I want you to close your eyes for a second. Well,
don't close them if you're driving, obviously.
But just picture this. Okay. It's a Saturday
afternoon. The sun is shining. You're cruising
through a neighborhood. Maybe it's that one specific
street you've been stalking on Zillow for the
last three months. We've all been there. You
turn the corner, and there it is. Staked right
into the perfectly manicured grass. The sign.
The for sale sign. The colonial post. The hanging
placard. Maybe a little coming soon. writer on
top. It's so iconic. It is practically a piece
of American pop art to this point. It really
is. It's the universal symbol of the housing
market. It's just it signals transition, change.
Right. And when I see that sign, I have this
like Pavlovian response. Yeah. I instantly imagine
walking through the front door, judging the wallpaper,
smelling that weird vanilla cookie scent that's
obviously fake. The fake cookie smell. Yes. A
classic trick of the trade. But mostly I think
of the person standing inside that door. The
gatekeeper. The one holding the keys. The real
estate agent. And I'll be totally honest with
you, before we started prepping for this deep
dive, my understanding of that person's job was
pretty two -dimensional. How so? I see them as
the person who unlocks the door. points at the
granite countertops, says open concept five times,
and then collects a massive check. That is the
surface level view. Yes. And it's the view most
people have until they are actually deep in the
trenches of a transaction and things start to
get complicated. But looking at this stack of
research you've pulled together, you've got articles,
legal statutes from Florida, economic theories.
I'm realizing I have been fundamentally misunderstanding
who this person is. Even just the words I use,
I use agent, broker, and realtor, like they're
synonyms. I use them interchangeably. You and
about 95 % of the population, it's completely
normal. But they are not synonyms, are they?
Not even close. Using agent and broker interchangeably
is a bit like confusing a nurse practitioner
with the chief of surgery. They're both in medicine.
They both might wear scrubs. But the liability,
the education, and what they are legally allowed
to do are vastly, vastly different. And that's
really what we're doing today. We are going to
deconstruct the machinery behind that for sale
sign. We aren't just talking about curb appeal
and staging. We are talking about the legal definitions
that determine if that person is your loyal defender.
Or just a neutral referee. And we are going to
talk about money, obviously, that massive 6 %
commission and where it actually goes. Who gets
a piece of that pie? And we have to talk about
the Freakonomics stuff. I saw that in the notes
and my jaw just hit the floor. The idea that
the person you hire to get you the most money
for your house might actually be incentivized
to sell it for less money. It's a very controversial
theory, but the math behind it is... Well, it's
compelling. We will definitely get into that.
It's a real mind bender. So if you're listening,
scrap in. We're looking at the hierarchy, the
hustle, and the hidden conflicts of the real
estate industry. Let's start with the basics,
though. I really want to clear up this vocabulary
mess. Agent versus broker versus realtor. Who
is who? Who's the boss? Okay, let's build this
from the ground up. The base level of the pyramid,
the entry point. is the real estate agent. And
in many states, the legal term on the actual
license isn't even agent. It's real estate salesperson.
Salesperson. Huh. That feels... A little less
prestigious than agent? A little more like a
used car lot? It's descriptive, though, and that's
the point. This is an individual who has passed
a state licensing exam. They've done the required
course hours, which varies a lot by state, but
let's say it's roughly 60 to 90 hours of education.
Okay, so a couple of weeks of classes. Right,
and once they pass that test, they are licensed
to negotiate sales agreements and handle all
the associated documentation. So they can sell
houses. They can, but, and this is the huge,
huge caveat that almost everyone misses, They
generally cannot do it alone. What do you mean
by that? If I go out and get my license today,
I can't just print some business cards and start
selling million -dollar homes. You can print
the cards, absolutely. But you cannot legally
collect a commission or sign a listing agreement
in your own name. A salesperson must work under
the supervision of a licensed broker. So they
have to have a chaperone, essentially. Effectively,
yes. That's a great way to put it. Think of it
like a big law firm. You have the senior partners.
Those are the brokers. And then you have all
the associates. Those are the agents or salespersons.
