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Ethics

Divorcing Commissions – Disintermediation of the Buyer’s Agent

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black_feathers_mask.jpgOver at the Bloodhound Blog, Greg continues his thread on Divorcing the Real Estate Commission. Meaning that the seller pays their agent, and the buyer pays his own agent.

Removing the incentive the seller has to elevate their product over thousands of others does level the playing field and makes all products equal (so to speak), but what it also does is remove the need for the buyer’s agent all together- you get either more stupid people knowing everything, or you get more dual agency- how fun for the seller’s agent.

Now Greg in the past has argued against Dual Agency, but under Greg’s plan, you actually get more dual agency. Buyers are cash poor, and credit stupid. Under Greg’s plan, the idea of saving 20% to put down on a home would now be increased to 23%- as if buyers ever managed to save the 20% in the first place.

Divorcing commissions sounds like a great idea, but it really becomes an opportunity for a seller’s agent to make more in commissions which a seller’s agent could (unlikely) then use as a new incentive to buyers- a rebate perhaps?

The idea of divorcing commissions is a sham. The idea of increasing standards on Real Estate Licensing is also another sham disguised as pro-consumer. It is anti-consumer because it eliminates the idea of a consumer’s ability to learn what we know; it just got harder, and less likely. Consumers would skip the idea of licensing altogether (small investors, estate planners, flippers, buyers who just want the contract classes), drive by Greg’s sign, call him, and Greg would begin the process of entering into Dual Agency- go figure.

Now, if this was not Greg’s intention, great, but it is the outcome of what he is preaching. I am still unclear in Greg’s plan as to who is actually left to protect the buyer- I am confident that I do a great job in shredding the listing agent’s argument in ‘assumed value’ of the listed home. As Greg made his argument, he based his example on the homes value being an absolute $100k- but when I represent, I would calculate the cost to close, cost to sellers, and offer based on what I really feel the homes value really is (wholesale)- in this case $92,000 (I won’t even get into “percieved value”), and we’ll meet somewhere in the middle. Now many would say- yes, but in a hot market where homes fly off the shelves you pay asking. I say (using Greg’s facts as he illustrated) we’ll wait, or we’ll move down the street. A removal of a savvy buyer’s agent would only leave the buyer to believe the seller’s agent when he says, “not a penny less than $100k.” Whatever.

I can tell you right now that I can dent any CMA you’ve based your price on, and I can for sure dent your appraisal- hand me the phonebook. Do you think the seller’s representative would go that far for you? That’s laughable. The great thing about a buyer’s agent is that I can find options to this overpriced, bullheaded seller’s house. I can bring a buyer what he doesn’t know. Would a seller’s agent do that? That’s the buyer’s risk to take.

Buyers should not buy into the charade of divorcing commissions. In this climate where we’ve seen values spike and readjust and sellers cashing out on perceived values, the cost to sell is nothing. If a buyer does not want to finance those costs then the answer is buyers should fight the asking price, and come to the table with cash- it is an investment, after all.

I for one am all for reform, but let’s reform something that’s really broken. How about we reform the idea that seller’s agents are necessary. I mean, why not? What’s good for the goose…

Now, before everyone gets their whitey tighties in a wad– I’m simply pointing out how I see it. I’ve acted on both sides of the transaction, and I for one ask buyers to secure representation. I’ve done the buyer acting alone bit before, and I assure you that I was fair to them, but my seller absolutely won all the way to the bank. They’re still learning that I know what they did not– ignorance is not bliss, it is the difference between cashing out later, and a short sale failure.

Remember this- as an agent, it is always assumed that a buyer’s agent represents the seller until the buyer accepts formal representation. Sellers lose this functionality of the buyer side commission when disintermdiating the buyer’s agent. Now, Mr. Seller, you no longer have an army selling your home- you have one lonely listing agent. That measly 3% drives the entire membership of 1000s of local Realtors to bring you a buyer- now what do you have? Under divorced commissions, you’ve got squat.

