The End of 6% Real Estate Commissions? & Uber and Lyft Are Out in Minneapolis

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0:27Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, a major American city could be without Uber and Lyft after passing a minimum wage law. Then things just got really real for real estate agents after a new settlement related to commission fees turned the industry on its head. It's Monday, March 18th. Let's ride.

0:52All right, Toby, quick round of a rose and thorn from the weekend, but skip the thorn to stick with the rose. I like the good vibes. My rose was I ran the New York City half marathon over the weekend. incredible event i've never done a big city race before the sheer amount of humanity that turns out for this race blows my mind over 27 000 people ran this incredible amount of runners and this is just one city in america can't believe it all right not to blow up your spot toby of the 27 000 people where did you finish i got uh i looked it up because of course i did i got a thousand 65th place so you are fast almost top of that was like a 620 pace uh 630 630 pace uh my I had a way more sedentary weekend than you did, but I saw a play Enemy of the People with two of my favorite actors slash TV characters of all time, Michael Imperioli, who is Christopher from The Sopranos, and Jeremy Strong, who is Kendall from Succession.

1:49Even got to chat a little bit with Michael afterwards. Just a super nice guy, a great play. I definitely encourage everyone to go. Did they translate well from screen to play? Jeremy Strong is incredible. Oh, he was incredible. Incredible. He's a fantastic actor. Oh, you always love to see that. Now let's hear a quick word from our friends over at Factor. One of Factor's big taglines is that they make restaurant-quality meals, and I totally agree with that. It's not just the taste or the quality of the ingredients, fresh, never frozen, by the way, that make them restaurant-quality, though. It's the whole experience.

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4:15Real estate agents have long compelled home sellers to agree to a commission-sharing arrangement in which the seller pays a commission fee, usually in the 6 % range, for both their agent and the buyer's agent. The NAR were able to get away with this because in order to sell your home, it really helps to get on a listing service which shows buyers which homes are out there. And since the seller pays the commission fee of both the buyer and the seller, the fear was if you don't agree to that commission, then buyer-side agents will just ignore your property in favor of ones that offer them a better deal.

4:48The settlement agreed to on Friday moves the industry towards a decoupling system in which buyers and sellers pay their agents separately, in addition to slapping the NAR with a$418 million fine to be paid out over the next four years. Neil, the decoupling part is the big deal here, especially when you multiply this new compensation structure across the millions of homes sold every year. Yeah, experts say this could lead to dramatic cost savings for Americans. Americans pay some of the highest commission rates in the world when they buy or sell a home. One expert said that this could lead to a 30 % reduction in the$100 billion that Americans pay annually in real estate commissions.

5:25It also could have disastrous effects for brokers themselves. Some may leave the industry because of this. One estimate puts it at half of the 1.5 million realtors that are part of this association, the NAR, will leave the profession because of this decoupling. Absolutely. It's going to lead to a real estate agent bloodbath, no matter which way you scrape it. Because a lot of these agents were kind of scraping by, they weren't in that top tier. They weren't providing services that maybe were in commiserate. The fact that they're charging 6 % fees doesn't add up to the services they were providing.

6:03And so you could see a big exodus from this industry where some estimates put it at 60 to 80 % reduction in the number of real estate agents. So it is totally going to be one of those things that's going to reshape the industry. And I mean, it's not an easy job being a real estate agent by any means. And we might see kind of that bottom third, bottom half of people who sell homes kind of drop out of the profession. So what this is going to be a major shakeup, but no one really knows how it's going to play out. One of the areas I think is most interesting is that a buyer is now going to have to directly negotiate with their buyer's agent.

6:37And the services that they provide might be more a la carte than we're used to. You know, maybe I'll just charge an hourly fee to show you some listings. Maybe I'll just do the contract negotiations at the end. So you're going to start to see more of this segmented market of what an agent does. And you'll start to see more market force. I think that's what a lot of economists and people are so interested in to see here, because we're seeing a market emerge in real time that didn't exist. So you'll see what the actual services rendered are and how much compensation an agent makes because of what the services they're providing to a buyer.

7:16One company that I'm very intrigued at how this is going to affect is Zillow. When this was passed on Friday, Zillow shares fell 13%. The company gets a big share of its revenue by connecting sellers to buyers, agents. That is one of their big revenue sources. So, lower commissions could mean those representatives have less money to spend on marketing. So, Zillow might come out of this on the negative, but also, they do have a rather robust business in general. So, Zillow is one company to keep an eye on and how this affects them. Meanwhile, the settlement money is huge. It's$418 million. And if you're one of 50 million, it could be up to 50 million people who recently sold their home, you could be a part of the settlement.

