a really shitty 2023.

(35:54) We still have kind of a shitty 2024. (35:59) I'm that it's picking up and, and it is picking up in the States where we're adding the most number of homes. (36:05) So it's Florida and it's Texas and they're, they're leading the way.

(36:09) And, um, you know, I, you said you're in North Texas, right? (36:12) You probably have a million, you know, former farmland areas and just like the excerpts that are booming with homes from DR Horton and Lenar and like, you know, anywhere you go. (36:24) Right.

(36:24) So my parents ended up moving down from New Jersey down to the middle of nowhere in North Carolina. (36:29) They're just building on old tobacco fields and they're charging four 50 for these new homes and people are moving, you know, a lot of tax refugees and people like that. (36:36) Right.

(36:36) So, so we are seeing inventory, but it's, it's unequal. (36:41) Right. (36:41) So when I say that inventory is coming back online, it is improving in nearly every single state, but it's not uniform.

(36:50) And so where my parents are in Clayton, North Carolina, it's a suburb of Raleigh. (36:55) They're probably going to continue to get, you know, 15%, 20% more inventory over the next couple of years. (37:02) Right.

(37:02) Great. (37:03) That matters. (37:04) Like it really does matter because it offers people more options.

(37:06) If I live in Boston or a suburb of Boston, that doesn't help me much because they're building at such a phenomenally low rate that will never catch up when you think about the housing formation numbers. (37:19) Right. (37:19) So we still have a structural shortage of minimum 1.5 million units at minimum. (37:26) Like that's probably a very rosy perspective from Freddie Mac. (37:30) I think it's probably closer to four or 5 million. (37:34) We also know that immigration, there's credible reporting from the congressional budget office that shows that immigration has actually been much higher than has been recorded on census documents.

(37:46) We're probably at least a lower, um, officially than what we actually have here. (37:51) What the need is now, a lot of those people are going to be in areas where there are jobs and where there are opportunities. (37:56) Right.

(37:56) And so, um, Texas is going to be one of those areas. (38:00) Florida is going to be one of those areas. (38:02) This is where we're seeing more supply.

(38:03) We're also seeing the gradual, so the, the rate of price increases is dropping pretty significantly in a lot of these Sunbelt areas. (38:13) So where you used to see in like, I remember in 2020, 2021, some of my colleagues, they're mostly based in Dallas. (38:20) They're going to buy houses and they're like, Holy shit.

(38:22) Like suddenly, like I'm getting in a multiple bid offers for like $500,000 houses that like two years ago, nobody would have ever been, you know, even looking to buy. (38:31) And now that's normal. (38:33) Right.

Mike Mills

(38:34) So now they're paying 30 grand over the list price because they got to get it because it's where they want it. (38:38) Yeah.

James Kleimann

(38:38) Yeah. (38:38) And they're waiving all concessions, right? (38:40) Like they're, they're waiving inspections or they're waiving financing.

(38:44) They're doing all kinds of crazy stuff. (38:45) Right. (38:45) So we are seeing a lot of really interesting dynamics naturally take place.

(38:49) This is sort of the tail to the interest rate cuts. (38:53) That's sorry. (38:54) Hikes that started basically two years ago.

(38:57) Right. (38:57) So we are seeing the effect of that really start to level off, but it has a more pronounced effect in areas where we have more supply, right? (39:03) This is pretty normal, mostly concentrated in the Sunbelt, but we are seeing small improvements in the Northeast, in the Midwest, on the West coast, but it won't be at the same pace that we see in the Sunbelt.

(39:17) So that's the good news. (39:19) You know, in the macro sense, if we do run into a scenario where we're down to rates of being in the low sixes, even mid sixes, I think that opens up a lot more channels for demand. (39:30) Think about how many possible borrowers you probably have on your CRM, Mike, that like expressed interest a year ago.

(39:37) And you said, Hey man, like, you know, here, James, like you can afford a house for $600,000. (39:42) And now, you know, even a small, like, I don't know, let's say a hundred basis points difference. (39:50) And they can't get anywhere near that.

