Real Estate Market Update: Nov 6, 2023 Are we in a recession, and NAR Ruling!

Mike Mills (00:00:08) - Hello, Texas, and congratulations to all my Texas Ranger fans out there on getting our first ever franchise World Series title. 52 years of suffering has come to an end. And my my, my, was it glorious? In the words of Corey Seager, what would we have done if our Rangers didn't were in the World Series? I guess we'll never know. Well, this is not the Texas Rangers podcast, although I might like it to be at least for one special episode. But this is the Texas Real Estate and Finance podcast, and my name is Mike Mills, a local mortgage banker here in the Dallas Fort Worth Metroplex. And this is your real estate market update for the week of November 6th. So in today's 20 to 30 minute episode, we're going to be focused pretty focused in on just two things what's happening in the economy right now and where we are, you know, are we headed towards a recession or is the US economy just continuing to expand? But the main story on every agent's mind right now is what does the recent class action lawsuit judgment against Nar mean to our industry, and what should we do to prepare? I'm going to dive into that today and give you my take on what all this means.

Mike Mills (00:01:09) - But this will be a topic that I cover quite a bit over the next several months. And once the judge actually makes his ruling, because right now we have the judgment of the amount of money that are being awarded to the plaintiffs. But the judge hasn't really stated what the impact is or what the judgment is on the actual case. And we may not know that for a while, but once we do, we'll dive into that in future episodes. So be sure to hit the subscribe button so you never miss a show. My goal is to keep you informed of all the news impacting your business every single week, so you can be prepared for all the curveballs coming your way. What I did there a little baseball reference, so I hope you find value in today's episode and I ask if you do, please share it with one of your real estate colleagues out there. Every listener we add to our growing community allows me to continue putting out more content each week and help you along your real estate journey.

Mike Mills (00:01:54) - Speaking of helping you along your real estate journey, be sure to check out my interview last week with Ruth Brooks. She's a local CPA, and we went deep on how to structure your real estate business to get the most tax advantages available as a real estate professional. If you want to save money on taxes every year, I recommend you listen to that one before the start of 2024. And later this week I'll be talking with Tonya Bugbee. She's a real estate coach and consultant with over 20 years of experience. She's going to help us find ways to refocus our business and give strategies on how to navigate this challenging environment to maximize for success. So if you want to keep growing, be sure to tune in for that one as well. Now let's get on to the show. So right now, is the US economy buzzing along after last quarter reporting that the GDP was up 4.9%? It was one of the best performing quarters we've seen in the last several years. Or do the headlines not quite match reality is he? Last week in the update, I dove deep into GDP and what was impacting this week.

Mike Mills (00:02:48) - I want to go over some big news stories that hit last week that indicate things might not be what they seem. You see, whenever you get any type of news, you always got to consider the source. And when data is released from government entities telling you that things are awesome and it's in their best interest that we think that things are awesome, you might want to dig just a little bit deeper. So here we go. So first let's go over a few stories that didn't directly affect the real estate industry, but certainly related to where the economy is headed as a whole. So first off, the UAW, which is the Auto Workers Association, reached a deal with Ford, GM and Stellantis. And Stellantis is like Chrysler Jeep. You know, it's a guess. They came up with a different name. So you don't know what Stellantis is. I had to go look that one up, but they agreed to wage increases of 25% over the next four and a half years. And then GM promptly came out and said that it's going to cost them $7 billion or $900 per vehicle in labor costs.

Mike Mills (00:03:39) - So, of course, you know, the the CEO is not going to take a massive hit on his pay or her pay. They're going to pass it down to the consumer. And now we're going to pay $900 more per vehicle at minimum. You know, it's just like with inflation, I'm sure it'll be $1,200. But whatever the number is, and of course they're going to blame it on the workers and taxpayer money we're spending. We're sending another $60 billion to Ukraine. All this while, a top aide told time magazine last week that the highest levels at the highest levels of the Ukraine government quote, people are stealing like there's no tomorrow. So we're literally handing out another 60 billion to Ukraine on top of the other 120 billion we've already given them, and their entire government and, and, and people accepting this money are wrought with corruption. And we're just passing out money, our hard earned tax dollars to this, this war. And everybody just seems to be okay with it. So guess that's what we're doing in South Korea this week or last week short selling was banned.