And the associates are doing the day -to -day
work. Exactly. They do a lot of the legwork.
They meet with the clients. They draft the documents.
They host the open houses. But they are operating
under the legal and financial umbrella of that
partner of the broker. Because the partner of
the broker. is the one with liability insurance
and the legal responsibility if something goes
wrong. Precisely. The broker is the boss in this
hierarchy. And to become a broker, the bar is
so much higher. You usually need verifiable years
of experience working as a salesperson first.
You can't just jump straight to broker in most
places. You have to put in your time. You have
to put in your time. And then you have to take
significantly more advanced coursework covering
things like agency law, property management,
contracts, finance. And then at the end of all
that, you have to pass a much, much harder state
exam. So the broker is the actual legal entity
that owns the listing then? Technically, yes.
When you as a homeowner sign a listing agreement
to sell your house, you might be sitting at your
kitchen table with Sarah the agent. But if you
look at the top of that contract, you are actually
entering into an agreement with XYZ brokerage.
Sarah is just the authorized representative of
that brokerage. I like the music industry analogy
I saw in the notes. I think that really helped
me. visualize it right think of the agent as
the rock star or the musician they have the talent
they have the fans they're the ones on stage
performing they're the face of the operation
but the broker the broker is the record label
they hold the contracts they hold the contracts
they handle all the compliance they take on the
legal risk and this is the crucial part they
process the money The check at the end of the
deal is almost always made out to the brokerage,
not directly to the agent. Then the broker takes
their cut, their split, and pays the agent what's
left over. Okay, so that clarifies agent and
broker. We have the talent and the label. Where
in the world does Realtor fit into this? Because
I see that big R logo everywhere. Is that just
a super broker or something? This is probably
the single biggest misconception in the entire
industry. Okay. Realtor is not a job description.
It is not a license level. It is a trademark.
Wait, what? It's a brand? Yeah. Like Kleenex
or Xerox. Exactly like Kleenex. Realtor, with
a capital R, is a registered trademark that refers
specifically to members of the National Association
of Realtors, or NAR here in the US. Or CREA in
Canada, I saw. Or the Canadian Real Estate Association.
Correct. But the point is, it's a membership
in a private trade association. So let me get
this straight. You can be a fully licensed real
estate agent. legally able to sell a house, but
not be a realtor? Absolutely. There are hundreds
of thousands of licensed agents and brokers who
are not realtors. To become a realtor, you have
to join the association, you pay annual dues,
and you have to agree to abide by their specific
code of ethics, which in some cases is stricter
than state law. But the public, I mean. I use
the word realtor to mean anyone who sells houses.
We all do. We say, I need to call my realtor.
the nr has done an absolutely incredible job
with their branding they have spent millions
and millions of dollars over decades to make
that word synonymous with the profession in the
public's mind why legally legally the state doesn't
give you a realtor license the state licensing
board gives you a real estate salesperson license
or a real estate broker license the realtor designation
is an add -on professional affiliation. So if
I hire someone who isn't a realtor, am I getting
a worse agent? Is there a tangible difference
for me as a consumer? Not necessarily. The state
license is the same. The legal ability to sell
the house is identical. The primary difference
is really about that membership, access to certain
data tools that the NAR controls, and that specific
code of ethics. But from a pure, can they legally
help me buy or sell my house perspective? The
state license is what matters. Okay. I want to
zoom out for just a second. We've been talking
about the U .S. structure this whole time. I
know we have listeners all over the world. Is
this broker -agent split a universal thing? Like,
is it the same in the U .K., for example? It
is actually quite different, and the difference
really highlights what American agents actually
do. In the U .K., they are called estate agents.
Sounds a little fancier. It does sound fancier,
but their role is arguably much more limited.
In the UK, the estate agent is primarily a marketer.
A marketer. Yes. Their job is to value the property,
take the nice photos, write the description,
put the listing in their shop window and online,
and find a willing buyer. But once an offer is
accepted, their job is mostly done. They step
back. Who does all the paperwork then? The contract,
the closing? The lawyers. Or solicitors and conveyancers,
as they call them. In the U .S., your real estate
agent is the one filling out the 20 -page purchase
contract. They are checking boxes about financing
contingencies and inspection timelines. Right.