(39:52) Right.

Mike Mills

(39:52) Well, the psychology of having a six in front of it versus a seven in front of it. (39:57) It's big, even if it's 6.875, I mean the difference on your payments, 25, 35, 40 bucks, it's not significant, but the difference in your mind is I have a 6% interest rate versus a 7% interest rate. (40:10) And I can justify that.

(40:12) I can rationalize it however I want. (40:14) Right. (40:14) That's what they're trying to do.

(40:15) And so that is going to make a shift and going to make a difference. (40:19) And if you're already in a somewhat undersupplied part of the country, and which a lot of us are, then you're going to see like there, even in North Texas, right? (40:26) We have cities like Frisco, Plano, Allen, like far North Dallas.

(40:31) If you want to buy a house right now in that part of town, you are going up against multiple offers and you're paying over list price. (40:37) That's just what's happening. (40:38) Right.

(40:39) But if you're going to buy a house in say South Fort Worth, or if you're going to buy a house in some of the outskirts of like more suburbs, like Burleson or Crowley or whatever, then there is more inventory there. (40:49) And maybe you can find a house that hasn't had many showings has been on the market for 60 days. (40:53) And someone, you can get seller concessions, you can get down on the price.

(40:56) There's a lot of things that you can do there. (40:58) But the minute that that stuff starts to shift to where the rates get to a place where the average person goes, Hey, I think I can, I can make this work and I really need to move. (41:07) Right.

(41:07) Cause there's a lot of people that want to move, but just can't justify it. (41:10) Yeah. (41:11) And so when that rate changes and you're in a spot where you can, that's when this all starts to tick up and change.

(41:17) And unless we catch up on inventory, which you're right, DR Horton legs, there are building homes, but you know, they were building homes and they have homes. (41:27) Yes. (41:28) They have homes that will complete soon.

(41:29) But when you look at the starts for single family homes, those are, those are down.

James Kleimann

(41:33) I think it's also like, look, a DR Horton, a Lennar, they're vertically integrated companies. (41:37) I don't even think of them just as home builders. (41:39) I think of them as sort of like all purpose entities because they control every element of the transaction.

(41:44) And it's, it's a package, right? (41:46) So you don't just buy a home, you're buying a mortgage from them, right? (41:49) Like you're buying a highly discounted mortgage.

(41:52) You're getting a 4.8%. Like it's insane, right? (41:55) And these are normal.

Mike Mills

(41:56) As a lender, it's irritating.

James Kleimann

(41:57) Dude. (41:58) Yeah, no, I mean, it must be, it must be brutal when, when you have a client and they, they end up finding a home from Lennar or something like you just like, you know, you're shit out of luck, right? (42:05) Like, because there's nothing you can do.

(42:07) Like there's no margin that your company could ever offer you that you can get down.

Mike Mills

(42:12) Yeah. (42:13) They're offering like four and a half percent on homes in San Antonio.

James Kleimann

(42:15) So what are you going to do? (42:16) Like, are you going to go into your pocketbook and pay your borrowers like seven grand just for the, to make nothing?

Mike Mills

(42:21) Like, no, it's, it's never going to happen to the price of the home. (42:25) That's why you're paying, but it doesn't matter. (42:26) It's here's my rate.

(42:28) Here's how much cash they're going to give me. (42:29) I don't care that I'm paying $20,000 more. (42:31) It doesn't matter.

(42:31) It doesn't matter.

James Kleimann

(42:32) I mean, like they kind of juke the stats, right? (42:33) So like, is it ever really a $500,000 home? (42:35) I mean, if your cost of financing is so low that you can, you know, feel pretty comfortable that you don't even have to refi for the next 10 years, like for you as the borrower, all that matters is your monthly payment, you know?

(42:48) That's right. (42:49) So that is then a $500,000 home. (42:51) And so then they set the market, right.

