Welcome to the Pocket List, investors 👋

Here’s what we’re getting into today…

• Full coverage of the massive NAR commission settlement

• What buyers really want

• Sunbelt slowdown?

• Your FREE pocket listing

Plus, a whole lot more.

Let’s make some money today, shall we?

First, let’s check in on mortgages…

What’s driving rates this week?

• Data showing hotter-than-expected inflation drove rates higher

• The Fed indicating yesterday that it still plans to cut rates 3x in 2024 could offer some relief going forward

THE LEAD

Let’s recap what you might have missed this week…

Commission crackdown

Last Friday, the real estate game was flipped on its head. The National Association of Realtors and a group of home sellers settled a massive class-action lawsuit.

If the Department of Justice gives the green light, the NAR will pay $418M in penalties… and agree to a bunch of changes to what have been “industry standards” for decades…

What happened? Home sellers were fed up with “standard” commissions of nearly 6%. Reminder: in most agreements, sellers pay the buyer and seller’s broker commissions.

• The group of sellers pointed out that the National Association of Realtors and other brokerages colluded to keep commissions artificially inflated via industry rules and standards

• They have a point: one report indicates commissions in 2023 hit $85B

What now? In addition to paying out $418M to home sellers over four years, new rules will change the home buying game…

• Buyers will negotiate commissions directly with their broker, which will force buyer’s agents to be more clear about their services and commissions

• Agent’s compensation will no longer appear on listing portals, which should help stop buyer’s agents from pushing a buyer towards a listing that’s more lucrative for them (note: there are no rules about agents sharing compensation numbers elsewhere)

Who’s impacted? Pretty much everyone…

• Buyers: If you’re purchasing a home, you’ll need to contract and negotiate directly with a broker. That means you’ll pay a commission (most likely). Or you can circumvent a broker altogether.

  • Critics point out this could be bad news for first-time home buyers or less affluent buyers who may not have the cash.

• Sellers: Probably the biggest beneficiary is the seller, who won’t have to shell out as much as 3% of the purchase price to a buyer’s broker.

  • This could make selling more competitive, as those willing to pay buyer’s commissions could find more interest from the agent and buyer pool.

• Buyer’s agents: This group likely stands to lose the most. Now, agents will need to show how much value they provide and will have to compete on commission.

• Seller’s agents: Sure, their life could be a little bit more difficult (more communication), but overall, their commission structure should be safe. Plus, it’s a lot easier for sellers to pay their agents since they’re being paid for the house.

• Real estate investors: You’re not safe either (see below)…

Keep in mind… Experts point out that all of these changes could take a long time to come to fruition. And their impact will depend on several broader and more local factors, like how competitive a market is, how current industry players and new entrants react, etc.

💭 Mr. Pocket Listing says… Real estate investors will be impacted too. It’s just not entirely clear how yet. More sellers could look to less traditional alternatives (think: off-market listings).

For larger-scale or institutional investors who also have brokerages, the impact might be more immediate. New rules around buyer agreements go into effect this summer. And buyer commissions could be impacted (see: dropping significantly or becoming flat fee).

Of course, for those of us who are risk-takers, this could provide a huge opportunity to disrupt the global real estate game (or at least your local market). There is a huge opportunity for new brokerage models, and there will certainly be unique ways to find and market new properties.

Believe it or not, the NAR settlement isn’t the ONLY thing that happened in real estate last week…

What else Mr. Pocket Listing is reading…

• Weekly mortgage demand drops as interest rates rise again (Read)

• Surge in Sunbelt real estate prices erodes financial benefits for those attempting to relocate away from Manhattan (Read)

• As a financial planner, I always say you don't have to buy real estate to build wealth — a better strategy is much easier (Read)

• Study Shows Buyers Want Smaller Homes (Read)

• Why it’s so hard to buy a house right now — and the reasons it could get easier soon (Read)

• Modular homes were hailed as a solution to housing crises. But the sector is now struggling to scale (Read)

Bonus…

• How an AI program can design your dream home in seconds (Watch)

Mr. Pocket Listing’s favorite property of the week (a guy can dream, can’t he?)…

DATA DUMP

For all the numbers guys and gals out there…

• $7,700 / Homes listed in the first two weeks of June sold for 2.3% (or ~$7,700) more (Read)

• 2.4x / Ready to be sick to your stomach? Home prices have risen 2.4x faster than inflation since the 1960s (Read)

• 53.2% / More than half of homeowners and renters say that housing affordability will impact who they vote for in the upcoming election (Read)

• 51 / Homebuilder sentiment rose 3 points to 51 in March. That’s the 4th straight month of gains. FYI, 50 is the line between positive and negative sentiment. (Read)

SOCIAL STUDIES

Before we go, one last gift from Mr. Pocket Listing…

If you’re enjoying the Pocket List, make sure to share it with your friends and fellow investors. Send them here.

One last thing…