E20: Real Estate In 2026: What’s Actually Changing (And What Isn’t)

Hey everyone, welcome to episode 20 with you on it with Jerry Thompson and it is the end of December almost going to be 2026 early January coming up. So this week I wanted to talk a little bit with you about some of the things that I expect, maybe a little bit what happened in 2025 and what I expect to change kind of with real estate as we head into 2026 and just give you kind of a little bit of a roadmap of what to expect as we come into the new year from the real estate markets and the trends in the real estate industry. And so I want to start by kind of mentioning to you one of the things that I've seen in my over 30 years in the business is that as things change from we went from an ML book to a DOS, MS-DOS computer system to a you know more advanced computers to cell phones being added in an industry to texting with blackberries to the internet to the data being sold to the internet to real estate becoming very transparent to the consumer meaning that you could get a listing from any website all the way up to now now that AI is being introduced and then our settlement and I'll talk a little bit briefly about those two. And in every step of those changes there's been these blazing headlines that the industry will change to the point where functionally buying and selling the house will change. And my father who was in the business for 50 years before I and that I learned a lot from used to always say everything changes but everything stays the same. And I always used to take that from that is as things change people in the business and people buying and selling the services that we offer will change a little bit. How we market will change. How we sell will adjust but in the same respect the transaction the end-to-end transaction still remains the same. It is a human transaction. It is a significant financial decision that people still are seeking out expert advice in order to get through the transaction from point A from the beginning to the end. And I use this analogy all the time. I'm in fact tomorrow assuming that the snowstorm does not stick me in Buffalo New York my wife and I will be getting on a flight to head to Florida to hop on a cruise ship. Now we're going to go from port to somewhere else and I'm trusting all of that staff and the people on that ship are going to make an enjoyable smooth transaction. If we decided we wanted to go to Florida to the Bahamas on our own across that ocean on our own little boat it would become a problem. On the cruise ship it's going to be a ton of fun. I'm going to be served drinks by the pool. I'm going to be able to go and and see shows have great meals. It's all on a little app that we've scheduled and during that entire process the staff of that cruise line is going to keep things safe and smooth so that we we aren't alone in the ocean. Real estate's exactly the same way. You may buy or sell a real estate piece of real estate five to seven times in your entire life and over 30 years or 40 or 50 years that's once every 10 years and everything changes as far as process and marketing and service and contracts and forms and regulations every two or three years and they're all regional. Every change that occurs is not nationwide. There's no federal real estate rules and regulations. They're all municipal, county, state, federal. They all each one little pocket is in of itself. So functionally when I talk about changes in the real estate industry those changes traditionally will change the way the business is done but they will not change the fundamental we've got to get you from port to the island that you want to go to which is your new home. We've got to get you from how do I buy or sell to where I want to be and we've got to take you through that transaction offering a high level of service just like an airline just like a cruise ship. That's going to continue no matter what changes I talk about today. So let's talk about some of the big changes that occurred in 2025. So at the beginning of 2025 all the real estate business was still settling or dealing with the NAR settlement. The NAR settlement was when the National Association of Realtors was sued saying that we had a lack of transparency on buyers agency commissions forcing sellers to pay the buyers agents and transactions. The buyers weren't aware of it and that functionally agents were artificially inflating their commissions by forcing people to make these decisions. So the NAR settlement kind of decoupled said to a seller you have a seller's commission and to a buyer you have a buyer's commission. And at the beginning or right at when that settlement occurred NAR came up with a policy now that when you wanted to go buy a house you needed to up front meet with your buyers agent and establish a rate that you would agree to pay either in the purchase price or directly to that agent in the transaction. Now a lot of experts CNN they had headlines real estate commissions going down real estate is going to you know the the the margins in the business would drastically change. And that was starting at the beginning of 2025 and there was a lot of industry panic what will happen we're all going to go out of business. And what really happened is agents commissions on average from the buyer's side went up. And you might think well why? And I'll tell you why. If you look at what agents do for a living they are self-employed contractors. They are the same as somebody that you're going to hire for a multitude of