https://www.youtube.com/watch?v=V8N_PaWkX_E
Welcome to the first day of "Dirty Little Secrets in the Real Estate Industry," where we dive into the world of real estate with no holds barred. Today, I'm going to discuss a topic that's been a thorn in my side, and I'm naming it "Can't Keep My Hands to Myself," just like the Selena Gomez song. Throughout this guide, I want you to think about that song because we're going to uncover a practice that affects buyers like you.
In the real estate industry, it's common for real estate agents to share a portion of their commission when someone refers a buyer to them. This practice, known as kickbacks, raises significant concerns for buyers, and it's high time we shed light on it.
Understanding Kickbacks:
Kickbacks in real estate are a violation of RESPA (Real Estate Settlement Procedures Act), making them illegal. If a real estate agent promises you a financial incentive in exchange for your business or referral, it's a clear violation of the law. However, these illicit practices persist, and here's how they work.
The Offenders:
Why It Harms You:
What You Can Do:
In conclusion, it's crucial to be aware of the kickback practices in the real estate industry. By understanding the dynamics at play, you can make more informed decisions when choosing a real estate agent. Remember, as a buyer, you deserve the best service without any hidden agendas. Stay informed, stay vigilant, and let's work together to bring transparency to the real estate industry.
Okay, it's about to get Rowdy, that's right, welcome to the first day of Dirty Little Secrets in the Real Estate Industry. So today, we're going to talk about one of my biggest pet peeves, and I'm going to call it Can't Keep My Hands to Myself, yes, like the Selena Gomez song. I would like you guys to think about that song throughout this, and here's the thing: basically what's going on in the industry is, as a buyer, a lot of times if someone gives your name to a real estate agent, that real estate agent is giving up a portion of their commission because that person introduced you to them. So we're going to talk about what that means to you as a buyer, who are some of the biggest offenders, and why this should be investigated, prosecuted, and illegal. Okay, so let me be really clear: Kickbacks in real estate are a respa violation, that's right. If a real estate agent said, "Hey, if you send me business, I'll give you a grant," that's illegal. And if a real estate agent said to me, "Hey, if you send me business, I'll give you a grand," that's illegal. But it's happening. So how is it happening? And it's happening on a large scale, and it's happening blatantly. So what in the world is happening? Okay, let's dig into the biggest offenders first, and then we'll go on. You'll want to stay tuned for this whole episode, which is going to be long and slightly painful because when I start listing names, you're going to be like, 'Damn, it's everyone.' It's everyone; it's out of control.
Now, first, before I start, I need to be perfectly clear: I do not take Kickbacks. I do not have shell companies. I do not try to sell people. I do not have anything to do with any of this. I am very proud of the fact, you know. Look, we give out a ton of business to real estate agents every single year. I get nothing in return except for my clients being happy, and that's why we will help, you know. If you can't find an agent, we'll look up data; we'll interview them because we want you to be happy. I do not take a nickel; I do not have a shell company that takes a nickel. So I want to be clear at the beginning.
