All Forum Posts by: Billy Knox

The latest updates on the subject... 

https://www.wsj.com/real-estate/jury-finds-realtors-conspire...

If we lower the commission charged by agents then the overall costs will go down. This increases affordability.

Or what about solving the problem through education? What if we educated people that they could get all the same benefits a modern-day real estate agent provides (and more, in my opinion) by hiring a real estate attorney for much less than the percentage stake agents charge?

The industry is ripe for a complete overhaul that empowers individual consumers through the tools that modern technology has ubiquitously bestowed on us, regardless of our ability to pay a certain percentage to the so-called gatekeepers. There is a much more transparent and efficient way to do things. Bring on the change! 

I recently came across an incredibly interesting White Paper by Robert Hahn arguing for massive reform and decentralization in the real estate sector. He argues for the adoption of blockchain technologies and open market mechanisms to increase transparency and efficiency. I think that this is absolutely where the market is headed and am certain that the way my children purchase real estate is going to look much more like the model that he proposes than the current status quo. 

What are your thoughts on where the market is headed and what kind of disruption, if any, will we see?

Wanted to solicit feedback on the class-action lawsuits brought against the NAR pertaining to anticompetitive compensation mechanics.

Thoughts on the way this changes the fundamental landscape? What would happen if buyers had to pay the agents they utilized directly? Does requiring sellers to pay buying agent commissions foster anticompetitive behavior and artificially inflate commissions (they will only show or favor listings with the highest commissions)?

What do you guys think the fallout will be, if any?

Charlie, 

Don't waste your time with LegalZoom or any of the companies that say they can set it up for you. Just roll your sleeves up and do it yourself (when did we lose that mentality here in America?). Figure out what state you want your LLC to be in and then register it with the state yourself. In most states, the process is incredibly easy and just takes a couple of Google searches (look for the Department of State or Secretary of State). A lot of states waive the fee if you are on active duty or retired. It is very easy. Feel free to reach out if you have specific questions!

As it pertains to this line of questioning I would love to solicit feedback and opinions about the ongoing class-action lawsuits:

Moehrl vs. NAR

Burnett V NAR

I think this brings to light the deep fundamental flaws in the "way business is conducted" and makes the resounding argument that the entire industry is due for major disruption and change. If the agent really does bring solid value to the transaction then why would there be any issue with having buyers pay their agents and sellers pay theirs? That is the most balanced and transparent approach as each party would pay directly for the support they utilize or need. 

Robert Hahn's White Paper on the case for a decentralized auction mechanism is fascinating and I think where the market is ultimately headed. If buyers had to turn and write a check to the agent they utilized at the end of a transaction it would fundamentally alter the landscape overnight. 

Quote from @Henry Clark:

We love paying our realtor fees.  I actually pay realtor fees even when we don’t have to.  5 different realtors and all 5 have been great.  Probably dumb luck. Probably have paid out about $250,000 all told.  

I’m a controller, cfo, cpa, phi beta kappa, entrepreneur, construction worker, kaizen leader, willing to jump off the cliff into a deal, etc, etc.  Have no problem saying I could do all of our real estate deals without researching what it would take.

We like making money and the hunt.  I want a team to do the things I don’t enjoy.  Bring experience that I will never seek out.  Who can attend an auction and buy land while I’m eating dinner on vacation in Italy.  Who can bring me land deals out of the blue where we make $1mm when we weren’t looking.  Who can have a dead snake which is smelly taken out of a garage for a house for sale while traveling.

Who I can ask for team members they recommend.  Sign companies, plumbers, electricians, concrete, etc.  Or will take care of it with their in house team.  

What I really love is I don’t have to have them on payroll and keep them busy.  Yet they are always looking for deals for me.  

To me it is a matter of scale.  What am I good at and what do I enjoy?  With one property I can do it all.  As you start to scale you could do it all, but then I would t do it, since I wouldn’t enjoy it anymore.  Plus I would be losing money since I would not be doing what I enjoy the most, which is the Hunt.  

My son is in the Navy at Signorella, Sicily. Moving up to E 5 and will get BAH.

My brother who is retired AirForce and is civil service is moving to Livorno, Italy for a new Army position and will get BAH.  He was getting $50,000 BAH in Korea and you walk in and get handed the cash once a year, so you got your downpayment.  Italy he will get less.

Both of them should make about $50,000 and $150,000 tax free from Uncle Sam using their BAH money if they choose to.  Even if they buy and sell their houses for the same price.  

If they were to follow REI strategies on BP they should double that. Interest rates are 2% to 6% depending on the town. 30% down and 30 year amort.

You're in the military. Consider your realtor as both part of your REI team and your military family team while you are overseas. Focus on the Hunt or the big dollars with your BAH money.

This is a house we are building in Belize.  Our realtor down there is acting as our Buyer agent. He was going to do the current deal for free on a new piece of land, but I’m willing to pay his half which is 5% of the normal 10% commission down there.  He will get about $10,000.  His ReMax firm will get half of that.  $175,000 piece of land.  Will be $1.2mm in 12 years.

But in the meantime he will be looking for other similar situations.

I love paying realtors.

 If you can do the work and don’t plan to scale, you don’t need a team.  Don't pay them.   

 Best argument I have heard on that side of the fence yet! Totally agree when it comes to scaling a large operation! Appreciate the different perspective!