In the U .K., the agents generally don't touch
the legal transfer documents. That is all handled
exclusively by the solicitors for the buyer and
the seller. So in the U .S., the agent is kind
of a... A hybrid, like a marketer slash amateur
lawyer. Amateur lawyer might get us in trouble
with the Bar Association, but functionally. Yeah.
Yes. That's a pretty good description. They are
filling out legally binding contracts. That is
why the education on contract law and the broker
supervision are so critical here. And in the
UK. In the UK, because the lawyers handle all
the heavy legal lifting. The barrier to entry
to become an estate agent has historically been
much lower. Sometimes no specific license was
required at all, depending on the specific time
period and regulation changes. It's more of a
pure sales and marketing job. That probably explains
why the commission structures are so different,
too, which I know we'll get to. But speaking
of lawyers, there was this fascinating loophole
you mentioned in the notes about California.
Oh, right. The attorney loophole. Yeah. So if
I'm a licensed attorney in California, can I
just wake up one day and decide to be a real
estate broker and manage a whole office of agents?
Pretty much. In states like California, if you
are a licensed attorney in good standing with
the state bar, you can skip all the prerequisite
coursework and the... you know, the two years
of salesperson experience that everyone else
needs. You just bypass the whole system. You
can just walk in, sit for the broker exam, and
if you pass, boom, you are a real estate broker.
You can open your own firm the next day. It seems,
I don't know, almost unfair to the people who
spent years selling houses to earn that spot.
Well, the logic from the state's perspective
is that law school puts you through the ringer
on contracts, agency law, property law, and fiduciary
duty. The state basically assumes that if you
can pass the bar exam, you probably have a solid
enough grasp of a purchase agreement. But knowing
contract law and knowing how to price a bungalow
in a rapidly shifting market are two very, very
different skills. They absolutely are, which
is why just because a lawyer can do it doesn't
mean they should. We joked about the lawyer trying
to bake cookies for an open house. That's not
their core competency. But legally, the state
gives them the keys to the castle. OK, so we
know who the players are. We have the agent who
is really a salesperson. We have the broker who
is the boss. And we have the realtor, which is
the brand. A great summary. Now let's talk about
the thing that everyone actually stresses about.
The money. The commission. It is the elephant
in every room, every negotiation. In the U .S.,
the standard has historically been and still
largely is somewhere around 5 % to 6 % of the
final sale price. Correct. That's the typical
range you'll see. I want to just contextualize
that for a minute. If I'm selling a house for
$500 ,000, which, you know, in some markets gets
you a mansion and others gets you a studio apartment,
but let's use $500 ,000. 6 % of that is $30 ,000.
It is a massive check. For most people, it's
the single largest fee they will ever pay for
any service in their entire lives. And my immediate
knee -jerk reaction is, are you kidding me? $30
,000. All you did was list it on the internet
and host... two open houses where you ate my
snacks. I hear that frustration. I really do.
And it's a valid feeling. But we do need to break
down where that $30 ,000 actually goes because
the agent standing in your kitchen isn't just
pocketing 30 grand. Okay. Walk me through the
math. Let's follow the money. Okay, so you pay
$30 ,000 at closing. Typically, that gets split
right down the middle immediately. Half goes
to the listing side. That's the brokerage representing
you, the seller. And half goes to the buying
side, the brokerage who brought the buyer. Okay,
so my agent's brokerage is now down to $15 ,000.
Right. But remember, the agent works for a broker.
The record label. The broker has to get paid.
They take a cut to pay for the office, the insurance,
the marketing, the brand, the legal support.
That split varies wildly, but let's be generous
and say it's a 70 -30 split. The agent keeps
70%. So now we are down to what? Roughly... $10
,500? Exactly. And out of that $10 ,500, the
agent now has to pay for all their business expenses.