Mike Mills (00:04:37) - So basically South Korea told their traders and their investors that they can no longer bet against the market. That's what a short a short selling is, as you're trying to bet that a particular stock, or maybe the index of as a whole is going to go down. And South Korea just told their investors and their citizens that they're no longer allowed to do this. They had a big boost in their stock market right after that at 10 to 12 to 15% growth. That's great, but it's probably not good when you start shutting down and having restrictions on what people are allowed to do and how they're allowed to spend their money. But South Korea, so they can do what they want. Sam Bankman-Fried was found guilty of seven criminal counts against him, and faces a maximum sentence of 115 years in prison. That's a maximum now, and that's not actually what he'll probably get. He lost. If anybody doesn't understand this case or know about it, he actually lost $410 million in customer funds. Now who are these customers.

Mike Mills (00:05:28) - Well the likes of Tom Brady Robert Kraft, the owner of the Patriots Robert Belfer. He's actually was one of the principal players in Enron back in the day. Irony there Anthony Scaramucci this is one of this was a guy that was in Trump's cabinet. He was their communications director for a very brief amount of time, just like most people that held that role. Steph Curry, the Golden State Warriors super point guard. Kevin O'Leary, he's a Shark Tank fame and many large Wall Street venture capital firms. So the lesson from this SBF is that you don't mess with the rich and powerful or you will go to jail. Just ask Bernie Madoff. It's okay to pilfer American retirement accounts like the big banks did in 2008, when the federal government bailed them out after we lost all of our 401 K money and nobody went to jail, save one person. That was like a low level executive with one of those Wall Street firms. He was like a junior vice president that went to jail for like six months. But if you mess with celebrities and hedge funds with a lot of money, you're going to pay the price and go to prison again.

Mike Mills (00:06:33) - Ask Bernie Madoff how it worked out for him. Not so good. JPMorgan Chase just launched their JPM coin, which now processes $1 billion daily. It's the first major digital token that was backed by a US bank. So Chase was kind of the second one that came out and said they were going to do. They were going to tokenize their assets on their own internal blockchain, which basically allows for easy transfer of money back and forth with very little cost and very little time. So this instantaneous transfer that you can move money from, say, the United States to China, if if they had a JPMorgan, China probably wasn't a good example there. But if they had a bank in China, that or a bank in another country, you can transfer those funds very quickly and very easily. Same day, sometimes even minutes, and not have to wait the 24 to 48 hours for things to process. And the cost is much less. So again, it doesn't mean that there's a JP Morgan coin that you can invest in.

Mike Mills (00:07:26) - It's like a crypto, but they have their own internal blockchain that they're now transacting on. So it's just a matter of time before this stuff gets bigger and bigger and bigger. So again, and I've said it a thousand times on other episodes and other shows, if you are not paying attention to crypto, you really need to be because fortunes are going to be made there over the next 20 to 30 years, and you need to educate yourself on how it all works. Congress just gave themselves a back door, $34,000 raise without anybody even realizing it was an allowance that helps with the rising cost of living expenses, the inflation that we're all suffering these days. Well, Congress has a nice little budget purse that they use that they put into their House internal rules. It isn't something that they actually have to pass like they would with a normal raise. This is a it's like an expense account where it's there for covering expenses related to lodges and meals. So if they want to go stay at a really nice hotel, if they want to go eat at a really nice restaurant, all of their food and all of their lodging is now is covered by this expense.

Mike Mills (00:08:23) - And they just raised it $34,000 to cover this. And oh, by the way, this is very bipartisan. Okay. So your tax dollars at work are affecting the blue team and the red team. So you can't get mad at the other because your guys doing it too. Matter of fact, Matt Gaetz and AOC are the two biggest ones that were mentioned in the story. And this is this news is all over the place. They both took part in this and both tried to justify it. So it's not the red team or the blue team. It's both. And they're taking your hard earned tax dollars and they're fighting inflation inside while we continue to struggle on the outside. So keep that in mind and, you know, keep voting. I guess if you have savings right now, I hope it isn't sitting in a non-interest-bearing account. Santa Tander Bank just recently did a survey and showed that 64% of Americans are only earning 3% or less on their savings account right now. And right now, the going average on money market accounts or any savings in smaller banks.