jobs from roofers to plumbing to heating people. They fundamentally have to operate their independent job showing you houses and selling you houses like a business. They have to meet certain margins in order to stay in that business. And despite what people felt the facts were that the majority vast majority of agents were very were barely scraping by and making a living. And when you start to look at the overwhelming expense in the operation of that business the margins were not great. So when they changed to this disclosure situation the good agents started to say I need to operate this as a business. I need to charge a rate that I am worth and that I can still pay for the mileage, the cars, health insurance, airs and emissions insurance, forms, contracts, marketing, advertising, signage, lockbox, board dues and fees, continuing education all to sell you one house. And then sharing that compensation with their broker who pays for the office, the utilities, the meeting room, the coffee, the the things that allow you to come in to meet with your agent somewhere, and the branding, the national advertising, the regional advertising, the newspaper, the print, the google ads, the metrics, all that stuff is expense to that business. The presumption of a lot of the pundits who don't know anything about running a business but they're you know journalist and and I guess I do meet this as a slight journalism has become a click click and click bait scenario. Most journalism now has a headline draws you into the article in order to do that. The headlines were that agents fundamentally were going to lose compensation but then when you actually start to look at the nitty-gritty of it there was not enough margin in the business for commissions to collapse and they didn't. They went up by a very little bit but they went up and that's because everything in their agent's life has gone up. Every expense has gone up. Housing values have gone up to help with that a little bit on a percentage basis but every other expense has gone up as well. If you're an independent contractor, if you pay for your own health insurance, health insurance expenses just to wake up in the morning are giant and to operate an independent business to pay those health insurances you need to meet those margins. The expense of gasoline and the mileage reimbursements and the expenses of real estate signs and the expenses of all the marketing on the web that's needed to market a house properly to be a leading agent from professional photography to 3d tours and all that stuff that all went up. So why on earth would anybody think that means that the total value would go down? It's just like a painter coming in to paint your kitchen. You can look at all the painters in the world and say you guys are violating the antitrust because you all want to charge a certain rate to paint because you're a professional painter. Some are a little bit more expensive that may be better painters than others that may be a little less professional or have the less experience but the rates are fundamentally close and that's because the market drives those rates. That's what consumers are willing to pay and no matter what the courts say and what settlements occur you're not going to get a painter to show up and work for free. You're not going to get a real estate agent to work for free. So at the beginning of 2025 everybody said it's going to change the whole industry. This is going to change. The reality is things have stayed about the same. Compensation agents has gone up a little bit very little bit as the actual true disclosures of how the agents get paid and what they do and the agents that are talented have begun to explain the consumers what they do for them and how many hours are spent in the search for a home and in selling a home how many hours are spent in even setting up that listing to get it presented and how many back office things are done and the professionals in the industry just like the professionals in law, professionals in insurance, professionals in painting, professional contractors, professional people that do kitchens, windows, doors started to say I'm running my business and this NAR settlement is an opportunity for me to get what I'm worth because if a consumer wants a top agent they're going to pay the top price and that's what's happened. So the NAR settlement fundamentally changed everything but changed nothing. So there are some things let's talk about that as it relates to that settlement coming up in 2026 that you may see as a consumer. There are some additional litigations that have occurred against the major portals like Zillow for example and one of the things most consumers don't know is that when they go click on an ad on Zillow or they click on a listing on Zillow, Zillow captures your data and then they sell you as a lead to agents for a referral fee. So when you hire you get connected with an agent on Zillow and they meet you and they say to you if I'm going to be your buyer's agent my fee is two and a half or three or three and a half or 3.75 or 2.7 whatever that negotiated agreement is with you right now what often happens is consumers don't recognize that in that expense the agent can be paying between 25 and 42 percent of the total commission back to the portal as an advertising referral or a cost for you as a lead to that agent. So with the NAR settlement with the consumer what you got as a customer is transparency from your agent right up front as to how they got paid when you were buying a house. And