The professional photography, maybe some staging,
the marketing flyers, the signs, the lockbox,
gas money, their own health insurance, their
licensing fees, and of course, self -employment
taxes. Okay. I'm starting to feel a tiny, tiny
bit of sympathy. But it's still a lot of money
for a transaction that might only take a few
weeks from start to finish. It absolutely is.
But here is the economic justification you'll
always hear from the industry. It's a contingency
fee. Meaning they only get paid if the deal actually
works. Exactly. An agent might work with a buyer
for six months, show them 50 different houses,
write 10 offers that get rejected in bidding
war, and spend hundreds of hours and hundreds
of dollars on gas. If that buyer then gets frustrated
and decides to just sign a new lease on it, an
apartment instead. The agent gets nothing. Zero.
Zero dollars for six months of work. So the high
fees on the deals that do close are essentially
subsidizing all the time and effort they put
into the deals that fall apart. Precisely. It's
a risk premium. You're paying for the successful
outcome, not the hours worked. But, and this
is a huge but, there is a legal technicality
about when that money is technically earned that
almost nobody knows about. It's a common law
principle called the ready, willing, and able
rule. This sounded really scary when I read it
in the notes. Break this down for me. Okay. Most
people assume, quite logically, I pay the commission
when the house sells, meaning when the keys are
exchanged and the title transfers. Right. No
sale, no money. That's the deal. In practice,
that is usually true. Most listing agreements
are written that way now. But under common law
in many states, a broker has technically earned
their commission the moment they bring you a
buyer who is ready, willing, and able. Define
those three terms for me. Ready means they want
to buy now. Willing means they agree to your
price and all your terms in the listing. Able
means they have the cash or a firm mortgage approval
to actually complete the purchase. Okay, so let's
play out a nightmare scenario here. I hire an
agent. They bring me a fantastic buyer. Full
asking price, all cash offer. The buyer's perfect
on paper. The dream scenario. But then I look
out of my backyard and I get emotional. I think,
you know what? I can't leave this place. My kids
grew up here. And I tell my agent, I'm sorry.
Pull it off the market. I've changed my mind.
I'm not selling. In that very specific scenario,
under the strict letter of the law, you could
still owe the broker that full $30 ,000 commission.
Even though I kept my house? Yes. Because the
broker did the job you hired them to do. You
hired them to find a buyer. They found the buyer.
The fact that the transaction didn't close because
of your choice, your seller's remorse, doesn't
void the work they performed. That is absolutely
terrifying. Has that actually happened? Do brokers
really sue their former clients for that? It
does happen. It's rare because suing your clients
is obviously terrible for business and your reputation.
Usually, they'll just walk away angry and say,
don't ever call me again. But legally, they often
have a claim. It really highlights that the service
isn't moving you out. The service you're paying
for is finding the match. Wow. That completely
changes how I view that listing contract. It's
a matchmaking fee. At its core, yes. Now, because
there is so much money floating around in these
commissions, there's a lot of federal regulation
to try and keep things clean. We have to touch
on RESPA. RESPA, the Real Estate Settlement Procedures
Act, sounds very dry. But I gather it's incredibly
important. It's the reason your agent can't say,
hey, you should use this mortgage guy. He's the
best. And then secretly get a $500 envelope of
cash from that mortgage guy later that week.
So kickbacks? Right. Before Respell was enacted,
the industry was apparently rife with kickbacks
and undisclosed referral fees. Agents would steer
clients to specific, sometimes more expensive
lenders or title insurance companies just to
get a cut of the action. And Respell made that
illegal. It made it illegal. It ensures that
if an agent recommends a service provider, they
are theoretically doing it because it's a good
service for you, the consumer, not because they
are on that provider's secret payroll. It's about
transparency. OK, so illegal kickbacks are out,
but that doesn't mean the agent's incentives
are perfectly pure. And this brings us to the
really juicy part of this whole thing. The Freakonomics
argument. Steven Levitt. 2005. He really, as
you said, threw a grenade into the real estate
world with this one chapter. I remember when
this came out, it completely shattered the core
idea that the agent is your partner. Because
logically, I always thought my agent gets a percentage.
