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Google News plopped a link to a Blog post on SFGate.com (The San Francisco Chronicle’s Web site) about dual agency in front of me today.

It’s always interesting to see a discussion about what Greg calls “…the insane way we compensate buyer’s agents in the residential real estate market” in the MSM, even if the arc of the dialog is predictable (”Agents are whores and criminals!”, “No we’re not”, “The traditional Real Estate model is dead!”, “No it isn’t!”, ad nauseum)

Discussions in the Real Estate blogosphere on this topic have a certain navel-gazing quality to them. That is not the case when regular people, many of whom have been involved in a recent transaction have their say. My favorite comment from the thread:

No conflict here. Just get the highest price for a seller and the lowest for the buyer at the same time. This is great!

The way the Realtors, some of whom identify themselves and some of whom just embarrass themselves by shilling for the status quo in such an obvious manner that their identity is transparent, jump all over these discussions just adds fuel to the fire.

The Realtors doth protest too much, methinks.

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I haven’t had a good rant in a while… and unfortunately, I don’t have enough time to have one right now - so the Reader’s Digest condensed version will have to do.

Most agents who have been in this business a few years or more know when something doesn’t look right. We’ll see something - and although we don’t know the underlying logic… we instinctively know it’s just not right.

This morning, I was perusing some rental properties for a client. As with listings for sale, it’s not uncommon to find some agents who are offering a ridiculously low co-broke. This morning was no different.

This particular agent is offering a 10% co-broke if you show the property. Since many brokerages charge transaction fees - the co-broke on this listing could easily be less than the transaction fee. Kinda gives “co-broke” a whole new meaning.

Now don’t get me wrong - a 10% referral fee for sending the client to a property shown by the listing agent is just fine. But 10% for bringing the tenant and showing the property is a non-starter - I don’t care who’s doing the paperwork.

Just for giggles and grins - I pulled up this agent’s recent history. One sold listing and more than sixty leased listings. Every single one of them offered a measly 10% co-broke… and all but two were leased out by - drum roll please - the listing agent.

[snarky comment] What an unexpected surprise! [/snarky comment]

Of course, both of those co-oped listings rented out for full asking price… while nearly every single one of the double-ended listings involved a rent reduction… sometimes several hundreds of dollars in rent reduction.

Now maybe you think that I’m just whining about some agent who is too greedy to offer a more generous co-broke - that’s fair. Maybe you think that I believe that a co-broke of 25% is more appropriate. I will tend to agree with you on both counts.

But there is an underlying ethical problem here.

When you list a property for lease and offer a ridiculously low co-broke - you are denying your client the best possible chance for achieving a quick lease at the highest possible rent.

And therein lies the rub.

If you are an agent who practices this kind of real estate - you should be ashamed of yourself. This behavior may not be illegal… but like any other kind of criminal, merely changing the law probably wouldn’t deter you from being a dishonest cheat.

If you’re a home owner who has run out of time to sell your home in a declining market, and you’re considering renting your property to stop the red ink from flowing - it’s time to wise up.

Listing your property with an agent to get it rented quickly is a good idea - but if you don’t know your agent well enough, maybe you should remove the incentive for them to be disloyal. Make sure your rental listing agreement includes language that guarantees a reasonable co-op brokerage fee is offered.

Without it, you might get an agent like the one I found this morning who would rather your property sit vacant than lose 15% of one months rent in commssion.

UPDATE

I put a call in to an agent who has a rental listing. Here’s the exact conversation

“Hi this is Zack”

“Hi Zack - Doug Quance with Solid Source Realty here… how are you?”

“I’m doing well, Doug - how are you?”

“I’d be doing better if you told me your rental listing on Bonaventure was available and that you’re offering more than three dollars on the co-op”

“That’s what I’m offering.”

“Are you serious?”

“Yes, I’m serious.”

“You have a nice day.”

Three dollar co-broke on a $2500/mo rental property! My client got a big chuckle out of that.

