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1 big thing: Homebuying is about to change

Illustration: Brendan Lynch/Axios

The powerful National Association of Realtors last week agreed to settle a big lawsuit and change the way real estate agents get paid — from a standard commission to something truly negotiable, Emily writes.

Why it matters: The deal could open up a tightly controlled market to genuine competition, and create opportunities for new players and business models in a relatively old-fashioned world.

  • It could do for real estate what the internet did for stock trading — bring down broker fees.

The impact: That'll likely mean lower costs for sellers, who brought the lawsuit as a class action. The impact on buyers is more complicated.

How it works now: Sellers pay a 5% to 6% commission on the sale price of their home.

  • Typically, the seller's agent and buyer's agent split the commission.
  • It effectively means the buyer's agent is working for the seller — a conflict of interest. (Agents, of course, dispute this characterization and say their reputations depend on them doing a good job for buyers.)

Under NAR rules, sellers are required to advertise the buyer agent commission on the Multiple Listing Service, the database where real estate agents put homes for sale.

  • There's even a specific box just for this number.
  • Homebuyers don't see the number, but their agents do. The risk is that agents are incentivized to steer clients to the higher-fee deals — putting their interest in a higher fee above the buyer's interest in finding a good house.

That box goes away if the court approves this settlement. Sellers could no longer promise a commission to buyers' agents.

  • It seems like a bureaucratic little detail — a box! — but the implications are massive.

The bottom line: Most observers believe commissions will fall — a lot. Possibly to as low as 1%-1.5% per agent on each side, says Steve Brobeck, a senior fellow at the Consumer Federation of America.

What's next: The settlement could go into effect as early as July, but big changes won't happen fast.

  • "It'll take a long time for a truly competitive marketplace to emerge," says Brobeck, who's pushed for reforms like this for decades. "The industry will resist this."

2. Who will pay

Illustration: Brendan Lynch/Axios

The key question in the post-settlement world is how buyer agents will get paid. Here are a few possibilities:

  • A flat fee out of the buyer's pocket.
  • Buyer agrees to pay a percentage of the sale price to the broker or pays an hourly rate. Maybe they skip having a broker at all.
  • The real estate industry is emphasizing that a seller could still actually cover the buyer agent's fee. But that would have to be negotiated later on in the deal process — as a concession.

Follow the money: Future home sellers are clear winners here. They should be able to keep more of the proceeds when they sell a house.

  • Another potential winner: Online and discount real estate brokerages that offer lower commission rates, per a note from TD Cowen.
  • "You'll probably see a cottage industry of no-frills Realtors," says Marty Green, a real estate lawyer based in Dallas.

Yes, but: The picture for first-time buyers and those with tight budgets is murkier.

  • They'll no longer get a real estate agent for free — and might wind up paying out of pocket for the service, depleting cash they need for that down payment and other fees. And it's not clear if they can roll an agent's fee into a mortgage. That may require regulatory changes.
  • But were buyers ever getting a free agent?

3. The era of the AI home broker approaches

Illustration: Brendan Lynch/Axios

The biggest potential disruption in the real estate industry is if buyers' brokers are replaced by AI bots, Felix writes.

The big picture: A well-trained AI would probably provide a better, more reliable service than most human brokers — at a tiny fraction of the cost.

Where it stands: The U.S. has what Business Insider has described as "a glut of mediocre Realtors" who are "screwing over homebuyers."

  • As many as 2.8 million Americans are licensed as brokers, and even the National Association of Realtors said in a 2015 report that "the real estate industry is saddled with a large number of part-time, untrained, unethical, and/or incompetent agents."

What's next: An AI trained on the actions of very good brokers would be able to forward new listings to clients within seconds of them appearing; would be up to speed on the plethora of documents and payments that need to be brought to a closing; and could answer questions in an approachable, conversational style 24 hours a day.

  • While a robot couldn't go on home visits, it could certainly recommend local surveyors and other home inspectors.

The bottom line: While buyers' agents do provide some value to buyers, it's never been clear that the value to the buyer is remotely commensurate with the amount they are paid.

  • If a robot can provide 80% of the value at 1% of the price, that's a bargain many Americans might find very attractive.

4. What we're reading: Another hipster grifter

Illustration: Aïda Amer/Axios

"Ashwin Deshmukh Knew How to Win Friends and Hustle People" is the social headline on Joe Bernstein's wild story of a New York socialite who almost certainly never worked for a hedge fund or family office, but who was genuinely successful in generating buzz for various downtown bars and restaurants.

  • Deshmukh isn't as photogenic as the original hipster grifter, Kari Ferrell, but he worked at a level of much higher dollar amounts, including extracting $266,333 from Oatly for promising to build them a website.
  • The best line: One of his victims, Jonathan Kule, told Bernstein he was under the impression that Deshmukh "worked on behalf of a family office in Paris, but sometimes smelled like he hadn't showered in days."

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Axios Markets is edited by Kate Marino, and copy edited by Mickey Meece.