Okay, carrying on from the idea of the Divorced Commission — a condition whereby, by some means, the buyer’s broker’s compensation has been divorced from the listing agreement — what are the implications for the Multiple Listings Service model of propagating real estate listings?
As we are seeing, divorcing the buyer’s agent’s compensation from the listings agent’s compensation has salutary consequences with respect to the agency relationships of both sellers and buyers and with the cooperation of agents. By getting rid of the doctrine of procuring cause, we eliminate the need for high secrecy among agents.
The practice the NAR calls “cooperation” is actually a metaphor for a graduated hostility. Because there are two “sides” built into the listing commission, the short-term pecuniary self-interest of the listing broker is to keep both “sides” to himself. The idea of procuring cause is a way of inducing “cooperation” by delimiting and circumscribing what we might describe as the leonine avarice of the listing broker.
But in a condition of Divorced Commissions, the listing agent never has access to more than one side of the transaction (except in a disclosed dual agency). The buyer chooses his own representation, and compensates his agent from his own side of the ledger. The issue of procuring cause has become moot.
Moreover, an unrepresented seller has no need to worry about compensating the agent of a represented buyer. In the same way, an unrepresented buyer isn’t compelled to compensate the listing agent for advice and counsel he does not receive.
These benefits carry over to the MLS as well.
Consider this excellent harangue by Jay Thompson:
Pardon my rant…ARMLS (Arizona Regional Multiple Listing Service) drives me insane! There are “rules and policies” that every ARMLS member must follow. Failure to do so can (and should) result in a fine for each infraction. Here’s the thing that just drives me batty:
Real estate agent contact info in the public remarks section. It SHOULD be a flagrant violation. Why? Because I share a consumer version of the MLS listing with buyer clients and prospects. So I send a client/prospect an MLS listing, and right there plain as day it says, “CONTACT JOE SCHMOE at 555-1212 or SchmoeRealty.com FOR MORE INFO AND A SHOWING!!” So now I’m potentially driving my prospect over to Mr. Schmoe so he can then double-side the transaction.
What is the real problem here? Not the contact information. We routinely post links to the custom weblogs we do for all of our listings, and our very name, BloodhoundRealty.com, is absolutely and intentionally contact information produced with any listing of ours printed out by anyone anywhere.
The real problem is that Jay’s commission as a buyer’s agent is not secure from a claim of procuring cause by a listing agent. Even if he has an executed Buyer-Broker Agreement (and most agents don’t), the fact that the buyer’s agent’s commission is encapsulated within the listing agreement is what makes this issue exigent for Jay. If the buyer’s agent’s commission was solely controlled by the buyer, he would not have to care about buyers getting caught up, intentionally or inadvertently, in procuring cause disputes.
Of even greater moment, Divorced Commissions would eliminate the need for an exclusive MLS system altogether. The general public is excluded from the MLS, primarily, to protect the secrecy of the secret data fields specifying compensation. If the buyer’s agent’s compensation is no longer encapsulated within the listing agreement, there is no longer any need for secrecy. The MLS can become what it should have been all along: A free-market data processing business.
Before we wax too rhapsodic, I want to clear up one side issue. Earlier this week, I invited two very smart men, Kevin Boer of Three Oceans Real Estate and Pat Kitano of TransparentRE.com, to pick apart what I’m saying. The only thing they could come up with that seemed like a stumbling block to me was the issue of showing procedures.
From inside the real estate industry, this might seem like a bigger problem than it is. In fact, unrepresented sellers have been dealing with it all along, and it’s more a matter of coordination than anything else. Buyer’s agents showing represented homes could use whatever key-safe system is currently in place, even if there is no longer an MLS to “belong” to. Even better, the key and key-safe vendors could insist on bonding and insurance for key holders, an improvement over the present condition. For unrepresented buyers or unrepresented homes, more elaborate coordination might be needed — but so what? Nobody puts puppies on lock-box, but they still manage to get adopted. I other words, this is an easily-leapt obstacle, if it is an obstacle at all.
But think of the benefits to be derived from an MLS-like database unencumbered by secrecy!