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Before beginning in earnest, let me take a shot of addressing what surely will be the first comments made concerning disintermediation. Have there been instances of this happening in other industries? Sure — the ‘go to’ is almost always travel agents. I maintain the average person still uses travel agents when arranging anything more involved than visiting Grandma or a business trip. How many of us will arrange a two week tour of Europe on our own? Not me. You?

The point remains — any industry requiring real expertise and which must produce results of real value to their customers/clients, will not — cannot — be replaced by the mere act of clicking. The concept is absurd on its face.

Of course, the jury is out on whether or not I’m in the minority or majority. Opinions are just that. Certainly my opinion isn’t taken from Divine Inspiration. Empirical evidence drives me to my conclusions here. The marketplace has decided, at least so far, the experienced agent producing consistently excellent results by way of superior expertise is the dominate choice of buyers and sellers of real estate.

Click that.

Russ Shaw and I must be the last remains of the species long thought to be extinct — Trirealasaurus Rex. Apparently we just don’t get it, and are on our way out. Everyone’s eatin’ our lunch, or soon will be. Techno-Geeks who could study what Russell does for a year and still not know what he’s forgotten, insist their way, (whatever the hell that is — they argue among themselves) will eliminate him just like the meteor crashing into earth wiped out dinosaurs.

Last time I checked, he’s not feeling very threatened.

Every time I read something telling me how I’m on the verge of extinction, I consciously avoid going into Dad’s default mode, which was to extend his favorite finger in the direction of the offender. I’d rather learn what the smartest guys in the room have to teach. They’ve taught me how to apply their Geekinology to my Old School ways. I’ve been walking that talk now for quite awhile, coming up on two years. I blog, have a website, am fairly computer literate (kinda sorta), and employ as much technology as my brain can assimilate. This includes marketing, both Old School and 2.0.

It’s the intelligent combining of the tried and true with the new and improved that has produced for me. I’ve yet to meet a commissioned real estate agent who makes seven figures yearly exclusively from traveling the 2.0 Geekinology Freeway. Yet those same geeks deserve our utmost respect and rapt attention, ‘cuz they’re showin’ us new tools, many of which actually produce results. What we now are learning is that the machine still needs a human operator.

Click that.

Disintermediation in real estate is a great conversation generator, but not much else.

I’ve been hearing for over three decades how the discount broker was gonna rule the real estate world. We’re all still waiting. And yes, in the spirit of transparency (another overrated and much abused concept), I’m about to roll out a new business model here in San Diego which will in effect lump me with the discount guys. I won’t be disintermidiating anybody.

Even with my new approach, investors will choose to hire me for two basic reasons — Results and Expertise. And yes, my experience is a significant factor, as it should be. It’s the same reason Phoenix home owners choose Russ over the myriad other agents on their list. They went to him in the good times, and they’re still choosing him now, in the worst of times. The first three reasons folks list their homes with agents like Russ is: 1. He’ll sell their home. 2. He’ll sell their home. 3. He’ll sell their home.

Not only does he sell it, but more quickly than his competition. Go figure.

Results and Expertise will not be disintermediated.

Segue to what works.

Isn’t real estate brokerage like every other business since the concept of commerce hit mankind thousands of years ago? The more things change the more they stay the same.

MLS books no longer exist, they’re online. 50 years ago real estate brokers charged 5-7% to sell a property. Go to any city and tell me that’s changed. It hasn’t, and it won’t any time in the near future. Will niches rise up and take a share of the market, charging less than 5-7%? You bet. They won’t disintermediate anyone. The changes in our business have been mind boggling. You and I could make a long list of incredible differences between now and even 10 years ago.

Yet, the agent still goes to the house, makes a presentation, whips out the contract, and lists the home. It still calls for a 5-7% commission way more times than not. And for the record? The seller would have to move up two rungs on the ‘I care’ ladder to even be apathetic about whether their agent double-ends his home or not.

He wants to see results.

I’ll speak for myself now.

