Things are about to get weird for homebuyers and sellers.
I wrote late last year that 2024 would mark the beginning of a great experiment in real estate that would upend the way homebuyers and sellers pay their agents. Well, the experiment officially got underway Friday when the National Association of Realtors agreed to a $418 million settlement to bring to an end a series of class-action lawsuits over agent commissions.
The settlement came after a yearslong battle in which hundreds of thousands of sellers claimed that they were forced into paying unfairly high commissions to real-estate agents. In addition to the monetary penalties, the agreement could enable more buyers and sellers to start negotiating those commissions, which for decades have hovered between 5% and 6% of the sale price. The deal could also push more buyers to forgo hiring an agent or work out an alternate payment structure.
These changes, spread out over millions of transactions a year, have the chance to reshape the housing market. Some industry observers have predicted that the new commission rules could lead to a drop in both home prices and commissions. Buyers could even save as much as $30 billion every year, a recent working paper from the Federal Reserve Bank of Richmond estimated. But there’s also the possibility that the Department of Justice decides this settlement doesn’t go far enough, which could set up a showdown between the NAR and the DOJ. In other words, while the real-estate revolution is underway, this thing is far from over.
To grasp the scope of the settlement, it helps to understand how agents are paid. In most home sales, the seller uses a chunk of the final sale price to pay out the agents on both sides of the transaction. When a seller lists their home on the multiple-listings service — a database of local homes for sale where agents go to find homes to show clients — they advertise how much they’re willing to pay the buyer’s agent. For decades, sellers have generally offered buyers’ agents 2% to 3% of the final sale price, even though they can technically offer as little as $0. That’s because sellers fear that if they offer less than the industry standard, buyers’ agents will direct their clients away from their homes, a practice called “steering.” Don’t offer the standard rate; don’t get seen. To fix this issue, the plaintiffs in the lawsuits and the Department of Justice have pushed for a practice called “decoupling,” in which buyers and sellers just pay their agents separately. They argue that this would eliminate steering and push down commissions, saving people money and perhaps forcing many subpar agents out of the industry. A lot of agents are already barely scraping by — if their earnings fall, they might decide to exit the business altogether.
AP Photo/Rich Pedroncelli
The newly announced settlement doesn’t go quite that far. While sellers will no longer be required to say how much they’re offering a buyer’s agent when they list their homes on the MLS, they’re not expressly prohibited from offering that compensation somewhere else — it just can’t be anywhere on the MLS. There will likely be “a thousand work-arounds,” Bret Weinstein, the founder and CEO of the Denver brokerage Guide Real Estate, told me. A buyer’s agent could just call up the seller’s agent and ask what commission they’ll get, or the listing agent could advertise the commission tied to the home on their website. In theory, a seller might still offer compensation to a buyer’s agent because they want to get as many offers as possible on their home. If you’re a seller and you don’t offer anything, then any buyer who wants your home will have to pay their agent out of pocket, and a lot of cash-strapped buyers simply can’t do that. In some cases, sellers might still feel pressured to offer the going rate, so the agent’s commission could end up looking pretty much the same as it does today.
On the other hand, we’re likely to see both sellers and buyers negotiating on commissions in ways they simply haven’t before. If sellers are in a desirable market, they might start offering less commission to buyers’ agents, or none at all. On a $1 million home, a seller may save $30,000 if they don’t promise anything to the agent on the other side of the deal. This would force buyers’ agents to get more creative. They could work for a flat fee or cut their commission rate to attract price-sensitive clients. Some might offer varying levels of service for different prices — the white-glove treatment still goes for 3%, but just setting up a few showings is a cheaper rate. Other buyers might choose not to hire an agent at all or just get a lawyer to review contracts and make sure the transaction doesn’t go off the rails.
As for home prices, I’m not convinced they’ll actually drop as a result of this settlement. It’s hard to imagine a seller shaving 3% off their listing price just because they’re not offering a commission to the buyer’s agent, especially if a comparable house down the street is selling for a similar amount. Sales have slowed down with higher mortgage rates, but the seller still has the upper hand in most parts of the country.