8:02So, I would definitely keep your eye on that. Okay, moving on. If you live in Minneapolis, It could soon feel like 2007 again because Uber and Lyft warned they will leave the area after the city council passed a law that would require them to pay drivers the equivalent of the local minimum wage. Advocates of the law called it a David and Goliath story of regular working class people taking on corporate giants to prevent worker exploitation. Currently, drivers in Minneapolis make a median of$13.63 per hour, and this law would bump that up to a floor of$15.57 an hour. Uber and Lyft, of course, have a different view.

8:40Lyft said the pay hike would make its operations unsustainable in Minneapolis, and it has support from the mayor and the governor. They're worried about what Uber and Lyft leaving means for vulnerable people who rely on ride-hailing services for their daily lives. But is this all a bluff by Uber and Lyft to try and get Minneapolis to compromise? Definitely could be. The law doesn't take effect until May 1st. So you can bet negotiations will be ongoing. Yeah, this is definitely a hot button topic. Kind of boils down to this. Everyone wants to see these drivers get a raise, make a livable wage. But that raise or livable wage doesn't do a whole lot if it means you lose your job in the process.

9:17So Uber and Lyft are definitely applying maximum pressure here saying like, all right, you thought you did something good for these workers, increasing the amount that they're paid. Well, now they have no jobs altogether. So it's definitely a tight line from both that the city council is walking as well as Uber and Lyft. Shows how much leverage they have in these particular cities. One statistic that they pointed to in saying we're leaving this pay hike is completely unreasonable is that the state did a study and it said that to get to this minimum wage that the city wants to get to, you only need to pay$1 and not only, but you need to pay$1.21 per mile and 49 cents per minute.

9:56Meanwhile, the law that was passed is much higher than that. It is$1.40 per mile and 51 cents per minute. So the ride handling services are saying you're not even looking at the own data that you commissioned, the study that the state did. It requires us to pay less than what the law just passed. It compels us. And I definitely feel bad for Minneapolis because there was a report from Axios that found that Minneapolis only has 39 licensed cab drivers, which back in 2014, they had 2 ,000. So again, if Uber and Lyft leave this city, it just won't exist. Like ride sharing, I can't imagine a life where you just can't call an Uber home from the bar in the evening or something like that.

10:36So again, we've talked about leverage and Uber and Lyft certainly have it in this scenario. Particularly for disabled people, they needed to get into their jobs. There are a lot of nonprofits working in the area that connect these people that have partnerships with Lyft and Uber, and they're warning that Uber and Lyft leaving will lead to basically massive job displacement. They're going to be like, these people can't get to their jobs. On the other side, though, there are those who say, Uber, you are profitable now. You're making a billion dollars from your advertising business. You can afford to pay drivers more.

11:07And cities and states across the country, New York, Seattle, Washington State, have all put in place minimum wages, and Uber and Lyft haven't left. They threatened to leave, but they haven't. We've got to bring in Kyle, our resident, Minneapolis resident, to get the word on the street here. Buyer's remorse is the worst. Sometimes that dress that looks so good on the model just doesn't quite fit the same. Or the hot new running shoe that you paid$300 for doesn't automatically turn you into Elliot Kipchoge. I know that from experience. But HP has perhaps one of the longest-lasting bouts of buyer's remorse on record after acquiring the software company Autonomy for$11 billion back in 2011.

11:47It's so big and so long-lasting that they are still wrapped up in litigation against Autonomy's founder, Mike Lynch, to this very day in 2024. Mike Lynch is from the UK and was once hailed as Britain's Bill Gates for raising the profile of the Cambridge tech scene after completing this gigantic sale. But soon after the acquisition, HP's CEO, who orchestrated the takeover, was ousted and things got nasty. Just one year later in 2012, HP announced an$8.8 billion write-down of autonomy and blamed it on, quote, serious accounting impropriety. HP and Lynch have been locked in a decades-long legal battle ever since, culminating in a trial that begins today in San Francisco.

12:31Neil, what do you make of this Mike Lynch saga? Well, they call it the largest fraud in the history of Silicon Valley. They say that Lynch artificially inflated autonomy's revenues by backdating sales and other sort of accounting tricks. They also say that they misrepresented hardware sales as software deals, giving the false impression that autonomy software was growing much faster than it was. And it's a really interesting snapshot of where Silicon Valley was back in 2011. HP was this kind of dying dinosaur that was the first wave of Silicon Valley. right? HP was the giant. It was the alphabet.