Whenever possible I incorporate new concepts into my company’s operation. As mentioned above, I’m trashing how I used to charge, at least on the listing side. Ironically it means my San Diego clients won’t pay 5-7% commission. But it’ll be for a wholly different reason than you think. They only get to pay a discount commission on the listing side when they’ve agreed beforehand to become an investment client, exchanging tax deferred under my guidance, out of California.

They’ll be going for results their current agent just can’t deliver because they don’t have the expertise to produce the kind of results my firm can, and does. In the end, they won’t hire me ‘cuz of the reduced listing side fee. They’ll hire me ‘cuz they’ll retire sooner and with more income.

Now someone tell me who is gonna disintermediate that?

Who is gonna disintermediate Russ?

For folks to believe Russ and I will be replaced by the new real estate Geekinology, they’ll have to buy into the concept that home owners and investors will decide en masse to forgo factoring in expertise and results in their decision making equation.

Not frickin’ likely.

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Life is good — I’ll be going to the Master’s next week. It’s been a few years since I’ve gone. A friend has some family connection with passes and if one of his business clients back out, he gets me in. Business is picking up also. I just got a contract on one of my “flips” before I even finished and put it on the market, so now I’ll change hats and be a buyer for a while looking for another one.

Leads are coming in on a regular basis, a mixture of strong leads, not so strong and weak. They are all possibilities. I’ve even had time to browse the web and see all the distinctions without much difference being made. As topics run thin we tend to make finer and finer distinctions to prove….what? Superiority? Most likely. Hell, I always think I’m superior. Well, not really, I just like to think I am a lot of the time. In my better moments I realize I’m perpetually on a learning curve. Just as soon as I’m ready to crown myself as “Expert” I hear something from left field that sends me back to the drawing board, to tweak, re-think, adjust.

Perhaps that’s the highest value of this great learning environment called the internet, we’re contantly evolving and becoming better, never crowned for long as “Expert”. However, the more we learn the closer we get to being knowledgable enough to know what we don’t know and how to find the missing pieces.

One thing that fires my imagination and pulls me into the good and the bad of the internet is the growing “conversation”. From Maine to Florida and from Georgia to Oregon, to Canada and overseas, people typing away, posting and responding, creating conversations that for certain specific interests like real estate become Great Conversations with various ideas and concepts being woven throughout. There’s no central authority managing the conversation, there’s no hierarchy of experts, only diverse voices growing, hopefully, not into a Tower of Babel but in different directions of movement and progress until the best ideas and concepts begin forming a great change for the better.

It’s a such a great opening up and so much more comprehensive than when agents had their board approved continuing ed with different experts droning on about traditional, staid subjects that had little impact on competence and excellence and innovation. We can now be in tune with the heartbeat of the real estate industry around the world, connected to all the ideas and concepts popping up all over. And we can be a part of the change with our little voices being given a microphone and an audience — “Hey, me down here in Mississippi, I have an idea.” — “Great idea Mississippi, I’m from Idaho, and I think…” — on and on goes the Great Conversation.

The self-proclaimed experts who weren’t voted in by the internet voices grumble and call it rabble as they are pushed further and further into the wasteland until their voices are a distance squeaking sound. Some of them see what’s happening and join in, the rest think of ways to create a counter-revolution to control it. It’s out of control — it has been for years, only now more and more people are recognizing it and enjoying the freedom. However, freedom is frightening to many in the beginning and radical changes are resisted because they’re uncomfortable — “But what if I can’t make it in this free real estate market? Isn’t it better to have protection, to group together and let central control protect us from chaos?”

Freedom requires flexibility, quick change, constant adjustment, nimble minds, strong spirits — it’s not for those looking for safety and protection. I might be wrong, the mood might turn and the whole industry migh hunker down in a defensive mode to fight the barbarians of change at the gates, but it seems unlikely. What seems likely is that this movement of change and freedom created by the internet will roll over the whole industry and nothing will be quite the same. There will still be a need for service but how it’s delivered, charged for and paid for will be changed. Too much is happening too quickly for things to remain the same. The scary part of all this for me is not the freedom and the change, but the lobbying efforts that will no doubt take place for government intervention.