Mike Mills (00:09:14) - Not your big banks, your JPMorgan, your Bank of America, your Wells Fargo. You're not going to see these there. But in your smaller local community banks, the regional banks that are really struggling for deposits right now, they're offering 5% on your savings. So if you've got 5000, 10,000, 20,000, any amount of money that that's your emergency fund or it's even money that you've maybe you've cashed it out out of your investment account because you're afraid of the market going down like me. Then I have money sitting in interest bearing accounts that I'm getting 5 to 6% on right now. It's just sitting there. It's not doing anything. I'm waiting because I do feel like which we'll get into the recession side of things. I do feel like we were going to see a dip here soon, and I'm keeping my assets clear, so I'm ready to buy that dip when it happens. But that money is not just sitting there. Wasting away and seeing an account that's earning interest. So if our inflation rate right now is somewhere between 2 to 3%, which is what it is, if you strip away a few other pieces to it, then I've got I'm on the plus side of at least using my extra savings and earning a little bit of money because it's sitting in the right account.

Mike Mills (00:10:16) - So if you don't have your money sitting in an interest bearing savings account that you're not spending on a regular basis, please, please go find one. It's very easy. They're all over the place and all you got to do is set up an account. All right. Now, here are a few stories as to why I feel like we are probably headed towards a recession, as many people do. I'm not, you know, standing alone on this island here. It's just the US government that seems to want us to think that everything's okay. And even the fed has started to come back and say, yeah, you know, a soft landing may not be the exact result of all this. We might actually have some, some significant movement. So first off, right now Americans are spending 2.7% of their disposable income on only interest. That's the highest level that we've seen since 2008, which is right after the financial crisis. 2.7% of their take home income is being spent on only interest from debt, credit cards, cars, mortgages, all that, all that money is being spent on that, just like the federal government right now, who's also spending more on debt every month than we are on our defense budget, which is unbelievable.

Mike Mills (00:11:15) - Right now, commercial real estate lending is at historically low levels. Construction levels have dropped to to the lowest level they have since 2020 during the pandemic. So we're below and construction for commercial properties below the levels that we were in 2020 when everything was shut down. That's insane. Last week, the fed announced that they were going to pause interest rate hikes, so they're keeping them at 5.5, which everybody expected. The fact that they said that they were going to pause was was not a shock to the market. See, this pause is significant because they've raised interest rates 11 times since last year. We went from 0.25 to 5.5%. That's the fastest pace that rates have gone up in over 40 years. So now they've decided to pause. And the idea is that this pause is probably going to last for a while. There is a still still a small chance, depending on how some more job numbers come out and how inflation data looks next month that they may rate. They may raise rates in December. But right now, the market in general is betting on the fact that they're going to continue to pause.

Mike Mills (00:12:12) - And we probably saw our last hike, I believe it was in July. Now the fed pivot, which is when they decide to stop raising rates, which they've most likely gotten to that point. We'll see if it continues. Now we're in the pause phase. Okay. This is where they're not going to change anything and let it see kind of how it plays out. And then the pivot will be when they decide to start cutting rates again. Generally speaking, that's going to happen. If the economy gets into a deeper recession, they'll look to cut interest rates in order to stimulate again and get the money supply growing. Now, when is this going to happen? Probably at least right now the market's betting on it's going to be late Q2, maybe even early Q3 next year, which is like June of next year. Or maybe, you know, you could see it July, August, September somewhere around there. It really just depends on how the how bad the market gets. There's a lot of things that can cause the market to turn.

Mike Mills (00:12:57) - You can have black swan events, like for example, if we went to war with Iran or we got into some conflict, a significant conflict in the Middle East with what's going on with Israel and and Palestine right now. If we got into that heavily, you could see something change, because if the market if the market tanks, because we're at war, you could see the fed decide to lower rates a little bit premature because of something like that occurring. But if nothing, if we kind of stay status quo and everything keeps going the way it has been, then the expectation, at least in the market, is that we won't see a change in rates or then start lowering them until sometime in the middle of next year. And speaking of recession, Canada has actually entered a technical recession right now. For the last three quarters, their GDP growth has been negative. They haven't grown their economy. Their economy is actually shrunk. And so you're seeing their market constrict and less spending there. So they're feeling the effects of it right now.