now the next step of lawsuits will probably create a scenario where transparency will include any of the portals or any hidden referral costs and those major portals may end up having when you click that button a referral agreement that you need to sign acknowledging that cost. I think there's going to be a settlement of it but what it's doing is it's attempting now to whittle you know some of the fundamental cost of agents in generating business. Whittle that down to maybe whittle the compensation down but I don't expect again I think that's going to happen it's going to be a new disclosure it's going to be a new step if you don't have an agent you've interviewed with directly where you're getting the agent from a third-party source up next homes.com realtor.com Zillow you name it when you get a realtor lead they're all home like they're all trying to charge the realtor for you being introduced to the agent and there may become some disclosures that will say to you up front I just want you to know when you click on this we are selling your data to these agents this agent will pay us x percent of their total commission in that agreement that would make things a little more ended and transparent on expenses that functionally the consumer pays in the end they pay the referral there you buy the house the seller if they're even if they're paying the buyer's agent they get the money the money track starts with the buyer they have a bag of money they hand it to the seller the seller in the most part is still paying compensation for the buyer and the seller's agent the buyer's agent gets their made they pay a little bit to Zillow it's going to be able to give kind of a little bit where's my money go buyer transparency in 2026 and I predict if the settlement occurs between Zillow and the antitrust legislation or the legislation the litigation that that settlement will create a little bit more transition transparency in referral arrangements that websites and entities have with agents let's talk about the market now let's talk about the real estate market and again everything changes everything stays the same there's a lot of news lately about the the flattening of the market and it's soon going to be a buyer's market and one of the things that I always like to look at is what was the house worth in 2010 and what was it worth in 2025 and I and the best thing I can educate you on is if the market declines in your area and right now they're seeing in some of the more expensive west coast areas some of the more expensive areas in Florida areas where insurance is becoming an issue we'll talk a little bit about that later we're seeing prices where a house sold last year for 450 stay at 450 or decline to 448.5 and when I told you at the beginning look at what it was in 220 in 220 that may have been worth $250,000 the market is not depreciating to where we were before even if it turns into a market where you may be able to negotiate off of list because inventory goes up which I don't expect to happen at least in the Buffalo Western New York area and I don't expect to happen in many areas of the country but if it does buyers that are looking or been waiting or hoping to get that deal every year you wait you're just it's just going to keep even if it flattens for a year or two it's then going to increase again you're not getting the 450 at 250 you might be able to get a 450 at 447 if the market changes if you want my prediction for 2026 I think the federal reserve has continued to root to lower rates I think some of the leadership there is changing and to me the rate decreases may get a little too quick and we may end up in a market where the lower rates fuel more buyers than sellers and we're going to be back to the same old inflationary real estate market I think the higher interest rates were helping the property values stabilize it's my opinion I don't know what the professional economists say but they never know either but my opinion is the interest rates of seven percent were offering two fundamental side benefits not in your monthly payment but they were keeping the values from going too crazy by taking some buyers out of the market they were making easier to save money because you could earn four or four and a half percent in online savings accounts like at American Express Savings or Citizen Savings or any of the number of good online banks were paying a decent rate now they're down to 3.3 percent for a savings account not your local bank otherwise and they were helping to stabilize the value if the rates go down your payment may look more attractive but if inventory does not increase that means values will go up because people will pay more because they buy on what's the cost of monthly they don't often buy on the end number it's like auto leasing you can get this lease for $2.99 a month or you can pay 48 grand cash for the house or the car and and the monthly payment's more attractive to somebody so they might lease it at you know $2.99 a month and all the complications that come with the lease turn in and all that other stuff so I don't expect housing values to change and I don't expect the inventory to go up to the you're going to see a market where there's going to be bargain basement values the commercial business the rates are going to help save a little bit because commercial and large-scale multiple units that were bought in 2020-2021 where rates at their optimum are coming into what most people don't know is that when you do let's say a mixed-use loan a lot of those