If I sell my house for more money, they make
more money. So we both want the highest possible
price. We are on the same team. That is the fundamental
assumption that the entire industry is built
on. Our interests are aligned. But Levitt said
that's not quite right. He pointed out that while
the direction of the incentive is the same, you
both want more money, the magnitude of that incentive
is wildly different. Show me the numbers on that.
OK, let's go back to your $500 ,000 house. You
are the seller. Your goal is to get the absolute
top dollar. Let's say an offer comes in today
for $500 ,000. It's a solid offer. But your agent
thinks, you know, if we wait another two weeks,
do another open house, maybe we can squeeze out
another $10 ,000 and get $510 ,000. I would absolutely
want to wait. $10 ,000 is a lot of money to me.
That pays for my movers, some new furniture,
maybe a family vacation. It's a huge deal. For
you, the seller, that $10 ,000 is massive. But
now let's look at it from the agent's perspective.
For them, what's the financial difference? That
extra $10 ,000 at a 6 % commission rate is $600
in total commission. Okay. But remember, that
gets split with the other side. So the listing
side's commission goes up by $300. Right. Then
the broker takes their cut. So the agent, personally,
might end up putting, what, maybe an extra $150,
maybe $200 in their pocket. So for the exact
same amount of work, I get $10 ,000 and they
get, let's say, $150. Exactly. So Levitt poses
the question, is it worth it for the agent to
keep the file open, do more work? take on more
stress and risk the current deal falling apart,
all for the price of a decent dinner out. When
you put it that way, absolutely not. They'd rather
just close the deal today, take the sure thing,
get their commission and go find a new client
to work with. That is the core conflict. Levitt
argues that agents are fundamentally incentivized
to sell quickly, not necessarily for the highest
possible price. Their incentive is turnover.
And he didn't just guess this, right? He actually
had data to back this up. That's what made it
so powerful. He got his hands on a huge data
set of thousands of real estate transactions
in the Chicago area. And he did something very
clever. He compared two sets of data, homes sold
by agents for their clients and homes sold by
agents when they were selling their own personal
property. Oh, that is brilliant. A perfect control
group. What did he find? He found that when agents
sell their own houses, they behave exactly like
you'd expect a seller to behave. They leave them
on the market significantly longer, about 10
days longer on average, and they sell them for
significantly more money, about 3 % more. Wow.
So when it's their own $10 ,000 on the line,
they hold out. When it's my $10 ,000, they're
telling me, take the offer. It's a great market.
Don't be greedy. That is the powerful implication
of the study. It suggests they are maximizing
their own turnover rate and hourly wage, not
your final profit margin. So based on that, should
we all just fire our agents and sell our houses
ourselves? Is that the takeaway? Well, hold on,
because the research also shows the other side
of the coin. A later study from 2008 looked at
FSBOs for sale by owners and people who use these
unbundled limited service listings. And it found
that even with that built in conflict of interest,
people who used full service brokers generally
ended up with a higher net sale price than those
who tried to go it alone or with limited help.
So the agent might push you to sell a little
too fast, but they are still way better at marketing
and negotiating than I am. Right. The conclusion
is that an imperfect expert is usually better
than a complete amateur. The agent gets the home
on the MLS, which is critical for exposure. They
know how to stage it. They know how to handle
the flood of calls. They know how to negotiate
the inspection repair requests. So I might lose
out on that last 3 % of value because of their
incentive to sell fast. But without them... You
might have lost 10 or 15 percent because you
take photos with your iPhone in the dark and
didn't know how to price it correctly in the
first place. That's a fair balance. It's not
that agents are evil. It's just that the economic
structure itself favors volume over maximum value
for them. Exactly. It's a systemic issue, not
necessarily a personal moral failing of your
specific agent. It's just math. Now, speaking
of moral failings and legal duties, this is the
part of the research that honestly confused me
the most. And it's maybe the most important.
We need to talk about agency. This is the legal
maze. I always just assume that if I call an
agent to help me buy a house, they work for me.