Mike Mills (00:13:46) - And Europe is already they had one quarter of negative GDP growth. And if they have two more they will also be in a technical recession. Last week you also had the job numbers come out. Employment actually went up to 3.9%. Now it's still short of their target 5%. The fed has stated that they feel like they need somewhere between four and a half and 5% unemployment, in order for the economy to start shifting in the direction, or I should say, inflation, to start really seeing significant trends downward. This is the highest unemployment rate we've seen since February of 2022. Payrolls went up 150,000 jobs for October. But compared to September, when we were up almost 300,000 jobs, it was significantly, significantly less than what was expected. Most of these jobs are in health care and surprise, surprise, in government. But 200,000 people left the job market altogether. And this number keeps growing. Each and every month. They tell you how many jobs that were created, and they tell you how many people filed for unemployment, but they don't often mention how many people just decided to leave the job market altogether, whether that means they're staying at home, whether that means they decided to create their own business.

Mike Mills (00:14:47) - In many cases, these are people that have just decided to stop applying for your standard jobs and do something. And oh, by the way, the previous two months jobs reports overall were revised lower by 100,000, not 100,000. By 100,000 jobs as well, so that 297,000 jobs that we were told about last month were actually cut back about 75,000, and the other 25 was on the previous month. And last week markets had the largest five day move in Treasury yields we've seen since March of 2023. Now, this is because the US Treasury is increasing its borrowing on short term debt, which sent the ten year and 30 year bonds higher, which just basically means there was less demand for the longer term debt. See, they did this because the US Treasury feels that rates will be lower in the next 12 months. So even they're betting on more or less a recession and interest rates coming down. But if rates do stay higher for a lot longer, this could be a bad mistake and put them into big trouble.

Mike Mills (00:15:38) - They already made a previous mistake when they didn't sell more long term bonds when rates were really low. See when rates were like in the two and 3%. If you're the federal government, it's in your interest to sell the ten and 30 year bonds and increase the rate of which those which those were purchased, because now the debt service that you have on that 30 year bond at 2% is much less than somebody buying a 1 or 2 year bond at 6 or 7 or 8% that you have to pay back every year at much higher interest. So now instead, they're betting on the short term bonds with these higher rates, hoping that rates come down soon. Housing affordability is basically the worst that's ever been right now. If we wanted to get just to pre-pandemic affordability levels, so what it was before the pandemic hit, we would have to have one of these three things happen. Either US incomes would have to go up 32% on average, which is not going to happen. Home prices would have to fall 38%, which is extremely unlikely unless we have a ton of supply hit the market, or unemployment rate gets to like 8 or 9%, or mortgage rates would have to fall to around 4.5%, which in all reality would actually make it worse because if rates come down, the demand for housing is going to go up and prices are going to get even more expensive.

Mike Mills (00:16:51) - So in the long term, if rates came down, yes, they would make it more affordable for the average consumer. But over the next 2 to 3 years, if rates stayed like that, home prices would just skyrocket. Right now, supply is currently down to 1.5 million homes. This is down 15% from just last year when supply was already tight. But even with rates as high as they are, 33.3% of homes are still selling above list price. You really need that to be around 20%, which is the average, and we're still well above that mark. Now be aware, prices will tend to trend down over the next couple of months, but that's due to seasonality because at this time of year we're entering into the holiday season, it's winter outside. People aren't necessarily trying to buy and sell homes right now. There is a little bit of push right before the holidays, but for the most part this is generally the downtime. So when things are down, you're going to see prices come down a little bit.

