How AI and New NAR Rules Are Changing Real Estate Forever

Dylan Silver (00:00)
Now for agents and loan originators alike, there’s a lot of concern, but also a lot of utilization of AI. Do you see, maybe not in the next year or five years, but in the not too distant future, a lot of what we do as agents and as loan originators being entirely replaced by some type of digital

almost instantaneous brokerage.

Patrick (00:28)
Short answer is yes. You know, and everybody knows that they’re just kind of waiting with their fingers crossed to things, you know, that they hope things are going to change.

Dylan Silver (02:09)
Hey folks, welcome back to the show. Today we’re joined by Patrick Palzkill and he’s the founder and CEO of realestaterevolution.org. He’s a real estate entrepreneur, author and technology driven advocate for home ownership with over 30 years of experience in real estate and finance based in the greater Boston area. He focuses on using AI and technology to empower consumers and help Americans build wealth through property ownership. Patrick, thanks for joining us today.

Patrick (02:39)
Thank you, Dylan, appreciate the opportunity to be on your show.

Dylan Silver (02:41)
Now, how do you think technology is changing the way people approach purchasing their first home?

Patrick (02:48)
Well, AI is changing everything, along with the new National Association of Realtor Rules. The whole landscape is changing, and it’s good for the consumer as long as they’re informed. And that’s what my new book, Real Estate Revolution, kind of gets into, is how AI and the new NAR rules are changing the marketplace. So it’s an opportunity, but I call it

real estate revolution because it’s gonna take a lot of people getting on board in order to change things. And you look at the average homeowner today, the average first time buyer is 40 years old. And that’s the worst it’s been since we’ve been before the 1950s. In the 1950s, the average first time buyer was about 25 years old.

And then they came out with the GI bill after World War II. so a lot of that had to do with financing with low down payment and low interest rates. And it raised it from, the 1950s of 40 % of people being homeowners up to 60%. And it’s been stagnant since then to the point where it is now where it’s, it’s really, it’s, it’s a travesty.

for America from the standpoint of if the average home buyer, first time home buyer is 40 years old, ⁓ that’s their childbearing years. ⁓ So I don’t think people really kind of understand how bad it is and the solutions to that. And that’s really kind of what I outline in the book.

Dylan Silver (04:26)
You know, we’re in different areas of the country. You’re in the greater Boston area. I’m in Texas. One of the solutions that I see happening in Texas is you just have relatively speaking, cost effective new construction homes. saw a new construction home from a corporate builder that was $180,000 recently in the greater Austin area, you know, within a commutable distance to Austin. But of course you don’t have vacant land and lots and lots of new subdivisions, you know, propping up in

Massachusetts. So what solutions are happening in your neck of the woods?

Patrick (05:48)
Well, again, they haven’t proposed much. You know, what you see coming out of the government, you know, one option is a 50 year mortgage. I think that’s a disaster. Another option they’re coming up with is with auxiliary dwelling units, ADUs, where they convert the garage into a 600 square foot property. And Boston, currently, they’re looking at the same as New York City with a congestion

tax, you know, and now they’re going to add more people there. So from a congestion standpoint, from an environmental standpoint, I believe that’s a disaster right now. Believe it or not, there’s plenty of houses in America, 10%, 10 % of the homes in America are vacant. So it’s not a supply problem and there’s plenty of demand.

but there’s only so many things you can do and, we don’t want the values of property to go down. So really the only other variables are incomes to come up, which is unlikely to happen with AI and robotics coming on the field. And that’s why this is an urgent matter. And again, that’s why I’ve been doing podcasts to really kind of get the message out. you know, especially in the real estate field. So if we don’t need more,

housing built and that’s expensive and takes time and we don’t want the values to come down. What’s worked in the past is what I, you know, what I mentioned from the start is the GI bill. And what I’m proposing is a 3 % interest rate. If you look at how the Fed coordinates the interest rates right now, you know, they raise the rates to battle inflation. And when they raise the rates,