Benn Rosales is the Founder and CEO of The American Genius (AG), national news network for tech and entrepreneurs, proudly celebrating 10 years in publishing, recently ranked as the #5 startup in Austin. Before founding AG, he founded one of the first digital media strategy firms in the nation and also acquired several other firms. His resume prior includes roles at Apple and Kroger Foods, specializing in marketing, communications, and technology integration. He is a recipient of the Statesman Texas Social Media Award and is an Inman Innovator Award winner. He has consulted for numerous startups (both early- and late-stage), has built partnerships and bridges between tech recruiters and the best tech talent in the industry, and is well known for organizing the digital community through popular monthly networking events. Benn does not venture into the spotlight often, rather believes his biggest accomplishments are the talent he recruits, develops, and gives all credit to those he's empowered.

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9 Comments

9 Comments

  1. Steve Volkers

    November 11, 2007 at 8:43 pm

    Thank you so much for writing this! I have been reading Greg’s posts and have just been shaking my head. You have responded as I wish I would have been able. Thank you again for being the level headed real estate group blog.

  2. Greg Swann

    November 11, 2007 at 11:28 pm

    Benn, you haven’t laid a glove on me. The points you raise here are either already addressed in detail in my argument or they’re straw men — disputing things I’ve never said. I don’t think you read what I have written carefully, but, in any case, the honest way to engage in this type of debate is to quote the matter you think you are disagreeing with in context and then elucidate your disagreement. It’s perfectly fine for you to say, “I don’t want to believe what Greg says because I just don’t want to.” That would make you an American. But you have not done the slightest bit of damage to the argument I have put forward. I don’t believe you can, first because I am right, and second because I addressed every possible objection in detail as I was working.

  3. Benn Rosales

    November 12, 2007 at 12:51 am

    Ha, don’t be paranoid, Greg, no one’s throwing punches around here…

    In fairness, the trackback is wrong- this should link to the previous article which is where my original question about dual agency went unanswered.

    As for whether you’re wrong or right on any and/or all levels is not up to me, but where I see it leading is, and this is what I’m addressing.

    Debating the tiny points is fruitless, let’s just address the outcome and save us both days of explaining our points…

    The bottom line in what I’m saying about your idea is it removes a seller’s ability to create incentive within their profit margin- this in no way hurts a buyer, in fact, it should come off of the sales price if the buyer can afford to pay the commission out of pocket (as well put 20% down)- either way, you’re right, the buyer pays it in the end.

    My answer to your 15 page diatribe is simply this- the buyer already pays the 3% anyway, at least the seller has it built into the sales price to be negotiated down even further. You’re asking a buyer to jump a new hurdle of paying 3% out of pocket. How does that motivate a buyer? It doesn’t. It leaves them to call your sign- now you’re really financing it on top of the sales price. How is THAT buyer friendly or even wise?

    Eventually (a year from this becoming practice), the seller will have to take into account that a buyer will need to tap into 3% of the sales price and escalate to offset to the point that the buyer is now paying a $103,000 final sales price or $97,000, either way, the buyer is still paying the commission- so what’s the point in ‘touching’ your argument? There isn’t one, really.

    I read your current post, and I still think you’re missing my point- either way, I am an American consumer, and I do disagree with you. Unless you can take this from an objective logical approach to an ‘on the street perspective’ in 1000 words or less, we’re not going to see eye-to-eye. Objective & logical is what gets policy into trouble. You have to look at the longterm.

    For the record, you did say in your current article that buyer’s agents are good, but you also said they’re dishonest- we will never agree on that last point.

  4. Jim Duncan

    November 12, 2007 at 12:27 pm

    Benn –

    Why the focus on 3%? Who sets that? By putting the payment in the Buyer’s hands, they are able to better negotiate their fee with their representative, rather than depend primarily on what the Seller is willing to offer.