Mike Mills (00:17:41) - You have a weakening US. Consumer interest rates are high. Inflation is still a little bit out of control in many areas. And people aren't. People's incomes aren't keeping up with it. So people are spending less. So they're not exactly, you know, clamoring out there to purchase homes. We went over all this last week. In reality, a 5% interest rate might be the rest might be the best rate we see for the next several years. You see that 2 to 3% interest rate that we experienced the last couple of years was very artificial, because the fed was buying up mortgage backed securities and driving mortgage interest rates down. So unless they do that again, which at this point is pretty unlikely, in reality, if we get to 5%, that's probably the best rate we're going to see for quite a while. And that again, probably won't happen until mid to late next year. Is there a chance we could get into the force? Sure, it could happen, but most of us in the industry are predicting that 5% is kind of the bottom and the best rate you're going to see for a while.

Mike Mills (00:18:29) - At the end of the day, what all this really means is that if rates go down, if home prices continue to go up, and if our economy goes into recession, the people that own real estate are going to benefit from this the most. And the reason for that is because they have an asset that's finite and high demand, that has a high cost of getting into and is going to drive the price up when that cost starts to go down. So if you own real estate, congratulations. If you don't, regardless of what the rates are right now, this is still the best time to buy because you can't buy. Yesterday and buy the day before. So right now is the best time to buy because there's less demand. You can get homes for a better price. And when rates go down and and the demand increases, that property that you bought this year, it's value will go up. Is it going to go up 5%, 10%, 20%, 30%? I don't know. But in the two years when interest rates were the lowest they've ever been, we saw an appreciation each year of almost 20 to 25%.

Mike Mills (00:19:27) - I'm not saying that that's what it's going to be when this happens or when the market changes again. But even if it's half that, it's well worth the investment to pay the 7 or 8% that you may have to pay for a year or two before rates go back down and you can refinance. But no matter what, if you have the opportunity and the means, and I know the means is a big piece of this, it's time to buy. You need to go buy anything you can get your hands on related to property, land you know, investment properties, your primary residence, whatever you can do. It seems to be the safest place to put your money because even though we may be heading into a recession. The cause of this recession is not real estate. Real estate is suffered the most from it because we benefited the most from it when all the money was cheap. And so it's just a natural cycle that we're going to feel the pain a little bit more on this one. But you're not going to see home prices come crashing down because there isn't any inherent risk in the market right now as it relates specifically to homes.

Mike Mills (00:20:20) - All right. So let's get into the verdict that was reached last week. So right now we are in the least affordable housing market our country has ever seen. And home prices are high because the fed made money so cheap for so long that they drove the demand for housing to all time highs. Builders couldn't keep up because the cost and time to build due to regulatory hurdles did not allow them to keep up with demand, especially in major metropolitan areas. And large corporate investors like Blackrock and many of the IE buyers bought up prime real estate in many parts of the country with the intention of renting it back to you, because having an appreciating asset on their books that generates cash flow is a hedge funds dream. But on Halloween last week, a jury in Kansas City, Missouri not to be confused with Kansas City, Kansas, which is like 50ft away across the street on some street called the State Line Road. It's two cities with the same name in two states, but right next to each other. I don't know, it's weird.

Mike Mills (00:21:14) - Anyway, they determined that the people responsible for the ever increasing costs of owning a home was actually you, the local real estate agent. The Kansas City jury found that Na HomeServices of America, which is basically Berkshire Hathaway, Keller Williams or Ann Keller Williams, were guilty of colluding and colluding being an important word here to inflate or maintain high commission rates through the clear competition rule or excuse me, the Na clear cooperation. The defendants are Keller Williams. Berkshire Hathaway were ordered to pay damages of 1.78 billion with a B dollars, and it could be triple that if the judge decides to give it what's called treble damages, which I'm hearing. That's pretty much what it's going to be. So like actual damages, which is the 1.78 billion, this is the money that people actually lost on their the sale of their homes, essentially that they claimed. Whereas treble damages are more like civil damages in a criminal case where it's like being paid, they're like punitive damages being paid to the plaintiffs. Now Remax in anywhere real estate, which is anywhere real estate is like Coldwell Banker, century 21, Sotheby's.