When things change too quickly and too many in entrenched power are affected there is a cry for regulation. I believe one of the defining issues of our industry in the coming years will be how far freedom can be pushed on the internet before government tries to control it — the isuue being will they and should they and which side the majority in our industry will fall on, freedom or control? Will new ways of marketing, selling and buying real estate be created by internet companies that dismantle our industry as we know it, for good, and will agents and companies adapt easily and willingly to the changes or will they fight it?

I’ve purposefully avoided any concrete predictions of what the changes might be. We already see some of them, and we’ve talked about the possibilities of others like compensation, representation, super teams, companies adopting buiness 2.0 models, rating systems, licensure, discount brokerages, cafeteria services, do-it-your-selfers, RE site innovations.

The big question is how we will react when it really breaks loose.

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There is a debate on dual agency going on at VARbuzz. This is my contribution to the conversation.

I abhor dual agency — notoriously so. I make no distinction between one licensee or two in the same brokerage, and I am more than prepared to be suspicious if there is any relationship that might seem more important to the practitioners than the fiduciary relationship to the client.

Even so, Russell Shaw convinced me in person that there could be circumstances in which I might have to do a dual agency, like it or not.

What circumstances?

Like this: I’m at open house at my listing, some buyers come in, fall in love with the house and insist they have to put it under contract right away. I would prefer they got their own representation, but my fiduciary duty to my sellers is clear: I owe them the best possible chance at these buyers.

The question is, what duty do I owe to the buyers? The state and federal governments have so gummed up the process of transferring real property that ordinary people cannot competently represent themselves. Moreover, the due diligence process demands expert oversight and advice.

In short, if both parties are unwilling to countenance the idea of separate representation, I’m stuck. I cannot betray the seller’s interests, and I cannot in good conscience permit the buyers to betray their own interests. (And it is plausible to me that I have created an Implied Agency with the buyers in any case.)

This has nothing to do with compensation, and, if we ever have to do this, we will probably split the buyer’s agent’s commission three ways — a point each to the buyer and the seller, in consideration for suffering with limited representation, and a point to us for the extra work. But even that would be at Close of Escrow. My Buyer-Broker Agreement would specify that the buyers could obtain separate representation at any time, even down to the last minute, and I would joyfully pay the buyer’s agent’s commission.

But wait. There’s more. We had a multi-party debate about dual agency at BloodhoundBlog, and, while I would not rate that as having been a great success at promoting mutual understanding, I was able to explore my own positions in a way that I had never done before.

I determined that there is no way to practice disclosed dual representation, as it is presently understood, without committing gross agency violations:

The only workable way even to achieve Disclosed Dual Agency is by repeated, overt agency violations against either the buyer or the seller, or each in their turn. In other words, you would have to hint at them what to “order” you to do, and each one of those hints would be a betrayal of the interests of the other party.

A modern real estate transaction is too complicated for sellers and buyers to direct the actions of a marionette-like, putatively “neutral” dual agent. The agent would have to advise the parties as to what to do, and, in offering that advice, would necessarily be putting the other party at a disadvantage. In other words, the NAR’s idea of disclosed dual agency is a complete bill of goods. It cannot possibly withstand a court challenge by a smart attorney.

It’s a problem, ain’t it? There can be circumstances where you cannot avoid dual agency. And yet, to practice a disclosed dual agency as we are advised to do by the NAR and our state associations is impossible in se: We must either do nothing in consultation with either party — which is not practicable — or we must serially advantage each party to the transaction, to the disadvantage of the other — which constitutes serial violations of our agency agreement with each party. We must either do as we cannot do or as we must not do — an impossible mess.

So what do we do?

Think harder, that’s what.