  5. Benn Rosales

    November 12, 2007 at 2:13 pm

    Jim, it already is in the buyers hands, redfin does this every day exactly the way it’s structured. just remove the rebate and lower the sales price, either way, the buyer is in control.

  6. Benn Rosales

    November 12, 2007 at 2:27 pm

    and- because the commission is not an incentive for the buyer to buy. The incentive is from the seller, to an agent to sell their house, from their profit margin to SELL not to provide incentive to a buyer. If a seller wants to create an incentive from their profit to buyers, it should be seperate and on the hud-1.

  7. Vicki Moore

    November 13, 2007 at 5:25 pm

    I find Greg’s thread to be extreme and antagonistic. In part 1 he makes the argument that NAR was created as a conspiracy against the consumer. The price for real estate representation was increased because professionals are doing the representing. It costs money for me to be educated and remain in business. That cost is passed to the consumer just like it is when I buy a pack of gum.

    I pay for the advertising, the packaging, the label, the reputation; none of which add value to the gum. But I pay for it.

    “Conspiracy against the consumer” is retold so many times it makes me wonder if Oliver Stone is his BFF.

    I do agree with some of what Greg points out but it’s difficult to find amongst all of the claims of “conspiracy,” “parasitic fees” and “deception.”

    Mentioning in part 4 that if I’m scrupulous, I’ll help my wayward client for nothing, makes me, once again, question what I agree with. If I go to another dentist who screws up my filling, I highly doubt that my current provider will be so scrupulous as to fix the mistake for free.

    People who buy cars without representation aren’t spending (in my market) a minimum of $500,000. Oftentimes with the expertise buyers claim to have, they don’t even know what they don’t know. To say that they get what they wanted in the way they wanted is misleading. They may be happy with their unrepresented decision for the moment but once they understand that they could have done better with a professional, that gratification will vanish.

    I’m not “pretending” to be any one’s representative. Every time I sign a Disclosure Regarding Agency Relationship, I not only explain to the client who I represent, I acknowledge it with my signature.

  8. Bonnie Erickson

    November 14, 2007 at 7:53 am

    “They’re still learning that I know what they did not” . . . but sometimes they never figure it out. A near and dear person to me bought unrepresented and gave 23 feet of lakeshore in the city to the seller for no compensation and thought he was getting a great discount when they accepted an offer for $2000 less than list (In his mind, that compensation was because they didn’t have an agent!). I now have the splendid privilege of trying to find a buyer for this self-same property. They still have no clue what they didn’t, and don’t, know. They bought without representation again and without selling their home first. They thought the prices on the flyers in the neighborhood are what they should list for. Touring said houses (which also have not sold) changed the wife’s mind. What they didn’t know . . . scares me.

  9. Bill Wendel

    November 15, 2007 at 6:53 pm

    Have to run to remaining 300 plus booths at NAR convention but added a link to your blog post and comments above to wiki:

    https://realestatecafe.pbwiki.com/divorce-real-estate-commissions

    Would gladly to talk in person with anyone attending NAR convention after exhibit hall closes at 6pm. Open to perspectives for and against divorcing commissions, particularly positions based on consumer benefit.

    You can reach me at the convention via
    https://twitter.com/realestatecafe

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Ethics

The problem with a self-policing industry: you have to be a narc

Ethics violations in the real estate industry can make or break a Realtor’s career, depending on the severity, so it would stand to reason that all would be mindful of the rules, but there are always individuals in the field that act as if the Code of Ethics is irrelevant.

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An animated discussion on ethics training

“Does anyone else find it ironic that NAR – the trade association for Realtors – has to mandate that members take an ethics class every four years?” An agent who attended one of my company’s broker opens yesterday posed that question to the wine and cheese grazing attendees. Of course, that opened up an animated discussion on the value of etchics training and the lack of enforcement when the rules are violated.