Mike Mills (00:22:18) - They all settled prior to the judgment for 55 million, which was Remax, and 85 million, which was anywhere real estate. And of course, right after the settlement settlement was announced, another nationwide class action lawsuit was filed by the same attorney. I might add you against compass Exp, Redfin, United Real Estate, Howard Hanna Real Estate, Doug Douglas Elliman and Chart Realtors. Of course, this opens the door for lawsuits to be filed in all other states across the country. Now, the final judgment issued by the judge still has not been released as of yet, and I don't know at what point they're going to. It could be a couple of weeks, it could be a couple of months. But that judgment, what the judges description of why he viewed that case to be negligent, I guess, is going to be a big player in how we operate things going forward and how it's interpreted by the industry as a whole. Now, the other the other important thing to note here is that the ruling is being appealed, and that process can take a lot of time and nothing changes in the meantime, except that your buyers and sellers will start asking questions.

Mike Mills (00:23:23) - So while it goes through the appeal, there aren't going to be any significant changes to how it's handled. But because of all the new surrounding this big, big lawsuit, you're going to start to hear questions coming up from people in the industry. And your job is to be able to answer those questions. And, oh, by the way, regardless of what the judgment says or what's mentioned in the lawsuit itself, we all know that agent commissions have always been negotiable. Okay? Even recently, Nar changed the rules that said it had to be $1 and required commissions paid to the buyer's agent to $0. So even within Nar, it's not required that the seller pay the buyer's agent it it. And even when it was the the minimum requirement or the yeah, the minimum requirement was a dollar. So even then your commissions have always been negotiable. And of course, if you're a good agent, you've been explaining this to your clients all along. So in reality, right now, not much to change other than the conversations that you're having with your buyers and sellers.

Mike Mills (00:24:17) - And our CEO actually stepped down last week. I'm sure it's partially as a result of this ruling, but also since Redfin accused Nah of having a toxic work environment where sexual harassment was a regular occurrence, apparently. So Na's having a bad couple of months, let's say. Speaking of Redfin, they had already announced last month that it would require all brokers and agents working for them to withdraw from Nar and no longer pays dues to them. So because of this, the way real estate is transacted, it's going to change, okay, how much it's going to change and when it's going to change is all still yet to be determined, but it is going to change. Sellers may not elect to pay buyer agent commissions. Buyers then in turn might have to pay them out of their own. Pocket themselves. Listing services might lose their value and necessity in the market. Congratulations to Zillow on that. You finally did it. Those guys have been trying forever to get rid of MLS Listing Services because surprise, they want to be the consumer's go to for all listing because then they can control more of the transactions.

Mike Mills (00:25:19) - We're just going to have a new norm that's established. And as professionals in real estate, we have to get used to this. Now, agents hearing this and finding out about this news are going to look at this. And probably one of three ways. Number one, they are going to think that this is way too much trouble and not they're not going to be able to get paid as much as they would, and they're going to decide to change professions altogether. Number two, they're going to look at this as an opportunity to reengage with their market and get out there and educate their clients on how all of this will work going forward, and pick up business from all the agents that landed in scenario number one. And number three, they literally have no idea that anything's even happened or what it means. And it'll probably ultimately end up going with group number one two and helping group number two. So which group do you want to be in. Because there's opportunity here. If you look at it the right way, homes are going to continue to get bought and sold regardless of price, interest rates or commission structure.

Mike Mills (00:26:15) - The question is if you will be the one who helps them buy or sell. So those looking at Nar and thinking, do I really need to keep paying dues to this Washington lobbying, sexual harassing industry juggernaut? Honestly, I have to say I'm kind of neutral on this. I'm not a member of Nar because I'm not a realtor or appraiser or property manager, but my wife is, so I can see the benefits on both sides. Now, just to be clear, for any agents out there that don't fully understand what Nar is, so Nar is one of the largest professional trade organizations in the world. They are literally the biggest lobby in Washington. It's comprised of realtors, appraisers and property managers. It has over 1.6 million members as of October of 2023. So a little fun fact here. If you guys watch Modern Family, Phil Dunphy in that show, one of my favorite characters, he is actually a realtor, and he refers to him very proudly himself, very proudly as a realtor. If anybody ever calls him a real estate agent.