Here’s what I came up with: I rewrote the dual agency consent form, specifying in advance that I will be helping each party, possibly to the detriment of the other party, but that I will keep the confidences of each party from the other. In other words, I rewrote the form to acknowledge what is going to happen anyway:

The major changes, from what you’re accustomed to, are these:

Definitions and Disclosures:

Dual Representation, also known as Dual Agency, is a mutual agreement among the Buyer and the Seller that either the Listing Real Estate Broker or one or more Licensees of the Listing Real Estate Broker will advise both Buyer and Seller in the sale of a particular piece of real estate. While Dual Representation can afford Buyer and Seller certain advantages, there is substantial risk in a Dual Representation. These risks are disclosed in detail below.

1. In the normal course of events in a complicated real estate transaction, the Licensee working with the Buyer or the Seller may suggest certain plans, procedures, tactics or stratagems that may advance the interests of the Buyer or the Seller. In a Dual Representation, that same Licensee or another of the Broker’s Licensees may then in turn advise the other party as to how to respond to these overtures, in turn suggesting other plans, procedures, tactics or stratagems that may advance the interests of the responding party.

2. In all such cases, in a Dual Representation, Broker and Broker’s Licensees will zealously protect the confidences of both Buyer and Seller, and in no circumstance will any suggested plans, procedures, tactics or stratagems betray any confidential information shared by Buyer or Seller.

3. While Buyer or Seller might perceive that such suggestions of plans, procedures, tactics or stratagems to the opposing party in this transaction might work to Buyer’s or Seller’s disadvantage, in fact both Buyer and Seller retain their full rights to direct the actions of Broker and/or Broker’s Licensees, to include, in accordance with the terms of the Purchase Contract, the unilateral right to cancel the transaction.

4. The intent of this disclosure is to acknowledge, ratify and grant Buyer’s and Seller’s mutual consent to Broker’s efforts to assist both Buyer and Seller in identifying and obtaining the best attainable results for each party in this real estate transaction while simultaneously protecting the interests and confidences of each party.

5. If you are not completely comfortable with this disclosure of Dual Representation, you are encouraged to obtain separate representation in this transaction.

And:

Duties and Limitations: The Broker now represents both Buyer and Seller equally but separately. Both parties understand that Broker or Broker’s Licensee(s) may advise each party separately as to how best to proceed with this or any subsequent negotiations, subject to the restrictions delineated below, even though such advice may be perceived to be disadvantageous to the opposing party. Both parties understand that Broker or Broker’s Licensee(s) will be working actively and equally for each party, with no bias toward either party, to help each party obtain the best attainable, mutually-satisfactory outcome from any negotiations between the parties.

All we’re doing is taking account of and getting explicit consent for what is already happening in real life.

Caveats: I am not an attorney. I am a broker, but I am not your broker. This form language is intended to be used in Arizona. Your state laws may vary — wildly. Even so, if you want to see my full and final language, you can download my Consent to Dual Limited Representation form as a PDF file.

The good news is, we’ve never had to use this form. We make all of our sellers sign it, just in case. But buyers, god bless them, are smart enough to seek out their own representation.

But the better news is, if we ever have to do a dual agency again, we’re prepared to do it in the way that real estate transactions are actually conducted — and not as the NAR wants to pretend they are done.

Technorati Tags: blogging, compensation for buyer representation, dual agency, real estate, real estate marketing

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I think I first realized we exist in a quirky, if not passionate and divided adult society when I found myself in a lecture hall observing an assistant professor and a fellow graduate student nearly coming to blows over a Henry James excerpt from the aptly titled,  An International Episode.  I watched on as a confederacy of my peers and elders; some undergrad, some doctoral, some by proxy—chimed in from the gallery seats as the two went at each other, a coffee breath’s apart.  Before long, the entire crowd seemed to join in, taking sides on what does and does not constitute a cultural faux pas and whether James himself, a man already dead for 72 years, was a genius or an ass.  