One agent volunteered that the guy sitting next to her in her last ethics class played games on his cell phone and then cheated during the test at the end of the class. Seriously, dude? You cannot even pay attention long enough to pass what should be the easiest test you’ll ever have to take in your career? Perhaps he was just seeing how far he could push it by cheating during an ethics test, to see if anyone else around him caught the extreme irony there. None of the other agents around him – including the agent he cheated off – turned him in and the instructor didn’t notice.

This same agent later called one of my sellers and tried to convince him to break a listing contract with me, because he had a “guaranteed buyer” in the wings. The seller was an attorney, and this bozo tried to get me cut out of the deal, offering the seller a reduced fee to dump me. The seller held firm and directed the agent to call me, then the seller called to let me know about the conversation.

“But you know if you file something the other agent will know.”

It gets better. After the deal closed, I requested paperwork from our local Board of Realtors to file an ethics complaint. The person in charge said, “But you know if you file something the other agent will know.” Gee. Really? I asked her to send the paperwork over anyway.

I called the seller/attorney and asked him to repeat the conversation to me, because I was documenting it to file a complaint. He turned wishy washy on me at that point and his story changed from “The other agent tried to get me to dump you as the listing agent to cut you out” to “Well he really only asked a few questions and I told him to call you. He probably didn’t mean any harm by it.” So there goes my star witness, who doesn’t want to rock the boat.

I didn’t file the complaint. I resorted to the “turn the blind eye but never trust the sleazeball again” path. And that is what happens to almost all ethics issues I hear about / see in person.

That’s what happens when you have a self-policing group of “professionals” who would rather not “narc” on a fellow agent. After all you’re probably going to end up on the other side of a deal from this guy some day, right? The guy in my example has sold two of my houses since that run-in. Why tick him off by filing a complaint and going through all that hassle? If he stops bringing buyers to my properties then my sellers ultimately lose, right?

Boiling down the CoE

The NAR Code of Ethics takes up pages and pages of tiny print, and it runs each year in their trade magazine (I think it’s the January issue). Does anybody read that? Probably not many. I’d argue none of us ever should have to read it again. Simply follow this advice instead. The thousands of words in the Code boil down to one thing: Do unto other agents, and consumers, and clients, what you would have them do unto you. It’s the Golden Rule. Simple. Well, obviously not, for many agents and brokers.

The sad part is the agent in my example had no clue how close I was to filing that compaint, and if he did know he’d probably scratch his head and wonder why his actions were “wrong.” Making us take a one-day class every few years won’t “make” the unethical agents suddenly operate ethically. Most of them just don’t get it.

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Ethics

Ethics hearings in private a disservice to consumers?

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Fight Club and real estate

For those of you that saw the movie ‘Fight Club’ you’ll remember that Rule #1 is “You do not talk about fight club,” followed closely by Rule #2, “You DO NOT talk about fight club.” Which, believe it or not, brings me to today’s topic: The Real Estate Code of Ethics and Arbitration. Article 17 obligates Realtors to resolve fights disputes with another Realtor through arbitration (not litigation). Arbitration is conducted at the local board level, and I am not aware of a local board that doesn’t require arbitration to be confidential.

I respect that public internecine warfare amongst Realtors isn’t in the interest of our industry, and doesn’t belong in the public spotlight. I’m not here to advocate the collective airing of our dirty laundry. That said, I wonder if our collective agreement to keep our concerns confidential can inadvertently harm the consumer and ultimately makes all of us look a little shoddier?

To find the first arbitration guidelines created by NAR and distributed as a set of suggested rules for boards to follow, we have to travel all the way back in time to 1929. NAR’s first Code of Ethics & Arbitration Manual wasn’t created until 1973, and it credited a 1965 California Association of Realtors version as its model.