For one thing, all of the inventory would be available, represented and unrepresented, all under one roof. For another, every buyer would have ready access to every home. Search interfaces would have to be devised for the user’s level of competence, but this art is certainly well understood by now. Because sellers and buyers would each be responsible for the compensation of their own agent, if any, and neither for the other party’s, there is no need for anyone to worry about a “co-broke.”
Rather than charging annual dues, a system like this might charge a fee per listing, perhaps with bulk discounts for frequent listers. Because it would be a free market business, it would have every incentive to improve its performance and marketability — virtues noticeably absent from current MLS systems.
Moreover, because it is a profit-seeking business, it doesn’t even require the cooperation of the current MLS hierarchy. But I most emphatically would want for the depth of data and searching in current MLS systems to be retained — if not improved upon.
In a comprehensive overview, Jim Duncan of Real Central VA offers this:
In the age in which we live, and as we move (as I foresee) to a world where buyers pay their own representation rather than depending on the sellers’ concession … Do we need a means by which to facilitate cooperation and compensation? (I am not advocating this position, just asking the question)
I’m happy enough to give my own answer: We need to get the issue of our compensation out of the buyer’s way. By means of Divorced Commissions, we can do that, and, as a secondary consequence, we can build a better, much more useful MLS system…
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Technorati Tags: blogging, compensation for buyer representation, disintermediation, real estate marketing
Marlow says:
Because of the kind of situation described above, our local 27,000 member MLS makes it illegal to publish listing agent promotion or contact information in the public section of the listing.
October 20, 2006 — 5:27 pm
Greg Swann says:
> Because of the kind of situation described above, our local 27,000 member MLS makes it illegal to publish listing agent promotion or contact information in the public section of the listing.
It would be that way here, too, except that ARMLS screwed up on the rules.
But consider: We do not do dual agency. When we put a link to a custom weblog for a home in a listing, we’re just giving the seller better exposure and the buyer better information. The buyer will still have to come with his or her own agent.
This hoarding mentality is silly, but it also directly impedes the interests of clients.
October 20, 2006 — 5:48 pm
Chris says:
We have an option for homeowner to introduce thier home to the market without it actually being on the market – http://www.camelotlane.com. It’s great for homeowners and homebuyers and open a market for realtors that did not previously present it self as obviously. The site is only available in Houston right now and soon will include the traditional on the market MLS listing as well. The site is http://www.camelotlane.com. While it appears at first glance to be soley for the benefit of Homebuyers and Homeowners which it is if that is what they choose, ultimately our site is designed to deliver a direct link to from the consumer to the realtor.
October 22, 2006 — 6:14 am
Josh says:
How would one go about introducing a new much more consumer friendly MLS system? Isn’t there BIG contracted dollars being spent between MLS’s and MLS System suppliers? For instance my local MLS is looking to make an upgrade to a more advanced, but no more consumer friendly MLS system. The contract made for this new system is more than likely for large money and extended over many years. Does this eliminate the chances of my MLS having a truly consumer friendly MLS system until say 2015!? If this is happening around the country then what is the incentive for the MLS’s to develop the much needed consumer friendly site?
Does the issuance of “divorced commisions” force the change to a new consumer frindly MLS site? Does “divorced commissions” make an easy decision for big brokers to choose to pull out of the MLS? or both?
An easy solution to part of this issue may be to take the section of the ILD Rules & Regulations that lets Brokers pull out of the ILD (Internet Listing Data) Exchange program, but still freely post listings to 3rd party Realty.bots, out of policy and make it so that if you exchange data with any source the Broker must take part in their MLS’s ILD exchange program. By making it policy that Brokers take part in the MLS exchange program to post to Realty.bots you are saving small brokerages, Internet based real estate companies, and the free and open data that consumers have access to today. At least until the big Broker does decide to pull out of the MLS, but I see this being a difficult decision, or one that is going to take much coordination amongst big Brokers. And because of the difficulty and needed coordination of the decision I wouldn’t see this happening for some time. The DOJ could extend this time by changing policies to make brokers take part in MLS exchange in order to post to Realty.bots.
March 5, 2007 — 7:28 am