(42:52) And they don't price cut on those homes. (42:54) So they set the market in Frisco or, you know, another big in San Antonio, right?

Mike Mills

(42:59) Because they have other homes in the neighborhood that they built in Seoul.

James Kleimann

(43:01) And they got to keep their comps up. (43:02) Yes. (43:03) Yep.

(43:03) Exactly. (43:04) Now I know a lot of LOs hate it, but there's really nothing they can do about it. (43:07) I mean, the best thing they can do is hope for, you know, rates to come down and for more sellers to be move-up buyers.

(43:16) Like we basically don't see move-up buyers anymore. (43:18) I know that they exist, and they certainly exist in areas where there are more jobs and more opportunities. (43:23) And look, people have kids, right?

(43:25) Like my wife and I are having a child in a month, you know? (43:28) And like, we would be kind of the classic case of the move-up buyer if we were looking to buy a home. (43:33) But there's just not a lot of them who are going to give up the rate of 3.5% or whatever it is. (43:40) And you just have to hope every year you just get a couple more and you kind of went in with first-time homebuyers.

Mike Mills

(43:45) Yeah. (43:46) Yeah. (43:46) And that's really and truly like one of my, call it a fear, but one of my bigger concerns with all of this housing affordability, lawsuit changes to commissions, all of this kind of stuff is that the person or the average American that is eligible and able to purchase a home is shrinking more and more and more every single day.

(44:07) And that's the biggest concerning trend for me. (44:10) It isn't, you know, where rates are. (44:12) It isn't about how people get paid.

(44:14) It's that the path to wealth in this country has always gone through homeownership and it's been that way for a hundred years. (44:20) And now we're starting to see that path narrow down for most people because home prices are too much. (44:26) Incomes are not keeping the pace with the cost of everything.

(44:30) And the, just the ability to save money for a down payment or closing costs or whatever is, it's not impossible, but it's really, really hard. (44:37) And, you know, if you don't completely trim down your lifestyle and change everything that you do, I mean, just going out to dinner, I have a family of four to go to Chipotle in Texas for a family of four is like, it's almost $90, you know, to go have, yes, with four burritos, four drinks. (44:54) Yes.

(44:54) I mean, each burritos anywhere between 15 to $20, you can skinny it down to like 11 if you just get, you know, if you want to add nothing to it, you know, but, but yeah, it's, it's 80 to $90 for, for four drinks, four burritos. (45:07) Yeah.

James Kleimann

(45:07) McDonald's is insane now too, right?

Mike Mills

(45:09) Like, you know, I don't eat at McDonald's, but like, that's, that's a big, yes, that's, that's all that stuff is causing people to just, and that's why you see the, Oh, well, Gen Z wants to rent now and they don't really, they don't want to own a home. (45:22) Well, part of the reason is, is they can't and, and the household formations. (45:26) Well, the truth is, is I think at least is when you look at household formations, it's people are getting married and having kids later.

(45:33) It's just what's happening right now. (45:34) Right? (45:34) So the feeling of wanting something of your own and you're going to experience this.

(45:39) If you haven't already, I don't know if you have any other kids, but if this is your first, is this your first?

James Kleimann

(45:43) No, no, this will be my second.

Mike Mills

(45:45) Okay. (45:45) So, you know, then, so once you have those kids, now you're like, okay, I gotta, I gotta anchor down somewhere because my responsibility to these children is to make sure that I give them the best life that I can. (45:55) And that isn't walking the earth, like cane and Kung Fu going from town to town, getting adventures.

(45:59) Like you got to stay where you're at.

James Kleimann

(46:02) So on my dad, Mike, what do you mean?

Mike Mills

(46:04) Yes. (46:05) I mean, you can, but it only lasts for until they want to nap and they want, you know, uh, they want to go hang out.

James Kleimann

(46:11) Yes.

Mike Mills

(46:12) Yeah. (46:12) So, so all that is tough. (46:14) And I just think that once people have kids, then they want that home ownership.