There's a bunch of big mortgage companies, and some of them have been doing it for years, but now there are some larger companies involved. And what they do is they say, 'Hey, if you work with our real estate agent, we'll give you $500 or $1,000.' And you're like, 'Wow, that's great! They have a real estate agent that they recommend; they're XYZ recommended. Wow, they must be great, and they're going to give me money to use them? Wow, they're really making this easy for me.' Yeah, about that. So basically what's going on is these real estate agents have hooked up with these mortgage companies, and you can find a lot of this online. In order for the mortgage company to refer them, the real estate agent is giving a percentage of their commission to another company, which the mortgage entity owns or the main corporation, right? And this hasn't been categorized as a kickback because what we're talking about is corporations with millions, billions of dollars, and they have all the legal teams to make sure that it fits within the parameters. But the bottom line is this: if XYZ is referring you to this real estate agent, this real estate agent is giving a portion of their commission up not to you but to an entity that that company owns. Sounds like a kickback, right? Oh, but it's not because it's not direct. But it is. Okay, right. It's ridiculous, and you may be like, 'Well, Jen, I don't care. I just want to buy a house.' I agree. And here's what I'm going to tell you: if you have a large mortgage company saying, 'Hey, we want you to use our agent,' I want you to recognize this: number one, that agent is giving up a big chunk. I'm hearing 30 to 40% in many cases of their commission in order to work with that company with you. So number one, you are less valuable to them as a client than a full-paying client because you're not, that company is taking a big chunk of their income. So if they have two clients at the same price point, and one is not taking a cut via the mortgage company, who do you think they're going to help most? The other person. It's that simple, you know, and especially when you start looking at the numbers on all of this, like you are basically working with a less experienced agent in many cases because the super experienced agents, the super successful agents, the best negotiators in the industry, they're not going to give up their commission to some random company. They don't have to; they're good at their job. They don't need to give up their money. Why would they? Like think about it. Like, you know, if you were a plumber and every time XYZ sent you a client, you had to give up half of your job, and you were really in demand, a good plumber, would you work with that company? No. No, of course not. You wouldn't. And it's the same thing with real estate agents. So as a buyer, you're getting a lesser qualified agent, and in addition, they're less incentivized to help you because if they have two clients, and one isn't dipping their hand in their pocket, guess what? You're second tier. Wow. Okay. I don't think $500 makes up for that. How else does it harm you? Well, it harms you in this way. So we haven't really talked about the big Nar lawsuit, but basically, there was a lawsuit against the National Association of Realtors, and it did not come out the way they wanted. But the bottom line is, for years, it's been an assumption that the seller will pay for the buyer's agent. That's all changing. So who knows in a couple of years; it could be that you, the buyer, are now paying for the real estate agent. It could be tomorrow that that's happening. And I have to ask you this: if your real estate agent's commission is $10,000, which is a lot of money, and you found out that $4,000 of that is going to an entity the mortgage company owns because you gave them your name, how are you going to feel about that? That's your money. That's your money, right? It's crazy. It's just crazy. And especially what happened with the Nar lawsuit. I can't even believe this is happening right now because it's so flagrant and obvious that it harms consumers, yet it's occurring. It's occurring. Okay, so definitely watch out for that, guys. The other thing to know is that there is one large corporation that's actually being investigated by the CFPB because in their language that went out to real estate agents, one of the things the real estate agents had to agree to do was keep the client with that mortgage company. Mhm. Yeah, that was part of it. So you guys are, you know, if you don't know this, right, and how would you know this? You're not in the industry; you're not going to know this. They don't publicize it. It's kind of crazy to me that they don't have to like give you a huge disclosure on it, but if you, you know, you're like, 'Oh, they gave me a great agent, and I got $500 towards closing costs.' Meanwhile, you know, let's say it's a $10,000 commission, they're making $3,000, $4,000 giving you 500 bucks, and you're getting an agent that's less experienced and less incentivized to help you. That's going to steer you back to that mortgage company. Right, right. Okay, so that's mortgage companies doing that, and you know they do the referral, and then it's all legal, apparently, the way they do it through some other entity. But that is what's happening. Okay, so look, if you have someone referring you to a real estate agent, ask, say, 'Hey, are you going to get a portion of their commission for this referral?' They may lie to you, but it may be fun to watch them tap dance. Okay, and you can find a lot of this online. Now let's talk about who else is doing this. Oh, all the aggregators, guys. There are so many websites where if you click for a real estate agent to meet you or you contact a real estate agent or they set you up with a real estate agent, they're making a cut of the commission. Or, you know, in some cases, that agent is paying for ads. Um, that can be really expensive. Like, I remember ten years ago, I was talking to a real estate agent. This was ten years ago, guys. She was paying $20,000 a month on Zillow marketing. $20,000 a month. Yeah, yeah. So you've got all these other companies that have their hands in their pocket as well, and you're like, 'Oh, gosh, I just clicked a button; I didn't realize.' Right? Or you're like, 'Oh, I clicked a button, and this is a great website, so I'm sure they really checked out the real estate agent.
No, guys. They're going with whoever will pay for advertising or for whoever will give them a cut of their commission. Once again, the top real estate agents do not give up their commission. Why would they? Why would they? Okay, now look, there are some agents that participate with these companies, which are good. I'm not going to be mean and say they're all terrible; some are great. But there are a lot that are brand new, have no clue, or just have no clue, right? They can't build a business outside of these referrals. And if I'm looking for a real estate agent, I want a real estate agent that built their business themselves, you know why? Because you have to have really good customer service, you have to perform, and you have to make sure that you're not putting your clients into train wreck houses. If you're an agent that's just getting referrals where you give up a chunk of your commission, it doesn't matter what you do, right? You could put them in terrible... it doesn't matter. That's not where your business comes from; you're just giving away your paycheck to get leads from these other companies. Okay, so really be aware of that.