That affects home mortgages, affects credit cards, that affects business loans and stuff like that. And what a lot of people don’t know is the mortgage market is about one third of that. What I propose is they take that one third out and create funds at a 3 % rate. If you did that, if each state created a fund with the 3 %

that would make a huge difference for first time buyers and it would allow prices to be maintained and not be inflationary if it’s rolled out correctly. Because if the fed still wanted to, you know, slow the economy down and raise the rates, they could do that. So credit cards would become more expensive. It’d be more expensive for business loans, but a homeowner, why should a homeowner be obligated on their moving plans? Depending on what some government agency

says the interest rate should be. If rates were locked at 3 % for the long term, that would solve the problem. And so, okay, so where’s the money gonna come from? I don’t wanna print more money because again, that’s inflationary, but right now the total amount of mortgages in America is about $13 trillion and trillion sounds like a lot, but

BlackRock alone manages $11 trillion. You know, so if you look at the money available that’s being invested in America and around the world, if a small portion of that was earmarked for 3 % mortgages, that’s a stroke of the pen. And it could be enacted without much problem. So that’s what I’m proposing.

Dylan Silver (09:34)
Now, is this something that could happen on the state level on a state by state basis? So would this need like federal oversight?

Patrick (09:43)
Well, federal oversight is going to have, you know, have to check off on it. But the thing is. That’s why it’s a revolution. You know, you’ve got a president right now that really understands real estate, but there’s a lot of people with their finger in the pie that aren’t going to like this proposal, but it’s very simple. Let’s break it down to first principles. If you follow Elon Musk, that’s, that’s what I say. So, so take a bank, for example. So a person comes in.

And they want to buy a certificate of deposit. have a hundred thousand dollars that they want to put in the certificate of deposit. If that certificate of deposit was at 3%, you know, people would invest on that. And then what’s a bank do? A bank takes the money at 3 % and then they loan it out at 6%. you know, and if the fed raises the rates, then, then that goes up and the margin becomes even greater.

So what I’m proposing in AI is perfect for this. It’s perfect for this. We’re not talking rocket science. If each state had a simple balance sheet, A, the money comes in at 3%, B, the money goes out at 3%. You don’t have all the middlemen in the people and creating that market because that’s what happens now. They create a market through Fannie Mae and Freddie Mac.

And that’s what I did for for 25 years is rain New England for one of the largest mortgage companies in the country. I understand how the mortgage market works. And it’s been a great mechanism, you know, to get us where we’re at now. But it’s not necessary. All the people that are involved in the in the bond funds, in the secondary market, in the mortgage insurance to do a mortgage right now, it takes about 250 steps.

to go through all the processes. But with AI, it’s a perfect problem for AI. You don’t need all those people in the process. So you could really take the money in at 3 % and loan it out at 3%. If you understand how banking is done right now, it’s called fractionalized banking. as I mentioned, a bankmate, they’ve taken in a million dollars in deposits.

They can loan out up to seven to $10 million in deposits in loans. So what a lot of people don’t know, and I didn’t know this to the other day that in 2020, the federal government took away that requirement that banks had to have those reserves in, in, in, in, in reserve. Now there’s no reserve requirement for that fractionalized banking.

Dylan Silver (12:56)
Hmm.

Patrick (13:03)
What I’m saying is that if you are an investor, and again, let’s look at BlackRock. If you have $11 trillion under management, there should be a portion of that that is dedicated towards primary owner-occupied mortgages at 3%. So instead of BlackRock making a 20

percent return or 30 % return or 200 % return on their investments. A small portion of that would be earmarked for mortgages. They’re still going to make money, but it’s not like they’re taking tax money from anybody to do that. They’re just earmarking that investment to put it in mortgages instead of investing in AI centers, the whole bundle of, you know, the whole bundle of risks.

Dylan Silver (13:55)
and that can be tax incentivized and so forth to get these organizations to do that. I see where that’s going. I do want to pivot here, Patrick, and ask you about your perspective about some of the regulations and safeguards that were put in place post the global financial crisis in 2008 that may have had the effect of potentially making things harder for people now to purchase homes.

You know, one of the things that I see as as a realtor and also frankly as a millennial is that there was this idea like pre 2008 where if you had a pulse and a job and a credit score, you were getting a home. And of course, that’s not the case today. And there’s lots more regulation and enforcement and oversight when it comes to home purchases. Do you think that those regulations, you know, had a net positive effect of safeguarding the economy as a whole or has it maybe hindered more than hurt?

helped.