They're on my side. Like a lawyer works for a
client. But the history of this is weird. It
is bizarre. If we go back in time, before the
consumer rights movements of the 1990s, really,
before the mid -60s, even real estate was an
entirely seller -centric world. Okay. What does
that mean? The multiple listing service, the
MLS, was created so that brokers could cooperate
and share their listings with each other. A great
innovation. But legally, everyone involved in
the transaction was considered a sub agent of
the seller. Wait a second. So if I was a buyer
in, say, 1980. And I found an agent who I liked.
And she was driving me around in her car, showing
me houses. That agent who you thought was your
agent was technically, legally working for the
seller of whatever house you were currently looking
at. You're kidding me. But I'm in the car with
them. I'm telling them my whole life story, my
financial situation. I'm saying, I love this
house. I'd pay anything for it. I have an extra
$50 ,000 in the bank, just in case. And legally,
that agent had a fiduciary duty to go tell the
seller, hey, good news. This guy has an extra
50K in the bank and he's desperate. Don't take
his first offer. That is insane. I'm spilling
my guts to a double agent. It was a huge, huge
problem. Buyers didn't understand it at all.
They thought the nice person driving the sedan
was their friend and confidant. But legally,
all loyalty flowed to the seller because at the
end of the day, that's where the commission was
coming from. So how did we fix this mess? Because
I assume that's not the case anymore. It can't
be. It evolved slowly. First, consumer groups
pushed for the creation of buyers agency. States
started passing laws saying, OK, you can explicitly
represent the buyer and have a fiduciary duty
to them. That was a massive step forward. You
sign a contract that says you are my agent. You
work for me, the buyer. So now I have my champion
and the seller has their champion. It's a duel
at dawn. Much clearer. In theory, yes. But then
you immediately run into the dual agency problem.
What happens if you, the buyer, want to buy a
house that is listed by my brokerage, maybe even
by me personally? Then you end up representing
both sides. That is dual agency, and it is a
legal and ethical minefield. How can I possibly
get the highest price for the seller, A &E, the
lowest price for the buyer at the same time?
I can't. It's logically impossible to serve two
masters. It's like a lawyer trying to represent
both the husband and the wife in a divorce. It
just can't work. Exactly. Some states still allow
it with disclosure, but it's very risky. So some
states led by Florida and Colorado in the 90s
came up with a really radical solution. They
basically said, let's stop pretending. Stop pretending
what? Stop pretending you are a loyal fiduciary
advocate in most cases. They created a new default
role called the transaction broker. Transaction
broker. It sounds very bureaucratic and neutral.
It is. That's the whole point. In Florida, for
example, this is now the default relationship.
By law, it is presumed that all licensees are
transaction brokers unless you sign a very specific
piece of paper to establish a single agent relationship.
Whoa. So if I call an agent in Florida, by default,
they are not my advocate. Correct. By default,
they are not your advocate. Explain the difference.
What does a traditional advocate do versus what
this new transaction broker does? Okay, let's
use a concrete scenario. You are buying a house.
You do an inspection. The inspector finds evidence
of mold in the attic. Gross. Okay, not good.
If your agent is a single agent, a traditional
fiduciary advocate, their job is to go to war
for you. They pull you aside and say, this is
unacceptable. This is our leverage. We are going
to demand they professionally remediate it or
we are going to demand they drop the price by
$20 ,000. Do not tell them you still want the
house. Act like you are ready to walk away. They
are coaching you to win the negotiation. I like
that agent. I want that agent on my team. Right.
Now let's picture the same scenario with a transaction
broker. They are a neutral facilitator. They
find the mold. Their job is to facilitate the
deal, not to advantage one side. They receive
the inspection report. They hand it to you and
they hand it to the seller side. They say, here
is the mold report. The parties need to come
to an agreement. And that's it. They cannot strategize
against the seller. They cannot advise you to
push harder or tell you the seller is desperate.
They'll probably take a lower price. They are
essentially a referee making sure the paperwork
is correct and the deadlines are met. That is
a massive, massive difference. One is your coach,
your gladiator. The other is a glorified courier.