13:06It was the Apple of its time. It was facing slower hardware sales. It wants to pivot to higher profit or higher margin software sales. And it thought autonomy was the answer. And it was a complete debacle. Absolutely a big debacle. The fact that this company, I just want to read you how the New York Times described what autonomy actually did. The company helped clients analyze unstructured information in order to unearth hidden insights about their business. That is a word salad if I've ever seen one. Weirdly enough, though, that's kind of what Snowflake does today. They add in a storage aspect as well.

13:42That's a$51 billion company. So maybe Atomic was just ahead of its time. I think that is just like data analysis. That's what a lot of companies do is they help you make sense of your data. I think those companies are very popular in 2024. As much as it was in 2011, they just use generative AI to help you find insights from messy data. Yeah, maybe Atonami just needed some AI. It is interesting, too, because from what I've read, his odds do not look good in any sense or any way you cut it. In 2022, a London judge found Lynch and then Atonami's former CFO liable for defrauding HP. And then the San Francisco judge has already dismissed some of the evidence that Lynch tried to bring to the table.

14:21The one light I see at the end of the tunnel, though, is that Ernst & Young, who's the accounting firm that looked over the deal for HP back in 2011, did not find any accounting discrepancies at that time. So that's something you can always point to and say, hey, look at EY looked at this thing. They didn't find anything. So why? You're having buyer's remorse right now. So I do think there is some aspect. And we should say Lynch's side is he's accusing HP of mismanaging autonomy once they bought it. And there was no accounting fraud in that HP and Meg Whitman, who came in to be the CEO. Meg Whitman is a big Silicon Valley figure.

14:53She was the CEO of eBay. Now she's the U.S. ambassador to Kenya. She's completely mismanaged autonomy after the merger. But HP is not the only major corporation to have problems with mergers or accuse founders of inflating their numbers. I mean, just recently, JP Morgan bought this college financial aid company, Frank, for$175 million. And now they're suing the founder of Frank, whose name is Charlie Javis, for making up a bunch of numbers. So, this is going to happen throughout the entire course of corporate history. Yeah, it's the tale as old as time. Up next, pour yourself another cup of coffee, because we have our winners of the weekend segment coming up right now.

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16:40Welcome back to Winners of the Weekend, the segment where Toby and I pick two things that couldn't find any thorns this weekend. Toby, you won the pre-show half marathon, literally. so you get to go first my winner of the weekend is the kansas city current nwsl team this weekend was the grand opening of its brand new stadium the first soccer specific stadium for an nwsl team ever built casey hosted the portland thorns in its new digs on saturday looking to get things started on the right foot in their new digs but the thorns were not a very good house guest scoring four goals in their opponent's new home, but luckily the current scored five in an absolute barn burner of a game that tied the league record for most total goals in a game.

17:26Neil, a 5-4 victory to break ground at your historic stadium in front of a sold-out crowd. Not a bad housewarming party. I don't think this is just the first NWSL women's-focused team. This is the only arena stadium that is focused on a women's sports team anywhere in the world. At least that's what the owners of this team say. So it's a truly historic thing. A bunch of women's teams have always just been the third or fourth tier tenant at men's stadiums and haven't had their own facilities. So the fact that they built a stadium which cost$117 million was almost fully privately financed is a remarkable historic moment that shows how far women's sports has gone.

18:05And just another moment that was also historic about this game, a 16-year-old scored her first goal for Kansas City, youngest goal scorer in NWSL history. So I think the entire moment was just emblematic of the growth of women's sports in America, but also around the world. I also want to shout out Arsenal's women's team. They sold out the Emirates Stadium, which is, again, where the guys played. The women's Arsenal team has a higher average attendance than 10 Premier League team men's teams. So it just goes to show you that there is a massive demand for this. I also went to a Gotham FC game over the weekend as well.

18:41There was 14 ,000 people there. It was a great environment. Alex Morgan, unfortunately, broke Gotham's hearts in the 87th minute. But it is truly just like it's having a moment. And I'm glad that these teams and these women are capitalizing on it and getting these stadiums that they deserve. It's pretty amazing. So this Kansas City Stadium has capacity of 11 ,500. Season tickets have been sold out for months. And there's just a question of when, not if, they're going to expand capacity in that stadium. We're going to stick with sports for my winner, which is Long Beach State men's basketball coach Dan Munson.

19:15One week ago, Munson was fired after leading the team for 17 seasons, but he agreed with the school to stay on board until the end of this season. Well, the end of the season is going on longer than anyone expected because Long Beach State caught fire during its conference tournament and probably won the title and is now dancing in March Madness. Munson is still fired, though, which means he could become the only coach in history to schedule a Zoom first-round interview during halftime of a game. I think lame duck coaches are dangerous. You've got nothing to lose. The players are playing their hearts out.

