There’s always something to howl about.

Separating the Buyer Agent Commission From the Listing Commission is a REALLY stupid idea

This is a continuation of Jeff Kempe’s thoughtful post below. At first, I was going to reply to his post via a comment. But as I thought about it I realized there was way more I wanted to say.

First things first: Welcome Jeff, Lani & Morgan! I’m delighted to have you here.

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It is common for a person to have a completely false idea of why something is good or bad and for them to still be correct that it is good or bad. This can come about when the person looks to see why something is the way it is and not knowing the correct answer (real reason why) they then make up or invent an answer. This new datum is then used to explain away some situation or circumstance they observe. This is so common that you can see examples of it in almost every profession, industry and government. Failure to correctly observe the real “right why” is THE WHY for every failure any individual, organization or government ever had. A real WHY opens the door to handling.

Man too often finds that his “solutions” become his new problems. Most of the difficulties one faces on a regular basis (problems) are, in fact, themselves solutions to earlier problems.

I do not intend to be disrespectful here towards your friend and mentor, Jeff – but several of the things he has informed you about are completely incorrect. The thinkingcapidea that a Realtor not sharing a commission was passed into law in state after state after state, across the country, to “protect Realtors” or to somehow impede discounters is just flat wrong. I can’t say that any of those laws were the best possible solutions but they had nothing to do with “protecting Realtors”. In every state where a real estate license is required to legally earn and collect a commission (all 50 in the United States, last time I checked) there is some sort of rule or regulation that states commissions can not be paid to an unlicensed individual. In most every state there is a special exception to this rule for lawyers – a lawyer can charge and collect a commission for handling the sale of a property and not run afoul of state licensing laws. The original idea behind these laws was to prevent someone from doing an end run around the real estate commissioner and his or her rules. Now, I don’t really disagree with Greg that in most cases having a real estate license does little to actually protect the public. But if we are going to totally do away with not sharing a commission with an unlicensed person we would be heading down a path of getting rid of real estate licenses in general. The other one – which I really never fully understood, was not offering money or “prizes” to a buyer, as it would be an “inducement to buy” and that was illegal. That type of rule has been “softened” quite a bit over the years in most states. The original purpose of those rules wasn’t to protect agents but the public. The various government officials (just like the FTC, DOJ, and FDA) feel it it their purpose to protect consumers from being scammed. For example the laws regarding inducements were originally intended to prevent an unscrupulous salesman from taking advantage of a returning veteran who just came back from fighting a war and could get a 100% loan under the G.I. Bill.

I am assuming this statement is from your friend, as well, “Twenty years ago, before the internet, we didn’t have that reputation. Now 80% of transactions don’t even really need a buyer’s agent.” Twenty years ago the average Realtor was thought of by the public pretty much like they are today – right down there with car salesman, lawyers and politicians. The public perception of a Realtor is actually slightly better today than it was twenty years ago. Just slightly. And the internet has changed precisely nothing with regard to the public “needing a Realtor”. I fully understand that many people think otherwise. They are wrong. What is different today because of the internet is potential buyers can see most of the listings online. They can also get just about any medical information, previously available only to a doctor. Same with dentists, I can get all of the information about teeth online now too. For those who become upset with me comparing “real professions” to real estate (I secretly do it just to aggravate you because I know it will) use plumbing or electric wiring as an example. Pretty much any and all information known by plumbers or electricians is also available online. This has not put even a dent in the incomes or amount of business that plumbers and electricians have and it isn’t going to either. Reason? The evaluation of a datum is more important than the datum. We pay professional people to evaluate data for us and to guide us to the optimum decision and for them to “take care of it”. The internet can’t and won’t change that. Ever.

What did customers want 20 – 25 years ago? To be treated like they were important, to be dealt with honestly, to have the person guiding them put the customers interests above their own, and to receive excellent service. Go back 100 years and you will find that is what customers wanted then too. Go forward 1,000 years and that is what customers will still want then. Anyone who thinks those things will ever become “obsolete” simply can’t think at all and has their head in a place where they can’t see anything either.

With regard to him hoping he is out of the business before the buyer agent commission is separated from the listing commission – I’m betting he can stay a long time. He has nothing to worry about. Even though it is the title of this post I am not going to spend a lot of time on it. I don’t have to – it is just that stupid an idea. Agents working with a buyer seeing (validly) that the seller or seller’s agent paying them a commission can be a conflict for them with regard to agency. And if only the lenders would see how awful this is and allow the buyer to finance the commission why the buyer agent and the buyer would really be independent of the listing agent. Blah blah blah blah. OK, each and every agency issue you can raise is “true”. Let me just concede they are all correct and you are 100% right. Unless your actual goal (as a buyer agent) is to literally route yourself completely out of the real estate business – stop working on this issue.

If you “succeed” and all buyers are then free to pay you a commission via their loan, you will collect very few commissions and the ones you do manage to get will be quite meager. There is never going to be any rule or law that forces a FSBO to have “representation” and any buyer who wants to buy a house from a For Sale By Owner directly will always be free to do so – without government interference. And how much do you really think any buyer is going to want to pay you to go around and register him with half a dozen homebuilders? But none of that is the Big Reason. If you are in the position of asking a buyer to pay you for something they don’t believe they ever needed to pay – unless you are planning on a hell of lot more “federal government help” than I can even imagine – all that would need to occur for your buyer business to go away COMPLETELY is listing agents to start promoting, “Buy Direct from the listing broker – PAY NO COMMISSION”.

What branch of the government or what governing body is going to stop that so that the buyer has agency representation? My answer is none. The very thing, the very reason it was important to separate the buyer agent commission from the listing commission would wind up being the very thing that ultimately caused the buyer to receive NO representation at all. (see the fourth paragraph from the top)

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