It was like a Pulitzer prize fight gone wild, only everyone was wearing turtlenecks and corduroy.  I was proctoring the lecture to make up some lost hangover hours from another class.  The whole Henry James dialectic was over my head to begin with,  so who was I to judge, one way or another, who had the longest literary wiener?  I fancied myself a sports writer, a true reporter of facts…(as I understood them, of course.)  That was more than 25 years ago and the memory all but faded away…

…only to resurface this week as I got sucked into the Comment Section vacuum of  a thousand faceless internet voices.  I think we all know of what I speak so no more linkage.  It intrigues me when I witness, walking past the bar of course, the same, aforementioned ardor present in, let’s say… the wide-screen crowd watching a televised sporting event.  I’m always curious as to why these raving fans, dressed in home team regalia; scream, curse and cheer for or against a particular team or athlete (or candidate, for that matter) who doesn’t even know they exist. Like the Chazz Palminteri character, Sonny,  says to C,  in A Bronx Tale,  

“Why you care about Mickey Mantle? He don’t care about you…” Willing suspension of disbelief can be, well…disbelievable, I guess. 

I played sports, albeit Division III, well into adulthood and I’m here to reiterate what the majority of us should already know; most noble opponents, whether professional, amateur or literary, leave it at the field once the game has ended or the last shot has fired.  It’s the fans, the observers, the commentors,  if you will, who generally keep fanning the flame of division after the final score or vote is tallied.  I’m not originally from Chicago but they tell me that Packers fans can’t stand Bears fans. (You should try growing up in Philadelphia where sports fans can’t stand each other, period.) I don’t know why this is. 

I suppose it just goes with that part of the territory, outside the sidelines and up in the cheap shot seats, in this case, the comment section of at least a half dozen blogs, where everybody with equal halves of brain and opinion mix it up on a daily basis.  First they attack the players and then they attack each other, and before you know it, even the likes of poor little dead Henry James is getting knocked around….just like in those upper decks in Philly.  This is why real estate in the nosebleed section is sub prime, to say the least.

Having said all that, my favorite comment this week in the blogiverse is from The Bubble Sitter,  a person  (entity?) who I silently disagree with about 90% of the time but whose comments I’ve never considered ‘unsubscribing’  from…

“Bunch of drama bitches…Shouldn’t you all be out trying to make 6%?” 

Pretty f-ing funny, if you ask me.  And no need to comment. I rarely respond anyway.

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What if sellers could list with anyone and everyone and what if only the party that brought the buyer got paid? Online listing search paralysis: no agent will disclose the address to a buyer unless they can show it.   

Sounds like the ideal place to go direct-to-sellers to list their house on the web; they’re already distributing their listing all over the place. 

It also sounds like agents really provide no service to help consumers get more for their listing there; no staging, pricing advice, etc. They’re just trying to find buyers and get it sold. Note to Spanish agents: the internet eats information withholding middlemen for lunch. Provide valuable services or die.

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Sound crazy? That’s how rentals work in New York. A renter typically pays 1 month rent to the broker listing the apartment.

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I have to agree with the FTC ’s initial action but for all the wrong reasons. And I don’t agree with them now pursuing the case further. A few days ago a Judge dismissed the complaint filed by the FTC against a Detroit area Multiple Listing Service. The position of the FTC was that it was “hurting consumers” for Realcomp to deny brokers using an “exclusive agency listing” the right to be on Realtor.com and other public websites. The brokers who were up against the FTC decided it would be easier to just stop doing it so the judge dismissed the complaint. The FTC officials plan to pursue the case further (making a “Federal case out of it).

From Inman on December 13th:

This policy, which was adopted following the FTC’s complaint against Realcomp and other MLSs, provides an exception that allows MLSs to ban the transmission of listing information if the listed property’s street address or a graphic display of a property’s location is publicly displayed and the seller displays a for-sale-by-owner sign on the property or another sign or notice that indicates that the seller is seeking direct contact from buyers.

Meanwhile, Albert Hepp, a flat-fee broker who serves as president of the American Real Estate Broker Alliance, a national alliance of flat-fee brokers, said he is disappointed with the judge’s decision and NAR’s stance on the issue.

“We are disappointed in the ruling and urge the FTC to appeal,” he said. “Anyone who truly understands the MLS knows that this is a clear-cut case of an MLS hiding the listings of discounters to harm consumer choice. Once again, the NAR has unfortunately chosen to fight competition while claiming to promote it.”