(46:17) They do want that place to settle in. (46:19) And it's becoming more and more out of reach for people. (46:21) And that's that to me, that's the biggest, biggest shame of all this.

James Kleimann

(46:24) Yeah. (46:25) I mean, look, look, people complain to me all the time about having to go skinny on comp to get a deal done as a, as a mortgage loan officer or, you know, having to take a smaller commission to, because their buyers just don't have the cash. (46:39) If the seller won't, um, you know, pay it or the seller's agent won't pay, you know?

(46:44) And so that's a concern, but I think the bigger concern is exactly what you said. (46:49) Look at the existing home sales trends. (46:51) They're way down.

(46:52) They're going to continue to go down for a couple of years. (46:55) At least we are not resupplying the, to, to keep up with the population density, with the trends, with, you know, inflation has killed a lot of the, a lot of potential home deals. (47:08) And we have to build that the only solution out there.

(47:13) I think that there should be more innovation coming out of the white house. (47:16) I think Congress needs to step up. (47:18) I think the industry needs to do more to talk about the actual value that they provide.

(47:22) Um, but you know, why don't we have five 29s for saving up for a down payment? (47:26) Right.

Mike Mills

(47:27) I love it. (47:28) No, I mean it's yeah.

James Kleimann

(47:29) Capital gains. (47:31) Think, think about like changing the capital gains rules when selling a house.

Mike Mills

(47:34) Yes.

James Kleimann

(47:35) I know that a lot of people think it's unpopular to give more money to investors or landlords or whatever, but Hey, guess what? (47:40) They collectively own a lot of real estate, like 20% in some cities in some areas incentivize them to sell those homes. (47:47) Right.

(47:48) So I get like, there's a lot we can do, but it just feels like we're, we're kind of slowly slipping and it's, it's really hard to crawl out of that hole.

Mike Mills

(47:57) Yeah. (47:57) And there's the only solutions that they're coming up right now is, is a lot of buy sire or buy side incentives, unfortunately, which is not what we need. (48:04) We need sellers and we need builders to be incentivized to create more inventory.

(48:08) Cause that's ultimately the only way that we get prices to come down. (48:11) It's the only way that we solve this problem is more homes and that, and that's the only way. (48:15) And maybe it's different style.

(48:17) Um, speaking of innovation, cause I want to, I want to be a cognizant of your time. (48:21) We're almost, we're almost up to our end here. (48:23) We went through fast, but, um, speaking of innovation, is there anything that you see in the realm of AI that is going to really change how we do things in our industry that you're seeing starting to move forward a little bit?

(48:36) I know that you guys have a, you're adding sections to housing wire about this and y'all are having an AI summit in Dallas, which I'm going to be attending myself. (48:43) Um, what, what are you seeing in that world that is going to be impactful over the next couple of years? (48:49) Because this stuff's happening quickly and it's happening right now.

James Kleimann

(48:51) It's happening so gooey. (48:52) I mean, it's something when I joined housing wire in 2020, I don't even think I wrote a single story about AI, like, you know, or at most maybe one or two. (49:01) Right.

(49:01) And so in the last four years, it's really picked up and there's, I feel like 2022, late 2022, early 2023 is where we saw a lot of breakthroughs with chat GPT and, and, you know, some of the other, kind of leading services out there. (49:17) I think the potential is really, at least for mortgage, mostly related to operations and creating efficiencies. (49:26) And it's no secret that mortgage is like a horrendously inefficient business.

(49:31) Like the, the retail lenders that, that are not very efficient, the bottom 25% of retail lenders, it costs them about $16,000 on average to originate a mortgage. (49:45) The best 25% are at about seven grand. (49:48) Yeah.

(49:49) Which is still, I mean, and a lot of it is also like, also if you really break it down even further and you figure out where is that cost coming from? (49:57) It's almost all personnel. (49:58) Two thirds of it is personnel.