Yes. And most people in states like Florida and
Colorado have no idea this fundamental shift
happened. They still think the agent driving
them around is their But legally, that agent's
primary duty is to the deal, not to them. So
why did states do this? Was it just to avoid
lawsuits over dual agency? That was the primary
driver, yes. It effectively eliminates the conflict
of interest in dual agency because the agent
never promised undivided loyalty in the first
place. Their only promise is honesty and fair
dealing to both sides. It greases the wheels
of the transaction, but it absolutely strips
away the advocacy component. This brings up a
huge question for me then. If the agent is just
a referee, if they're just handling paperwork
and facilitating communication, why are we still
paying them a 6 % commission? That is the multi
-billion dollar question that the industry is
grappling with right now. If I'm just a facilitator,
am I providing $30 ,000 worth of value on a $500
,000 home? And this leads us perfectly into the
alternatives because a lot of people are starting
to ask that very question. They are. And technology
has been the great enabler here. The biggest
and most common alternative is the flat fee listing.
How does that work? Is it as simple as it sounds?
It's pretty straightforward. You find a licensed
broker who offers this service. You pay them
a small flat fee up front, say $500. And in exchange,
all they do is take your property data and photos
and put your house into the multiple listing
service. So their only job is to get me onto
Zillow and Redfin and all the other sites that
pull from the MLS. Exactly. Because as an individual,
you can't get on the MLS. You need a licensed
broker to do it. So you're essentially paying
a... And then what? Who answers the phone when
a buyer wants to see the house? You do. Your
name and your phone number go right on the listing
as the point of contact. Agents with buyers will
call you directly. Unrepresented buyers will
call you directly. And I have to show the house
myself. You host your own open house. You schedule
all the private showings. You negotiate the price.
You handle the awkwardness of telling someone
their lowball offer is insulting. Ugh. I can
see why people are willing to pay the 6%. Negotiation
is deeply uncomfortable for most people. It is.
And you're hitting on a key, often overlooked
value of an agent. They are an emotional buffer.
Explain that. When a buyer walks into your home
that you've lovingly decorated and says, wow,
this kitchen is hideous. I'm going to have to
gut this whole thing. And you are the owner standing
right there. You get offended. You get defensive.
You might kill the whole deal out of pure spite.
True. My grandmother picked out those towels.
Get out of my house. Exactly. A good agent absorbs
that emotional blow. They translate the kitchen
is hideous into the unemotional negotiating point
of the buyer is looking for a modernization credit
in the price. They keep the emotion out of the
transaction. When you do a flat fee listing or
a full FSBO, you lose that critical buffer. What
about the legal risk of doing it yourself? I
imagine that's pretty high. It's significant.
Real estate contracts are not napkin doodles.
In most states, there are dozens of pages of
mandatory disclosures. Lead paint, flood zones,
property defects, HOA documents. If you, as a
DIY seller, forget to check a box or fail to
disclose that the basement leaks every time it
rains hard, you can be sued for fraud years after
you've sold the house. So you save the commission
on the front end But you take on all the liability
on the back end. Correct. And that's why many,
many people who start out trying to sell their
homes themselves eventually give up and hire
an agent. They realize it's a full -time job
and a legal minefield they are not equipped to
navigate. Now, I want to pivot briefly to the
people themselves. We've talked about the agent
as a concept. But who are these people? Is it
hard to become one? This is a point of major
contention within the industry itself. The barrier
to entry in terms of upfront education and cost
is relatively low compared to other high -income
professions like being a doctor or a lawyer.
You don't need a college degree? In most states,
no. You need to be 18. You need to pass the state
-mandated course and exam. And you need to have
a reasonably clean criminal background check.
But it's not just pass the test once and you're
done for life. Right. I saw notes about ongoing
education. No, thankfully. There is continuing
education, or CE, required to maintain your license.