The NAR will pay out a staggering amount of money to the class-action members (and their lawyers), but that $418 million pales in comparison to the billions of dollars in damages that the NAR and other major brokerages were facing as part of these lawsuits. In the first case to go to trial, in October, a jury slapped the NAR and its codefendants with $5.3 billion in damages. The settlement also doesn’t mean that the organization is off the hook just yet: One of the biggest remaining questions is what the Department of Justice will think of this proposed settlement, which still needs approval from a federal judge. Earlier this year, the department threw its support behind the idea of decoupling, or just having both sides pay their agents separately. It has made it clear that it doesn’t want sellers offering compensation to buyers’ agents. Instead, it proposed an alternative in which sellers don’t promise anything but buyers can still make offers that are contingent on getting some money back so they can pay their agent: “I’ll pay you $500,000, but you give me back $15,000 so I can cut a check to my broker.” The key difference is that the amount requested is negotiated between the buyer and their agent, not set by the seller.
So it seems like the newly announced settlement could fall short in the eyes of the department. But even if the DOJ isn’t able to push for more changes, this settlement could usher in a new era for the industry — one in which buyers and sellers no longer default to the standard commission rates that have prevailed for decades.
This settlement isn’t the end of this saga. The experiment is just beginning.
James Rodriguez is a senior reporter on Business Insider’s Discourse team.
Real-estate investing can be an effective way to generate passive income — if your property is cash-flow positive, meaning your monthly rental income exceeds monthly costs.
Business Insider has spoken with a handful of real-estate investors who own profitable properties and asked what they look for in the acquisition phase.
Here are three of their top strategies. Business Insider verified each investor’s property ownership claims.
1. Go for multi-family properties
A multi-family is a single building divided to house more than one family living separately and ranges from duplexes to triplexes and fourplexes. Buildings with four or more units are typically considered commercial real estate properties.
These types of properties offer some major benefits, according to financially independent investor Dana Bull.
There’s what she calls “the acquisition discount.” If you buy a multi-family, you’ll likely pay less than if you were to go out and buy two to four separate condos or apartments.
“Say you’re buying a three-family building that is $900,000,” she said. “If you were to buy each of those as condos, maybe you’d be paying a total of over $1 million. If you buy them all together, you get that discount.”
You also get economies of scale — the cost savings that come with larger operations — when you own a multi-family. Think about the maintenance required for a multi-family home versus a single-family home, said Bull, who owns multi-families in New England: “If you buy a three-family and the roof goes out, you only have one roof to replace. You have one driveway to shovel. You have the shared hallways to take care of.” That will lower your maintenance costs and, ultimately, put more money in your pocket.
Owning a duplex or triplex also gives you the ability to “house hack,” which many rookie investors use to get their start in real estate. House hacking a duplex would mean living in one of the units and renting the second unit. The idea is that your tenant’s rent will cover some (or all) of your housing costs.
It’s a low-risk way to dip your toe into real-estate investing and see if you even like it. If you enjoy buying, renting, and managing tenants and want to expand your portfolio from there, you then repeat the process, but at different levels of expense and effort.
Note that not all markets have an abundance of multi-family properties.
If this type of property isn’t prevalent in your area, look for something with an unfinished basement that you can turn into another unit and rent, or even a home with multiple rooms that you could rent.
2. Select an area with high rent demand
It’s important to take a step back and consider your market as a whole: Do people rent in the area you’re considering investing in?
“You need tenants,” emphasized Bull. “They are the lifeblood of your business. They’re the ones that are paying for everything.”
To understand rent demand, investor Nyasia Casey looks at days on market when looking at rental listings. This gives her an idea of whether she’ll be able to fill a property with a tenant quickly. If you notice a lot of vacancies in the area or rentals sitting on the market for weeks or months, there might not be a strong enough rental demand in the area.
Don’t assume that the pricey part of town is where renters are looking, said Casey: “For a lot of first-time investors, their knee-jerk reaction is, ‘I’m going to buy in the nicest town that I can afford.’ Well, that town may not be primed as a rental community. There might be more single-family homes and people who own.”