(50:00) So if let's say, again, I'm not a loan originator, but let's say instead of having a, you know, loan officer assistant or someone in processing, closer processor funders, set up person, you got, there's all, all kinds. (50:17) There's a lot of jobs. (50:18) I don't think a lot is going to change over the next two years, two, three years.

(50:22) I think we're going to start gradually seeing these engines get a lot smarter. (50:27) And I mean, machine learning, like how much of Fannie and Freddie and Ginny, is it going to take for them to just start using, to train these operators on, on, you know, DU and, and, you know, figure out immediately, does this work? (50:43) Does this require a buyback?

(50:44) I know that they're already using AI to determine when loans need buybacks. (50:49) Yeah.

Mike Mills

(50:49) I saw the article you wrote or the post that you put on LinkedIn about that. (50:52) Yeah.

James Kleimann

(50:53) Yeah. (50:53) I mean, scary for, for lenders, but again, like the same technology is available for them to create efficiency. (50:58) So like, here's one very low hanging fruit thing that anybody can do.

(51:01) You can train, you know, AI to sort your inbox, your email inbox better, to set better reminders for you, to set better habits for you. (51:12) You can create systems. (51:14) It takes 20 minutes to do.

(51:17) And, and like, those are small efficiencies individually, but I think the ability to have a platform that you use every day, maybe it's Slack or like, you know, whatever people use to kind of control the flow of information. (51:29) If they can have an AI generative tool that is able to just handle a lot of the road tasks that add up over time, I think you'll create efficiencies. (51:40) Will it be $7,000 worth of efficiencies or $10,000?

(51:43) Probably not. (51:45) But again, like in, in the next couple of years, we're going to see huge advancement because they're just going to have been trained on so much more data. (51:53) And, and ultimately most of what these people do is data focused.

Mike Mills

(51:58) Yes. (51:58) Yeah. (51:59) And, and I mean really and truly the technology for more or less exists right now.

(52:03) It's really a regulatory hurdle is really what we're talking about. (52:06) Yeah. (52:07) Yeah.

(52:07) Cause I mean, today I can, a borrower can fill out their, put their, all their information on an app online and put everything there within that app. (52:16) I mean, you have to give certain authorizations, but we can pull your credit. (52:20) We can pull your bank information.

(52:22) We can pull your IRS tax returns. (52:24) We can get your verification of employment. (52:26) All that's done electronically.

(52:27) You don't have to email or call. (52:28) I know some people, you know, they're smaller businesses and versus the big companies that may not be on the verification network and things like that. (52:35) But there's, there's always going to be a little inefficiencies along the way.

(52:38) But if, if all that data is correct, because right now what an underwriter does is just basically verify that everything that I put in there is right. (52:44) That's it. (52:45) Because the D the desktop underwriter is going to tell us, yes, this is a good loan or no, it's not.

(52:50) All it's saying is I need you to verify that all the data in here is correct. (52:53) That, that is the job now. (52:55) Well, if that data comes directly from the third party source, right.

James Kleimann

(52:59) Especially, and by the way, I'm talking about Fannie, Freddie, FHA, VA, HUD, you know, I'm not talking about like non-QM, like loans that are, so the underwriter is going to absolutely be even more valuable, but it's going to be at a much smaller scale. (53:11) You probably won't need as many underwriters, you know, to handle kind of the, the GSE Covey loans, but you'll need a couple absolute all-stars who can handle like a tricky, you know, investor property or, you know, something that isn't conforming and is, is kind of difficult. (53:28) So that's, yeah, I, I think that there are going to be a lot of processor jobs and underwriter jobs that are eventually lost to AI.

Mike Mills

(53:36) Um, I know, yeah, it's the same concept.

James Kleimann

(53:41) And if you think about the CFPB and other regulatory agencies, they're absolutely going to, they're going to have like a firing squad. (53:49) If somebody's using AI for disparate impact, you know, or to be discriminating, like, I mean, they're, they're so sensitive to that and they should be, right. (53:58) I don't always agree with the approach, but, um, they're going to be very, very, very, very motivated to find some scalps.