It varies by state, but let's take California
as an example again. In California, you have
to complete 45 hours of approved education every
four years to renew your license. What are they
learning in those classes? Is it about how to
sell better? No, not really. The state doesn't
care if you know how to close a deal. The state
cares about consumer protection. The mandatory
courses are almost always on topics like ethics.
fair housing law, and trust fund handling. Trust
funds. What does that mean in this context? It
means handling other people's money. When a buyer
gives you an earnest money deposit check for
$10 ,000, there are incredibly strict rules about
where that money has to go. It has to go into
a special protected trust account. You can't
just put it in your personal wallet or your business
checking account. Absolutely not. Mixing that
client money with your own money, a practice
called commingling, is the single fastest way
to lose your license and potentially face criminal
charges. So the CE is constantly drilling these
rules into them. So the education is really all
about protecting the public from harm. Exactly.
And fair housing is another huge component. Constantly
training and testing agents to prevent discrimination.
Ensuring agents aren't illegally steering people
into or away from certain neighborhoods based
on their race, religion, or family status. Which
is a whole... other dark history of the real
estate industry, we could do a deep dive on another
day. A very deep and very dark history. Yes.
I want to mention one specific figure that was
in the notes just to show the other end of the
spectrum. We talked about the five hundred dollar
flat fee broker, which seems very transactional.
But then there's someone like Alice Mason, the
real estate queen of New York City. She passed
away recently, but she was legendary. From what
I read, she wasn't just selling apartments. She
was curating buildings. She was a social architect.
That's the perfect way to describe it. She famously
threw these lavish dinner parties where she would
strategically seat her clients next to the board
members of the exclusive co -op buildings they
wanted to get into. So it wasn't about the apartment.
It was about getting past the board interview.
She understood that at the highest end of the
market, real estate isn't about three bedrooms,
two baths. It's about social admission. It's
about power and access. And she was the ultimate
gatekeeper. It just really shows the incredible
range of this profession. On one end, you have
a data entry task for $500. On the other end,
you have a socialite power broker moving hundreds
of millions of dollars of equity over cocktails.
And the 6 % commission model is often applied
to both, which is why the industry is so fascinating
and so heavily criticized. The value provided
can vary so dramatically. So we have covered
a ton of ground here. We've gone from the lawn
sign to the courtroom, from the 6 % commission
to the $150 incentive problem. If we boil this
all down for the listener, the person who might
be thinking about buying or selling a house next
year, what is the headline? What's the key takeaway?
I think the headline is know who is sitting across
the table from you. Don't just assume. Don't
assume they are your friend. Don't assume they
are your fiduciary advocate. Ask the question
directly and ask to see it in writing. Are you
my single agent representing only me with fiduciary
duty? Or are you a transaction broker? And understand
the economic incentives. Yes. Understand that
if they are pushing you to take an offer quickly,
it might be genuinely good advice in a changing
market. Or it might be the economics of their
$150 raise talking. You have to be the CEO of
your own transaction. That's a great way to put
it. The agent is a critical consultant, maybe
your project manager, but you are the CEO. You
make the final call. Exactly. You are the one
with the most at stake. Here is my final thought,
a little provocation to leave everyone with as
we wrap up. We are seeing technology get better
and better every single day. We have Zillow.
We have Redfin. We have AI that can now draft
legally sound contracts. And as we've discussed,
we have this major legal shift in many states
toward. The transaction broker. The neutral referee.
Right. The de -emphasis on advocacy. So if the
agent is no longer legally required to fight
for us, and if the computer can now find the
house for us and even write the offer for us,
are we moving toward a world where the real estate
agent is just an extremely expensive administrative
assistant? Yeah. Someone we pay $30 ,000 to unlock
a door and manage a calendar. That is the existential
question that keeps brokerage CEOs up at night.
What is our value in a world of AI and facilitators?
And if they aren't your gladiator, is that 6
% fee? Fee structure that was designed in a pre
-internet world of paper binders and driving
around, is it still justified? Or is it a relic
of a bygone era that is about to crumble under
the weight of technology and new legal realities?
The market usually corrects major inefficiencies
eventually. It just takes time for the disruption
to take hold. Something to think about the next
time you drive past that for sale sign and smell
the phantom vanilla cookies. Thanks for diving
deep with us today. It was a pleasure. Always
fascinating.