Mike Mills (00:27:05) - But technically anybody who specifically refers to him or herself as a realtor, they're not just using a generic term. So this is a term specific to real estate agents who are members of Nar. So the term was coined all the way back in 1916. So if you're a realtor, technically you're a member of Nar. If you're not a member of Nar, then you're just a regular real estate agent. And when a real estate agent joins Nar, they usually join a local board and are responsible for dues which are set are usually about. I think right now there are $150 per member for 2023, and they're going to go up to 156 for 2024. Shocker. Especially with this judgment, a portion of the dues go to lobbying costs. But each year, the organization calculates which portion of the dues isn't connected to political lobbying, and that portion is tax deductible for you membership and brings a commitment to real estate ethics training, as well as to access to education, networking and housing market trend data. They were the ones who pushed hard during Covid to make sure that Realtors were an essential business, so we could keep operating.

Mike Mills (00:28:05) - They helped make 1099 employees like realtors, part of the PPE loans that were given out at that time as well. And right now, they're lobbying to get rules change for first time homebuyers and veterans to get changes in how mortgages are governed, to see if they can help offset any potential adjustments to how commissions are paid from a buyer. So like rolling costs into a loan because like right now, you can't roll any costs, any closing costs into a loan of any kind. And anybody that tells you that is not it's not that they're lying, but they're not being completely truthful in that you can have your closing costs paid by the seller, or the bank can even pay your closing costs for you, but they're generally going to raise your interest rate to do that. Your loan balance is not going to change. So like on a VA loan, to keep it simple, if your loan amount was $100,000 and you wanted to roll in your closing costs, your loan amount would not go above $100,000. Your rate would go up and the bank would pay the closing costs on your behalf because you're electing to take a higher rate and right now collects about $250 million in dues each year.

Mike Mills (00:29:03) - So that's about a quarter of $1 billion. So it's going to be a little tough to pay 1.8 to 6 billion in damages, which is why there's ultimately probably going to be some sort of appeal and some sort of a settlement, because they're going to adjust those figures. All right. So where do we go from here? Well, first off, it's very much business. Business as usual for a while. There aren't any real changes that have happened yet. And at least until we get the judge's official ruling or this judgment works its way through the appeal process and and maybe even the Supreme Court, maybe it might get there. We won't really know what the impacts are going to be. So at this point, all you can do is focus on what you can control in front of you. There's a ton of opportunity coming for those agents who can set themselves apart and stick around while we all work through this change in our industry. But what you do need to start doing now is you need to start educating the public on what you do and why you bring so much value to the transaction.

Mike Mills (00:29:51) - It's very likely that listing agents will be what everyone wants to be. So if you're in this group, you better have the best value proposition for your. Listing because the competition for listing is going to be incredibly tough if it wasn't already. And honestly, I don't know. With the information we have right now, what's going to happen to the buyer's agent? You know, the cynic in me says that they'll go away and be replaced by the Zillow's of the world or some automated contract generating platform. And I don't think that's a good thing and will be a major disservice to the buyers and the market as a whole. If that is the case, it's not going to happen overnight. Agents will just kind of go away on their own, because it'll be especially hard to get paid what they're worth, especially in a competitive market. You know, think about it like this. If I'm a buyer's agent and I'm representing my friend and we're back into a place where interest rates are low and there's multiple listing, multiple offers on a home, well, if my offer includes the listing agent or the the seller paying my agent's commission and three other offers don't have that.

Mike Mills (00:30:49) - Well, I'm at a disadvantage with my offer, right? Well, if I don't have an agent representing me, or if it's my friend and I say, look, I know you've shown me 15 houses and you've explained this entire process to me, and we've gone round and round on this, but this is my dream house, and if I don't get this house, I'm not going to be able to give my family what I want. And you're my friend. Can we please just not get paid on this one? And I think most people, most, most agents in that scenario are going to just say yes, we'll just figure it out on the next one. And that's true. They may or they may cut them a check. A thousand bucks, 1500 bucks, whatever the case may be, they may they may give them some money. But what that's going to do is that's going to deter that buyer's agent from accepting another buyer on the next time. So the next time their phone rings and someone says, hey, I want you to go show me this house, they're not going to be jumping on it to go do that.