It seems that the argument for the agent is they are important to have around in case anything goes sideways. I agree that it is good to have a contingency plan, but my thought on that is that we should be hiring a Real Estate Attorney to function in that capacity. They are far more educated and in-tune to the nuances and pitfalls of real estate law and you can pay them on an hourly basis vs a percentage equity stake. This addresses one of my fundamental arguments with real estate agents in that their interests and yours are fundamentally at odds. The attorney is going to give you the best legal advice because that is how they ensure their survival in the market. If they give you good advice they get recommended to other individuals and keep practicing. The agent's interest, in my opinion, are fundamentally misaligned from that of the buyer or seller. They are all about transaction volume and closing deals. The more volume they do the more they get paid.  

Consider this - you go to sell your home. You do the market research yourself and think it is worth a certain amount. It might not move on the first day, but when the right buyer comes along that is what they will pay. An agent tells you that the goal is to move your property quickly and to drop the price so that it does so. They tell you things like you can get into a bidding war which will drive the price up (which is the worst argument I have ever heard). So you go with the agent. You price your home 30K lower than what you thought it was worth. It does sell quickly, but you are out the 30K you could have had if you were just a little more patient. The agent is only out and extra $900, but they will make up for that by repeating the process and moving properties as quickly as they can. A home isn't something we buy at a flea market or a discount retailer. If you get multiple offers and it sells on the first day all that tells me is that you priced your asset too low and you could have got more out of it. 

I digress. Back to the issue at hand. It is both more economical and in my opinion a far better use of resources to hire an attorney for the CYA portion as they are they actual experts when it comes to the legal pitfalls and trouble you can get in when conducting a deal. It is just a much more efficient model and saves the buyer and seller a lot of money in the process. And that is what we are here for, right? Saving people money and helping them build their wealth through real estate? 

Got some great news for STR in Jacksonville recently from our city council representative.

According to State statue 509.032 (b) A local law, ordinance, or regulation may not prohibit vacation rentals or regulate the duration or frequency of rental of vacation rentals. This paragraph does not apply to any local law, ordinance, or regulation adopted on or before June 1, 2011. 

Further, there was a lawsuit brought by the City to attempt to shut down a STR operation that concluded in November of 2022. Based on the Florida Attorney General opinion (Case Number 16-2022-CA-3550) that finds that generic zoning provisions such as Jacksonvilles do not qualify as a regulation adopted on or before June 1, 2011, the trial court dismissed the City's enforcement lawsuit. Based on this ruling, the City no longer has any regulations for short term rentals.

This should clear up an confusion about weather STR are allowed as the courts have unambiguously decided that they are both permitted and protected. I have the court documents if you need them for reference. Hope this helps you guys!

@Matt Moreland Thank for reaching out! I would love to get together when I get back and pick your brain about what you do and your success! Thanks again! 

Wow. What a plethora of great responses! Thank you everyone for engaging and sharing your thoughts on the subject. These are some of my take aways: 

Like everything in life there are bad apples in the bunch. Don't let the bad apples spoil it for everyone else. I can see some very salient points made for why it could be important and beneficial to partner with a good agent and the value that they can add to the transaction. I think this especially rings true when you have neither the time or the inclination (or possibly ability) to invest in the process yourself. 

That being said, I do believe in the fundamental American ideal of rolling up your sleeves and doing the hard work yourself. A 3% commission on a $400K home is $12K. That is a lot of money to most people. The realization that I came to is that it was well worth my time and effort to learn the inns and outs of the real estate transaction in order to preserve that equity to be put to use elsewhere. $12K passively invested in the S&P (literally just buy the index and do nothing else) yields an 11% annual historical return. In 18 years (the time it will take for my daughter to grow up and go off to college) that $12k I saved by putting in a bunch of work will yield $78K. That is half of my kid's college education paid for. When put into a context like that it shows that sometimes investing your time and effort and energy is worth it. A lot of the arguments for why it is absolutely imperative to use an agent were fear based and hinged on the principle that the individual did not have the capacity to conduct the transaction without the 'trained professional'. I don't agree with that. People are incredibly resilient and intelligent and I find that more times than not they can rise to the occasion. Especially if we can create tools to empower them to do so! The landscape is changing in that there are so many resources available and so much knowledge accessible by the click of a hyperlink. In addition, much of the dramatic catastrophic effects that were highlights can absolutely be avoided by using a real estate attorney. That is a much more efficient structure for dealing with those issues and I believe is ultimately more cost effective and safeguards the principal parties interest more closely. 

So what does the future look like? There is no doubt that great agents provide a value add to the transaction. Everyone on here has highlighted that. Exceptional people do exceptional things no matter where they find themselves. For me the question is really about the structure of it all. Maybe it is time we take a look at the stake based compensation structure. I know there are lots of operations out there already doing this. The market seems to be moving in that direction. The role of the agent is really that of a consultant and I think as a consultant you should get paid for your time - no matter if the transaction closes or not. That is where the real fundamental misalignment occurs in my mind. If you have an equity stake then closing the deal is always the best option, even if that might not be the best option for the principal parties. If the compensation structure was shifted to a fixed system then the agent could operate as an advisor and get paid for their time (which they should be!) no matter what. Furthermore if agents were paid on a fixed hourly scale then the thing driving that rate would be the quality of the product they produced. It would also force the individuals utilizing agents to get their sh*t together and be respectful of their time and skills. You don't waste a lawyers time by talking about the weather if you know you are on the clock. If you are good at what you do and you take time out of your day to show me a property or consult with me about valuation you should be paid for that regardless of if a deal closes or not. 

Please keep the comments and thoughts coming!