For example, an attachment to the judge’s decision details an agreement by Realcomp and the FTC over a contested “search function policy” adopted in 2003 that defaulted to a search of exclusive-right-to-sell listings and required MLS users to specifically search for exclusive-agency listings to view those properties. That policy was changed in April 2007, and the agreement provides that Realcomp “shall … cease and desist from adopting or enforcing any policy, rule, practice or agreement … that treats exclusive agency listings, or any other lawful listings, in a less advantageous manner than exclusive-right-to-sell listings with regard to the search function in the Realcomp MLS.”

I disagree with Albert Hepp’s self-serving statement as well. I think the problem that the brokers at that MLS had - and stupidly tried to fix by attempting to downgrade the way “exclusive agency listings” were handled has nothing to do with harming consumers or discriminating against brokers who charge less.

The original purpose of the MLS was to offer compensation to other brokers for bringing an acceptable offer to them on their listing. Period. This is still what it should be about today. Having “listings” that offer no real compensation to a cooperating broker or are nothing less than an attempt to list a for sale by owner property so the owner can sell it directly to a buyer himself or “listings” from brokers who are not really going to be doing anything but having entered the listing into the MLS - this is the kind of crap those brokers were attempting to solve. But because of the busy-body, know-best lawyers at the FTC it seems they can’t just come out and say that. I can. That is the real problem. These people are parasites and contribute precisely nothing. The industry does not have “a problem” with brokers who charge less. Charge whatever you want but if you are going to list properties in the system don’t try and shove your work over to the other agent and cry out “we want to help consumers”, because that just makes you a damn liar. You want to help yourself. I don’t believe any of the altruistic blather that spews forth from any of those people.

I’ll tell you why I had to agree with the original motion. All of my listings are exclusive agency listings. They have been for the past fifteen years. I give all of my sellers the right to sell their home themselves and pay nothing and also to fire me at any time. Therefore, all of my listings are exclusive agency. Letting all other agents know that in the event they write an offer on my listing they could (in a hot market) be competing with the seller. In all the years we have had this policy we have had very few problems. Very few. I believe all listings should be exclusive agency. The idea that people are “stuck” to each other, who don’t want to be stuck to each other isn’t an arrangement I want to promote. Thankfully, the people who sit on the board of directors for ARMLS never even thought of doing anything as stupid as the Detroit MLS.

If it had been necessary for me to take legal action I would not have thought of that kind of discrimination as “anti-consumer”, it isn’t. It is anti-agent. Having certain types of listings not show up - as a default - in the MLS probably IS anti-consumer. But not having them on the “public websites” has nothing to do with “offering compensation to brokers”, as it is in fact advertising. Advertising is not the purpose of the MLS.

Just because someone working at the FTC had to sit through all those classes in law school is no reason they shouldn’t be able to grasp this simple concept.

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The (un)intentional arms race continues.

RCG, BHB, AG.

Seemingly every week brings another contributor, but to what end?

The writing has inarguably elevated the conversation. Two years ago the “divorced commission” concept was one that made sense, but had not congealed on a national level. Now, to a much greater degree, it has. I believe that there may be an end to Dual Agency in my lifetime, thanks in large part to the conversations held locally and nationally - again, due to these national blogs. The disagreements and debates are of a higher level than found almost anywhere else. The intensity with which writers and commenters argue is frequently fierce and typically civilized.

There is authenticity found here that isn’t found elsewhere. We’re not doing it for the advertising revenue. We’re not doing it for the salaries or the bonuses. We’re not doing it for all the “leads” that come our way. We’re doing it because we believe in what we do and seem to share a collective passion.

As Greg said earlier this year -

My immediate goal for BloodhoundBlog is to make it the best-read, most-rewarding real estate weblog in the RE.net. Further out, I want for our contributors to be so well known that they can pursue other opportunities: Public speaking, freelance writing, books, seminars, television shows, etc. I don’t know that we will attain this, necessarily, but the goal itself is definitely attainable: Witness Glenn Reynolds, the Instapundit.