Mike Mills (00:31:34) - And then that consumer is going to have a very hard time finding representation. So if they can't find a representation in a typical agent, then where are they going to look? Well, my guess is and you know, we'll see. Time will tell. But but companies like Zillow or somebody else will be right there. Well, ready to welcome them with open arms at a very low cost to help them. And then once they get, you know, their own monopoly on that market, they'll start to raise the cost and they'll make money from, from representing buyers by just giving them some basics. Maybe it's A18 hundred number you call to ask questions. I don't know, but I don't think that if that's what it turns into, I don't think that's going to be good for our industry as a whole, especially buyers. Now, the optimist in me thinks that good buyer's agents, they're going to find creative ways to get compensated and establishing their value up front to potential clients. And the really good ones are going to find their little niche, and they're going to thrive because they're going to be way better at communicating their value than anybody else.

Mike Mills (00:32:27) - And they're going to make some money. Because, remember, buyers agents are incredibly important to the process, okay? Buyers are paying for agents knowledge and experience, not necessarily the task that they complete during the transaction, but those tasks are valuable to you have to negotiate repairs. You have to negotiate price. You have to identify neighborhoods. For buyers not familiar with areas, you're interpreting the seller's disclosure, which is huge. So a buyer knows what is good or bad about that house and more importantly, what may have not been disclosed and what a buyer's rights are. In that case, buyer's agents are the quarterback of the contract process from communications with title lending, inspections, insurance, repairs, vendors like roofers, plumbers, electrician, home warranties, home warranty companies, all these different people involved in the transaction. A buyer's agent is playing, you know, center field quarterback, whatever sports analogy you want to use to manage all of these people in the in the transaction process, not to mention what happens after the contract closes when you have a myriad of issues that can come up as a homeowner, and who are you going to reach out to to help you figure out what to do? If you don't have a buyer's agent, you're not going to call the listing agent.

Mike Mills (00:33:34) - They're not going to help you. So you're kind of left to your own devices. You're going to have to get to YouTube and the internet to try to figure out what you can do, because you didn't have anybody represent you in the transaction. And oh, by the way, every single transaction is different and comes with its own set of challenges. And your value is your experience as a buyer's agent in dealing with these challenges. We all know that many times as a real estate agent or a realtor, if you're a member of Nar, you do a lot of work for your buyer or even a seller, and you don't get paid anything because it just doesn't work out. So agents spend so much time and effort and hours of the day working for clients, and often or not often, but many times they don't get paid. So when you do get those big commissions and you do get those big splits, it's because you've logged incredible amount of hours on your current client, on past clients, and you've built up years of experience, and your job is now going to be to sell all of this to your buyer's agents and your sellers, to understand the importance of the buyer's agent in the transaction as well.

Mike Mills (00:34:30) - You see, because buyers and sellers don't understand the process of buying and selling a home because they don't do it every day. We do. And everyone that works in the industry understands this, but buyers and sellers don't until they go through a difficult transaction and then they finally do. So now your job is a real estate agent, since you may not be a realtor anymore because you may not be paying Nar anymore. Just kidding is to educate, educate, educate. You have to tell them what you do and why you have so much value in this transaction. Don't let the media educate them and tell them that you and the listing agent are colluding again, colluding to take their money, because we all know that that is bullshit. And the agents that can do this and do it effectively are going to thrive in this new world. So your job right now is to sit down and come up with what you're going to say when the conversation comes up with a buyer or seller on how and why you are getting paid, you need a game plan because for a while, going forward, you're going to have to answer these questions and answer them well, because if you cannot, they will find someone else that can.

Mike Mills (00:35:32) - And those that can't will have to find another career. And that's already starting right now. Well guys, that's it. We're wrapping this thing up. This is not an easy market right now. We got some tough times ahead of us. But I want to leave you with this. You know who Sun Tzu is? Sun Tzu, I think I said his name right. He is a Chinese philosopher and war general from way back. Way back when. And one of his famous quotes are victory comes from finding opportunities and problems. There's tons of opportunities and there's tons of problems. You just have to find your victory in that situation. I wish you guys the best week. Go out there and kill it and we'll see you next week.