Look at job opportunities in the area, too, noted Bull: “You want people to stay in the community. I would be very hesitant to invest in an area that just has one big employer. If that company goes under, that’s a problem.”
3. Look for the ugly houses
“A rental doesn’t need to be 100% pristine,” said Casey, whose strategy is to buy undervalued properties, renovate them, and fill them with long-term tenants. Her first rental in Baltimore cash-flowed $1,000 a month. “When you’re looking for an investment property, you’re looking for something really under market that you can renovate.”
She advises looking at listings on sites like Zillow and Redfin and finding “the really ugly houses,” she said. Then, contact the agent associated with that property.
While that specific property may not be the right fit for you, “that agent understands and works with distressed properties,” said Casey, and they could be a good agent to work with.
You’ll want to ask them questions like, “Do you get other properties like this? Do you work with off-market properties?” she said. “Agents are constantly reaching out to sellers, so let them be the ones to bring you properties or let them be the ones to work those off-market leads.”
The digital consultancy Bounteous is merging with Accolite Digital, and together they plan to become a billion-dollar company in five years.
Bounteous and Accolite Digital offer different, yet complementary services. The private equity firm New Mountain Capital, which invested in both companies in 2021, instigated the idea for this merger late last year.
Bounteous, a Chicago-based consultancy, mostly works with chief marketing officers in North America and designs customer-facing experiences. Its clients include Coca-Cola, Caesars Entertainment, Domino’s, and others, and it largely competes with other consultancies like Accenture and Deloitte Digital, Bounteous CEO Keith Schwartz told Business Insider.
Accolite, based in Dallas, builds products that large enterprises use internally. For instance, it built a wearable device for FedEx that detected fatigue among drivers and pilots and ran predictive analytics to identify potential accidents, Accolite CEO Leela Kaza told Business Insider. FedEx used this data to make pilots’ schedules and truck drivers’ routes more efficient, and now licenses that software to other carriers, Kaza said.
Accolite’s clients include telecommunications and financial services companies, including Goldman Sachs, Prudential, and BT. It mostly works in India, but it also has presences in the US, Canada, Mexico, and Europe.
The decision to merge happened when New Mountain noticed that Accolite clients would ask for design services that are Bounteous’ expertise, and Bounteous clients would ask for help with their cloud infrastructure and data analytics, which is Accolite’s focus, said New Mountain managing director Prasad Chintamaneni.
The combined firm will have 5,000 people and be headquartered in Chicago. Schwartz and Kaza will both lead the combined company. For now, the merged company will be called Bounteous X Accolite, although Kaza said they will finalize its new name in May.
Kaza will oversee areas like human resources and operations, and Schwartz will oversee sales, marketing, and finance. The companies will have minimal layoffs post-merger, Kaza said, though there will be some redundancies in support functions.
“I look at all sorts of mergers and possibilities, and sometimes there’s a tremendous amount of overlap,” said Schwartz. “In this case, there’s a tremendous amount of white space.”
The road to $1 billion
The two companies’ combined revenue is nearing half a billion, and they have big plans to hit the billion-dollar mark in about five years.
To get there, Bounteous X Accolite is banking on 2024 as a year of modest growth, with real acceleration in 2025 and 2026, said Kaza.
“That’s when you’re going to start heading towards that billion-dollar figure,” Kaza said.
The company will then supplement its projected organic revenue growth with M&A, looking for “strong firms” that can work with marketing tech from Salesforce and Adobe in regions like Latin America and Eastern Europe, Kaza added.
“You do these things to make the company better, not bigger,” Schwartz said. “If you make the company better, clients reward you with more work, and you will grow.”
Nyasia Casey has learned the hard way where to spend money during a home renovation — and where to save.
Her first project — renovating a rental property that she purchased in 2021 — took three months and cost her $45,000 but, looking back, she says it could have been done in three weeks on a $36,000 budget.
“I cringe where I overspent on things,” the native New Yorker, who invests in Baltimore, told Business Insider. “I added some electric that I didn’t need to add. I added hard-wired smoke detectors, which are not needed at all.”