loans are loaned in a portfolio meaning the bank holds or keeps the money they don't resell it and a lot of them have balloon notes in five years and those balloon notes reset the rate or they call the note and so if I bought a 20 unit in 2020 and my rate was 4% and it's cash flowing great at three grand a month my rate may be resetting at 8% if I was an investor and if the market values aren't going up and the rates are higher on those investment products you may see a decline in investment law properties or a slight adjustment downward because the higher rates mean less return because the income versus the return is where you look at your numbers from an investment respect. I you know who knows I can be completely wrong but I think the lower rates will keep housing values appreciating at least in many markets in the country there are a few markets that that will change that are very again real states market specific and as I've looked at this over 35 years everything changes but it's all going to stay the same over time real estate is going to continue to appreciate the dollar inflates and people will buy and they're not making any more land in the United States not unless we succeed in getting green land and I don't I don't think that's happening but let's talk about AI for a minute AI is the buzzword now in in everything I could I could open a business a donut shop and call it the AI donut shop people are like oh it's an AI donut shop artificial intelligence is the thing you can do great things if any of you have gone on to chat GPT or Gemini you can take a picture and say change this picture background face you can change you can make it look very very real like that you can you can hire AI systems to program stuff for you and AI is going to replace some jobs in the United States as we head into the market with real estate agents need to be aware buyers and sellers need to be aware of what AI changes are coming and agents will adapt to that there is not going to be for most consumers this AI product that ends the the changes the home buying and shopping experience unless you're willing to trust an AI to show you houses online and buy it sight unseen and handle approval of the contracts financing applications all of the problems that come up with it ask ask do me a favor ask GPT what the score of the bills game was and oftentimes they'll give you a completely different game than what occurred last week or it'll make up stuff that is not going to revolutionize the real estate industry it may help agents to simplify and streamline some marketing things it helps us to write descriptions it might help us to edit some photos quicker it may help us to come up with a full-scale marketing plan on the best opportunities to market with the data once you bring all that out and you get more information at people's fingertips quicker and easier like Google did with the internet what was Yahoo and Google but now everybody it's just Google right I mean people use Yahoo search engines anymore that much or AOL search engines I still have I still have a client occasionally that comes up with an AOL email so the use of AI will become integrated into many things you see agents doing to market I have AI in my car so I can ask Gemini questions and get directions to somewhere and have them do navigation and do all that stuff for me but it's not gonna sell you a house and it's not gonna show and sell your listing so it's like I liken it to when the internet came and the MLS let everybody have their listings on Zillow and Realtor.com and I remember sitting in meetings and people scream everybody's got all the information how am I gonna sell a house and here I am in 2025 I sold more last year than I've I think I sold more in 2024 but it was pretty close and I'm still doing the same thing I'm just using the tools that become available to me with technology better like this podcast I'm filming it on an iPhone tying it into my Mac and then distributing it to multiple places with one simple platform a couple clicks of the button and help from Social Chameleon who's my who's my they watch these and they cut them up for me and they make the reels it makes my life easier I pay for the service AI is the same way it's gonna make my life easier gonna let me streamline some things it's going to let me do more things quicker and it's going to give me data it's going to do the same thing for you as a customer but you're still going to need interpretation of that data and verification that that data is not made up and isn't a lie AI makes up stuff so be careful with it and the other thing about AI is very scary go to Gemini which is a X product and and or it's with it's on X it's available on X or anywhere else and take pictures and we did this over the holidays my my father and uncle sent me a picture of a golf course they were in wherever and I made him look like Santa Claus and then I made him at a frat party as pledges and it took that picture and it put them with drawing on their face my uncle ended up with a red cup and in the background there was a bunch of frat guys playing beer pong it looked real if I had posted that people would have said what is my what is my family members you know my my father and my uncle who are been retired for 15 years doing at a frat party today it's a little scary and then it's very easy to fake stuff and I would if there's going to be a change I think the a the the impact of AI may require additional verifications in your closing process with humans if you watch my