Patrick (15:31)
Well, the crisis didn’t come from the homeowners. know, the crisis came from the system. And that’s what I’m saying. The system can be bypassed. It’s not rocket science. If you look at again, Fannie Mae and Freddie Mac underwriting, it’s a it’s a it’s a checkbox. And for AI to look at the underwriting guidelines, not only for the underwriting guidelines to underwrite the borrower, but also to underwrite the property. If you go into any LLM,

and you type in, me a estimated value on 123 Fifth Street, they’re going to look at loads and loads of data from appraisals. And that’s really what an appraisal does, but they can go back into the Fannie and Freddie records and come up with a very accurate value. So what I discuss in the book is ways to eliminate the middle people.

the middle man not only in the mortgage market but also with real estate taxes you look what’s going on in florida now they’re just passing the bill any house under two hundred fifty thousand dollars no real estate taxes it’s very doable and they’re talking about the state of florida creating the sovereign fund and you hear that in the federal government as well but there’s ways to pay the municipalities to play

the policeman to pay the firemen that it doesn’t has to come from the people that are most vulnerable. The home buyers that are trying to raise a family. It’s criminal. It’s criminal what’s happening right now and to keep the status quo is not going to fix the problem.

Dylan Silver (17:09)
Now for agents and loan originators alike, there’s a lot of concern, but also a lot of utilization of AI. Do you see, maybe not in the next year or five years, but in the not too distant future, a lot of what we do as agents and as loan originators being entirely replaced by some type of digital

almost instantaneous brokerage.

Patrick (17:38)
Short answer is yes. You know, and everybody knows that they’re just kind of waiting with their fingers crossed to things, you know, that they hope things are going to change.

And that’s a result, I believe, that’s coming forward with the National Association of Realtors lawsuit with regards to real estate commissions. And that’ll fold into the real estate originators appraisals. In Massachusetts, you got to have an attorney to close the deal, but

But a lot of people don’t understand is that an attorney makes about 80 % of the commission on title insurance. you know, so there’s so much fluff in the system that can be eliminated with AI and that savings passed on to the consumer. but let’s, let’s just focus on the real estate world. you know, again, all, all commissions are different, and negotiable, but let’s look at a million dollar house at 5%.

In the past, was you sign a listing agreement, the seller signs it that they’re paying a 5 % commission. Half of that goes to the listing agent and the buyer’s agent will be a sub agent of the listing agent. But the money’s coming from the seller because that’s where the money is. Now with the new National Association, the new NAR rules, instead of listing at 5%, you listed at 2.5%.

and the buyer has to come up with the other two and a half percent. They can still ask it for the seller, but that burden is more so on the buyer. And take that into consideration with what we talked about previously for the first time buyer. It’s the worst it’s ever been. And now they got to come up with an additional $25,000, almost twice as much for the down payment. It’s not going to happen.

So if you buy a house in London, the average commission is 2.1%. Average commission in America is 5.2%, according to NAR. So it can be done. It’s not rocket science. And you look at the offer. Well, what’s in the offer? Well, you have the address of the property. If you’re a buyer and you’re looking online on Zillow or through MLS or whatever, if you can find that property on your own,

That’s, that’s a big part of what the buyer’s agents does. As far as putting a contract together, AI is a home run for that, you know, and you want to come up with, with a value AI, as I mentioned before, can look at thousands and thousands of appraisals in the past and come up with a value, you know? So if you found the property on your own and you can put the contract together on your own and in Massachusetts, you got to have a buyer or you got to have an attorney to close the deal.

Dylan Silver (19:58)
You’re right.

Patrick (20:20)
⁓ There’s not too many variables left. So yeah, there may be that 2.5 % on the listing side, but that buyer’s agent commission and how to help that buyer has to change and it will change or the situation is gonna get worse.

Dylan Silver (20:23)
Yeah.

We are coming up on time here, Patrick. Any new projects that you’re working on and then also anything you’d like to say directly to our audience.

Patrick (20:47)
Well, I’d encourage him go to realestaterevolution.org and get the ebook, the paperback, or take the classes. Ebook is 10 bucks and it could save you thousands and thousands of dollars if you understand how to use AI in the home buying and home selling process. And if we all work together, we can do a lot of good work as far as getting people into homes.

But people need an awareness. So I appreciate, you know, programs like yours getting the message out. Obviously you have a great audience, but people need to be informed.

Dylan Silver (21:27)
Patrick, thank you so much for your time today. Thanks for joining us.

Patrick (21:30)
Thanks Dylan.