Additionally, there were some improvements she skipped that ended up costing her down the line.
“Always change the plumbing,” she emphasized, noting that the one issue she’s had from this particular rental was when a pipe burst, flooded the basement, and cost her $5,000 in repairs. “I was too worried about the stuff that you could see and not as worried about the stuff you couldn’t see, thinking it would be fine.”
Courtesy of Nyasia Casey
Casey has learned a lot since that first deal, which, despite costing more and taking longer than it should have, turned out to be a cash-flowing “slam dunk”: She’s profiting $1,100 a month from the rental, which Business Insider verified by looking at a copy of her monthly mortgage statement and a rent agreement with the Housing Authority of Baltimore City, as she rents to a Section 8 tenant.
She’s done three more deals in Baltimore, including one flip: a short-sale home that she purchased for $90,000, according to a settlement statement viewed by Business Insider, and sold for $245,000, according to Redfin.
“I didn’t spend very much on renovations, but since I used a hard money lender and a private money lender to give my down payment, I had many lender fees,” noted Casey, who estimates she put $35,000 worth of work into the home and walked away with $68,000 in profit.
Renovating a rental property versus a flip
How to most effectively spend your renovation money depends on the type of property you’re working with.
“It’s different if you’re doing a flip versus a rental,” said Casey. “For example, if you’re keeping the house, the roof should be as close to new as possible, especially if it’s a house you plan on keeping long term.”
However, “if you’re selling the property and the roof looks OK, don’t spend the money doing the roof.”
Courtesy of Nyasia Casey
Casey has learned that you shouldn’t go into a flip expecting to renovate top-to-bottom.
“To be profitable, you have to leave some things,” she said, noting that prospective buyers should keep that in mind: “A good friend of mine who’s also an investor says he would never buy a flipped house because you don’t know what’s behind the walls.”
For example, “There are some flippers who would leave plumbing that’s bad if you’re not going to see it in an inspection. But if you’re keeping that house, you better fix that plumbing because you’ll be the one who has to take care of it.” Especially if the home has cast iron plumbing, replace the pipes, she emphasized.
As for where to cut back on rentals, you don’t necessarily need to add a washer-dryer and a dishwasher. Leave the space for these appliances. That way, you can install them if you eventually want to sell the property, or your tenant could provide their own, she said.
As a rule of thumb, if you’re keeping the property, focus on the big-ticket items that could cost you down the line.
“Yes, you want things to be pretty, but as a rental, you should really pay for the things that could cost a lot upfront, as opposed to coming out-of-pocket for it two or three years later when you haven’t recouped your money yet,” said Casey.
Courtesy of Nyasia Casey
Another learning lesson was that you’re not completely at the mercy of your contractor; you have some control over the renovation timeline.
While Casey’s first renovation dragged on for three months, her flip took just 14 days. She was able to speed up the process partly by being more hands-on. She would drive to Home Depot to buy materials, for example, so her construction team could stay on-site during the entire workday — and partly thanks to her personality.
“I don’t lack confidence, No. 1, but also I’m impatient,” she said and made it clear to her contractor that she was on a timeline. “We don’t have time to waste. I want to get back home to New York. We need to finish the house. I think I’m a good motivator so that definitely helped get things done quicker.”
Know the value of your home
When Casey was wrapping up the renovations on her flip and preparing to sell, she was determined to list it for $220,000 at the very minimum and thought she could get $235,000.
Her agent and hard money lender thought otherwise.
Courtesy of Nyasia Casey
“My agent said, ‘maybe 215,’ and my hard money lender said, ‘200,’” recalled Casey. “I said, ‘Listen, I did well on this property.’ I over-renovated it, technically, but because we were coming into the spring-selling market and I knew other things were going to come on the market, I wanted to outshine the other properties, so I spent another $5,000 that I didn’t need to spend. But the property really stood out among everything else.”
She stuck with her gut and listed it at $219,900.
Casey received 14 offers in five days. The property sold for $245,000, which wasn’t even the highest offer.
“But it was the cash offer with closing in 13 days, no inspection,” she said, adding: “My hard money lender was blown away.”