podcast two podcasts to go AI will make it much easier for fraudsters to attempt to identify properties that are vulnerable to deed theft for every good thing helps me write a real estate description like that I wrote my description I type it in I asked them to modify it and proof it and change it for improved it changes it proves it I reread it my descriptions done takes me three minutes to do a description where it used to take me 30 it also takes the crooks three minutes to figure out where are the vacant properties that are non-owner occupied with the owner living out of the area now so with the advent of AI will also become a value on the flip side for verification of who's real and who's not it's an important distinction and it's it's a little bit scary but if you remember every change I told you at the beginning from going to the basic computer system to to getting cell phones I remember having a big cell phone with an antenna on it I was realtor so I was one of the first and it was expensive and it was um I think it was a Motorola and then I got like a big kind of flip phone to double flip and it was awkward and quirky and everybody knew you had a cell phone but it was part of my business at the time and then other people were were slower to take on that technology or in advance with it because technology is scary when the internet came when email came um it's scary the initial reaction to those changes is always panic or or or discomfort if any of you ever played video games um as technology advances now there's games where literally you can have a headset on and talk to the other people they've been for years right call of duty things like that where there's other people there that you can say something they can hear you while you're playing the game as a collaborative as a group or against each other as a group first time we ever did that my first first AOL email I ever got was like whoa who's who's instant messages first instant message who's instant who's instant messaging what is this it's scary it's uncomfortable first text first internet access all of that except in the real estate industry the top professionals look at this as the opportunity to take that progress and use the good of it to help their customers and clients and to take the bad of it and use to be aware of it to defend their customers and clients so I think as you head into 2026 AI is going to have some good stuff and it's going to have some very bad stuff that people need to be aware of you know the every house that gets listed now there's some fraudster that tries to take a picture of it pretend it's for rent and too low on facebook marketplace and get some poor person that that doesn't know any better to send them a check on a house that's not theirs now imagine them taking that with AI and being able to alter the seasons on the picture alter locations you can take one house picture and advertise it across the entire country as for rent quicker so there's a lot to be worried about with AI but like every other technology there'll be the the guardrails will be added to it and and a good agent's going to be aware of those and help guide you through it when you're buying and selling a house the let's talk about my my I guess my summary here on my page says key takeaways and so if you wanted to talk about quickly the the things that that occurred in 2025 which was still a seller's market here in western New York interest rates were higher it helped slow the market a little bit but it wasn't depreciating values now that interest rates are lower the inventory has not increased here so my expectation is values will not decrease they may increase again as rates go lower heading into the new year even if they do not they are not going to go down to values of 2021 or 2022 so you're waiting for a very little benefit the it is probably a good time to buy if you like your payment to be low the NAR settlement is just simply going to give you more transparency as time goes on and good agents will always introduce it to you right away they will discuss your options with you they'll offer you an agreement that clearly discloses what they get paid for up front so you know when you go to buy that house what that comp total compensation is and AI is going to change the business but it's just not going to change the service that you get from a top real estate professional or the guidance you get from a top real estate professional because there are so many things in that programming that are dangerous that you need to have a human to verify as always thank you for listening to you on it this is the 12th 20th episode i am thrilled to still be here and doing it i want to wish you all a happy new year tonight is new year's eve snowstorm in buffalo i will be in sun in two days and then i'll be back in less than a week so my clients and customers can expect the same top service and i'll be looking forward thanks for listening thank you so much for tuning in to you own it don't forget to take a look at the show notes for any resources mentioned during the show and if you haven't already be sure to subscribe on youtube follow us on your favorite podcast apps and turn on your notifications so you have access to the latest and greatest all of our social channels are clickable in the show notes as well i'd also like to remind you to check out our website c21jerry.com there you'll find more info on me as well as my latest listings for all of western new york thanks for tuning in remember through any big decision you own it