Appalling conduct

I can think of two instances in the past year where I was so appalled by the conduct of a fellow Realtor that I went to the trouble to inquire about how to lodge a Code of Ethics complaint with my local board. After weighing the time required to make a competent complaint and comparing it with the best case outcome (a closed-to-the-public hearing in which they were found to have violated the code of ethics), I decided not to pursue a complaint in both cases. My association’s bylaws (and probably yours) give it the power to discipline any member based on the results of a Code of Ethics hearing, “provided that the discipline imposed is consistent with the discipline authorized by the Professional Standards Committee of the National Association of REALTORS® as set forth in the Code of Ethics and Arbitration Manual of the National Association.”

“Sanctioning Guidelines” – (Appendix VII of Part 4 of the 2011 manual for the very curious), guides member boards to impose disciplinary consequences that are progressive and fair, taking all considerations into account. Sample first-time disciplinary actions include suggestions of a letter of warning, a fine (amounts range from $200 to $5,000 depending on the severity of the violation), and attendance at relevant education sessions. Not to sound defeatist, but a confidential letter of warning and a fine of around $200 doesn’t seem like an outcome worth investing much of my time in.

Practicing in the internet era

Given that we live and work in the internet era, and review sites like Yelp abound, it seems a bit odd to me that a local board might know of an agent with problem behavior that is documented yet choose to make that information unavailable to consumers. My understanding is that the results of a code of ethics hearing are confidential with disclosure authorized in a few situations, none of which deal with informing the public.

Many of my fellow colleagues feel that the best response to a bad agent is to be patient and give them enough time to work themselves out of business. I can respect and understand their hands-off approach. But what about the damage that individual does to our industry as a whole? While we whisper, warn in confidence and know amongst ourselves how awful they are, the public doesn’t get the benefit of our perspective. Deprived of it, they turn to consumer review sites like Yelp.

How do you think we, as an industry, can help consumers in their quest to find a trustworthy agent?

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Ethics

Realtors, we really need to get over ourselves already

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A letter from the child of a Realtor.

Real estate now vs. 1987

In Real Estate, some things are always changing, like financing, education, laws, rules and technology. The two that will always remain constant, as long as they are within the law, are following our clients’ directions, and working with their best interests in mind.  I’m not sure we always follow through with this, though.

Some of us knowingly take over priced listings.  Some of us take listings that are out of our area of expertise.  Some of us won’t show short sales or REOs.  Some of us won’t show homes with low co-op splits.  Some of us don’t have Supra/e-Keys, and miss out on those listings entirely.

Putting our interests first

When these things occur we are putting our own interests first, not our clients’.  We may think that by having as many listings as possible is a good thing, that’s what we’re taught after all, isn’t it?  It may not matter that some are overpriced, eventually, whether one month or four months down the line, the price will be reduced.  It’s just a matter of time and money, for our clients, after all.  The same can be said when we take listings outside our area of expertise, just to add on to our inventory.  If we don’t know what we’re doing, on a short sale listing, for example, it will only cost our clients a lot of time and money.  A lot.

By eliminating certain houses our clients see, that may already fit their criteria, we’re taking away their choices.  Distressed sales account for close to 40% of the market.  This is probably higher in some local markets.  There is no legitimate way to ignore roughly 1/3 of the homes being sold.  Co-op fees are often a touchy subject, especially when they are, not “enough.”  If everyone utilized a Buyer Broker Agreement that stipulated what their fee was, the issue would take care of itself.  Not being able to access listings with the use of Supra/e-Keys is a choice.   Choosing not purchase one will mean agents will not be able to access Fannie Mae (and eventually, probably additional Gov REO homes) along with the listings that are already using them.

Our priorities versus theirs

We totally need to get over ourselves already.  We are not bigger than our clients.  Our priorities are not more important than theirs when it comes to the actual listing and selling of homes.

Recently, my awesome parents dug through a few boxes and rounded up one of my first art projects. About 25 years ago I did the poster featured above about my Mom, and her Real Estate career.  It was for an Open House (no pun, honest!!!) for the elementary school where I attended first grade.  It was just, what she did according to me way back then.  Things are way more complicated now, than when I was six.  There’s a heck of a lot more paperwork for one.  But the same basic principle still applies.

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