(54:06) If people are using AI to filter out loan applicants.

Mike Mills

(54:09) Well, we're in a new world of litigation and we're in a new world of technology and all those things are going to merge and, and use against, and it's just going to change. (54:17) And everybody kind of has to be ready for it and be on the verge or be on the lookout for this stuff that's coming. (54:22) Because if you don't know, and you don't adapt your business to fit that model, then you're going to be a dinosaur.

(54:28) And, you know, that's, that's not what we want, but that's, what's going to happen. (54:31) It's going to happen to a lot of people. (54:33) And, you know, it's like, it's, it's the old train in the tunnel thing, right?

(54:36) You go in the dark tunnel, you see the light coming. (54:38) You got to know what that is in order to be able to adjust and figure out what you can do. (54:42) But if you're going to close your eyes and pretend like it's all going to stay the same, then that train is going to run you over.

James Kleimann

(54:46) You're going to lose the job, not to AI, but to someone who knows how to use AI.

Mike Mills

(54:51) Yes, exactly. (54:52) Exactly. (54:53) Well, we're almost out of time.

(54:55) So I want to thank you so much. (54:57) There's so many more things I want to get to with you, but you're a busy guy and I can't thank you enough for coming on and sharing a little bit of your brain with us today, because this is the kind of stuff that, you know, especially like for my audience, I really want them to understand, Hey, these are the things that are coming good, bad, or indifferent. (55:12) This is what's happening and you need to be aware and you need to adapt.

(55:15) And, um, you guys do a great job at housing wire with all the information that you put out. (55:20) If you are in real estate at all, if you do anything, title appraisal, you know, mortgage lenders, or excuse me, uh, agents, that is your go-to for all these things because it is well, first tune into the podcast and then go check out housing wire. (55:32) Um, because, uh, there's so much information there.

(55:35) That's where I get a lot of my data. (55:36) So James, I really appreciate it. (55:38) Um, just let everybody know, um, where they can find more of your stuff.

(55:41) Uh, if they want to dig into it a little bit deeper.

James Kleimann

(55:43) Yeah. (55:43) I mean, it's housingwire.com and we're covering the whole landscape every day. (55:47) Well, with rare exceptions, Saturday and Sunday, we don't really do a whole lot on those days, but, um, and you can also check my stuff out on LinkedIn.

(55:56) I'm at James, J A M E S climbing K L E I M A N N. (56:00) And I do a lot of deep dives on LinkedIn and, and, uh, even inject a little bit of my own perspective in there that doesn't always make the articles. (56:08) So, uh, hope, hope to see you guys on the, on the internet.

Mike Mills

(56:10) Yeah. (56:10) Go follow James. (56:11) He's a great, um, ton of information, especially if you're in this world of real estate.

(56:15) So, so please check them out. (56:16) Um, thank you to everybody who stuck around. (56:18) Um, a lot of y'all get this on your audio side from Spotify and Apple.

(56:22) So, uh, please join us again next week. (56:24) I'm actually going to start a new series coming up soon where I'm going to be featuring an agent from Dallas, one from Houston, Austin, San Antonio, and we're going to do a deep dive into their market, a little 20 minute hit on what's happening in that area, where home prices are, um, what, uh, what kind of trends are occurring. (56:41) So if you're living in those metropolitan areas, then we're going to have a guide for you once a month that you can get a good idea of what's happening in your market.

(56:48) So stay tuned for that. (56:49) And then, um, I will be back, um, next week, uh, we'll be doing a little bit of, uh, youth finance, which we'll get into. (56:56) We had a series going with that.

(56:57) Bring my daughter on. (56:58) We talk about how to help your understand how to use money. (57:01) So I hope everybody has a great weekend.

(57:03) James, thank you again for joining us and we'll see you guys next week. (57:06) Thanks so much.