19:47So I would not want to see Long Beach across from me at the dance or play in Arizona. So good luck, Wildcats. I was wondering, what do you think the business equivalent of this is? Like a lame duck CEO? What I came up with is a CEO gets fired but also has to stay on to take a company public and their IPO goes really well. That feels like the equivalent here, but it's hard. Like this doesn't happen in any other - It doesn't happen. No, it doesn't. In the CEO corporate world, it does happen where you stay on a few months and sort of hand the baton over, but you're not technically fired. Maybe it's more of a amicable parting than this is.

20:23But this, I mean, he has been super gracious about it. He said, this has been the ride of a lifetime. I don't think I'm done coaching yet. I think I'm going to try to coach elsewhere. So he's been super gracious about it. And, you know, if you need a team to root for in March Madness, I mean, you can't beat Long Beach State. Another great fact about Long Beach State, they used to be called the 49ers. And in 2019, for some reason, I don't know if this school is great at marketing, but they changed their nickname to just Beach. So they're Long Beach State Beach. I love that. Their job is Beach. Take a play out of Ken and Barbie's playbook right there.

20:57My job is Beach. Stanley Cups are so out. mini tote bags, they're so in. The latest social media fueled consumer craze comes from the aisles of everyone's favorite grocery store, Trader Joe's. They sell these mini Trader Joe's branded tote bags that only cost$2.99 in-store and are only big enough to fit maybe one box of cauliflower gnocchi, but that hasn't stopped shoppers for going nuts for them. The demand has brought out resellers in mass with some tote bags being listed on eBay for as high as$999 for a four-pack. If cute merch from TJ's was the kindling, TikTok was the flamethrower, with multiple videos showing people customizing their bags, as well as crowds fighting over them.

21:38That all went viral. Neil, it's crazy how these hyper-accelerated consumer trends can propel some pretty innocuous items into a must-have, even if no one really must have a tiny tote bag. No, we are definitely in the age of the micro trend. I mean, we're not going to be talking about Trader Joe's totes in April, if only to the point of saying that we're going to talk about the next trend and say, remember what happened to Trader Joe's in April? Remember what happened to Stanley Cup in December? These trends are going as fast as you can because of social media, because of TikTok. The whole product life cycle of introduction, discovery, maturation, and then falling off is just it takes place in weeks, whereas it used to take place in months.

22:19four years. I think all the ingredients were there for this Trader Joe's to go viral. I mean, it's got the exclusivity aspect, the limited supply, plus the virality built in. I also think that colors play an underrated role in a lot of these things. Because remember, that was one of the things that made Stanley Cup so popular, is that you could collect them. There was different colors. There's only four colors of the Trader Joe's tote bag, but it's something like, oh, you have the blue one, I want the yellow one. So, there's all these different ingredients that propel these massive highs and then also people moving on for them.

22:49And I think colors is part of it. To what extent do you think signaling is a part of it? So you have the Trader Joe's bag and now you post on social media that you have the Trader Joe's bag. Like how big of a deal is that? I think part of it is signaling, but Trader Joe's is just another beast entirely. Like people have built in love for them that I think goes beyond just like a status symbol. People, It is like a cult-like following. So in most cases, I would agree with you. But I think in Trader Joe's, people truly just want their hands on them because they love Trader Joe's so much. It's just so funny that these products are not anything special.

23:22They're just normal. It's a water bottle. It's a tote bag. It's things that you use in your daily life. They're very useful. And they're becoming the must-have, quote-unquote, luxury fashion items of our particular age. I do think tote bags are having a moment, though. Emily Mariko, big creator, is selling$120 ones. They are cute. Like I live, you hang out in Williamsburg, so you see him around. I see a lot of tote bags. I think tote bags are having a moment. All right, here is your preview of the busy week ahead. First up, it is once again the season for people who don't watch college basketball to suddenly find themselves screaming at their TVs because an unpaid 19-year-old missed a free throw.

23:58That's right, March Madness has arrived. The NCAA college basketball tournament brackets were announced yesterday on Selection Sunday. The men's tournament starts Tuesday, and the women's field gets going on Wednesday. I'm all in on the Golden Eagles. I'm a Marquette. Well, I went to Marquette for two years. Men's team made it as a two-seed. Women's team also made it in. So those are both my picks for the men's and women's side of things. I'm all in on the Golden Eagles. Just for people who haven't been following college basketball closely, like me, to be honest, the number one seeds for the men are the defending champs UConn, Houston, Purdue, and North Carolina.