Now, here's another way that you guys don't realize that people are making money off of you. So if, let's say, you're in Michigan, and you're going to move to Florida, a lot of times your local agent will be like, "Oh, I'll find you someone in Florida," and you're like, "Barbara really cares about us, maybe." But Barbara could also just be getting some change. That's right. So real estate agents, and this is legal, I want to be really clear, this is very legal, this portion... Real estate agents can get a portion of another real estate agent's commission for referring you. So a lot of times, you know, the agent may be looking for the best agent they can find. And I have a friend who is one of those agents that other agents refer to, and she's a rock star. And the agents that are referring to her, they're doing their research, okay? They are taking 20 to 30% of her commission, but they're doing her research, and it's a part of her business. It's not her whole business, but it's how she grew from the beginning. Okay, there are Facebook groups, and if you get in them, they're like realtor Facebook groups. Like, go enjoy or go on Reddit and look at the realtor thread, you know, you can join. They don't vet who's joining, but on Facebook, there would be people saying, "Hey, um, I've got someone who needs a house in Jupiter, Florida. I want at least 40%, no less. Who's going to do it?" It wasn't like, "Hey, where's the best agent? How can they find them?" It was, "Who will give them the biggest cut?" Seriously, right? And then that agent, that terrible agent that's just like, "If you give me 40%, I'll give you the client," they're going back to you and being like, "Oh my God, I found you the best agent. You're going to love them." Always verify, then trust. Always verify, then trust. And I want to be really clear on this. There are some agents that give really good recommendations, really good. And yes, they're making money off of that, and a lot of agents will disclose it. But there are a lot of agents that are saying, "Oh, I'll do it, I'll do it," and they are just getting the biggest cut that they can. And once again, when you have an agent giving up 40, 50, 60%, 60, seriously, someone was telling me that, I almost fell out of my chair. How incentivized are they to help you? Yeah. Okay, I think we covered that. I don't know. I don't feel like I missed anything, but I think we covered that. The key thing on all of this is that people are making money off of you without telling you, and I think that's wrong. I also think it's one of the reasons that housing is so unaffordable, right? If we're constantly sandwiching in 6%, 5%, you know, 7% transaction fees into selling a house in America, the houses have to keep on going up at ridiculous amounts to keep on paying these. And if you have companies and entities, you know, taking a huge chunk of the real estate agent commission, you know, of course, like this is never-ending. And the other thing that's really frustrating and it can be harmful for you as a consumer is I'll see, like sometimes, I'll see where, like, there's a buyer and, oh my gosh, we're closing, they're $1,000 short. If the agent isn't giving up 40% of their commission, usually, we'll see an agent go, "You know what, I'll do it. I got it. I'm going to get you to the finish line," right? Because they have the margin to do it. If they're already giving up 40% of their commission, they can't help you, you know? And that's the thing is that, look, first of all, I think that if someone's good at their job, they should get paid whatever the market wages for it, okay? So what I don't think is okay is companies making a huge chunk of money just because they're selling you, and they're selling you without knowing it, and they're selling you without permission. And I think that's wrong. So look, if you made it this far in the video, drop in the comments, do you think this is okay? Do you think this is wrong? Do you think this should be cracked down on? What do you guys think about this practice? And did you know? So tune in tomorrow and Thursday. I am going to continue to burn bridges all week. But guess what? I work for you guys. I work for the consumer. I work for the client. I do not work for this money nonsense pocket-picking conglomerate of doom that I'm seeing in the industry right now. So that is why I'm shining a light, and I hope you guys can help me shine a light on all of this so that we can get the CFPB to go, "Oh, wow, that's pretty much... Yeah, that's a kickback. That's just a really nice, elegant way of doing it. And yeah, that does harm consumers because it's keeping costs high, and it's also making it so they think they're getting someone who's experienced but they may not. And okay, thanks for watching, guys. See you later this week.