For now, I’m interested in growing our talents to see where they can take us. I think we benefit each other more together than we would apart …

At least six Bloodhounds are speaking at Inman Connect in January; if that’s not a form of acceptance, I don’t know what is. Look at the list of speakers - Presidents, CEOs, Directors … bloggers! The numbers of bloggers is phenomenal. Gaining acceptance and influence is a journey, and each day, week, month brings another convert - and another reader/listener/follower. In response to a recent email - the people in Chicago are reaching out; the RE.net is too large and influential to be ignored. Influential and powerful groups all started somewhere.

The vast majority of consumers don’t care about what we talk about here; they care about the price of their respective homes and how they can buy or sell better - be it more efficiently, cheaper, faster … divorcing the commissions is something many find to be a no-brainer. It’s up to us to influence those who can make the changes. Realtor ethics? Sure, consumers believe that this ethereal, mystical concept exists, but many more see that reality is something much different than what the Code of Ethics says one must do. (I have argued before that if you need 8 pages to explain ethics, rather than a simple code of honor, you just might need too much guidance). The blogs give an opportunity to talk the walk.

To answer Jeff’s question from a recent comment - this is how we give out samples, but we do it to other professionals.

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The missing word in the title above is, “completely”. Top Buyer Agents Unite to Put Themselves Completely Out of Business. Also, based on my schedule and the (so far, at least) almost total unwillingness of Top Buyer Agents to even listen to this vital message, there may not be much reason to keep saying it. These Top Buyer Agents don’t seem to understand that they are not like most buyer agents. They are quite different. These Top Buyer Agents take their duties to their clients so seriously that they actually DO put the client’s interests above their own. Every time, in every way. These Top Buyer Agents have figured out that the current system of the listing agent paying them, with the seller’s money (of all possible pay plans in the universe) isn’t the most optimum pay plan possible.

But it IS a pay plan. You do get paid. Your buyers do get real representation.

In many well written, thoughtful and sincere posts here on BloodhoundBlog there has been a strong case made for divorcing the buyer agent commissions completely from the seller and the listing agent. Most of the points made are valid. There has been even more to think about in the back and forth in the comments section of those posts. Some very bright people saying some very bright things.

I won’t try to appeal to your self interests here, but to your interest in caring for your future clients. The current “system” offers you the best opportunity you will ever have to help the most people with your counsel. Should the commissions become “divorced” (and yes, this could happen due to some decision in a federal court room or even the Supreme Court) you will be out of business. O - U - T, out. The perfect transaction (each side having splendid and fabulous representation) will occur so rarely that anyone who worked on bringing it about will have lots of time to reflect on how great it could have been. The funny part is that you already know what will bring about your demise. It has been commented on as the “how do we get around THAT” issue. You don’t. With IDX feeds freely available and buyers being told they now can “hire their own agent” (with the complete right to also pay that agent) most buyers will become “listing agent shoppers”.

Me? I will continue to take listings and do what is necessary to get them sold. If offering them directly to buyers by promoting “buy direct, pay no commission” was the most effective way to get them sold, then that is what I would do. It is also what Re/Max, Prudential, Coldwell Banker, Century 21, Keller Williams and all other companies who will stay in business will do. It is also what you will do, should you decide to stay in real estate.

 
The divorced real estate commission file: This is an organic compendium of weblog posts and internet-based articles arguing for and against the idea of divorcing the residential real estate commission — eliminating the co-brokerage compensation from the listing agreement, with buyers contracting for and arranging compensation for their own representation. One way this might be effected: Lenders could permit buyers to expense representation on the HUD-1 form as sellers do now. The entries collected here represent the full gamut of opinions on what may be the most important issue facing Realtors today. To submit additional posts or articles for inclusion on this list, fill out the form at this link.

• 11/11/07, Greg Swann: A consumer’s guide to the divorced real estate commission: Why buyers and sellers each paying for their own representation is the most significant reform that can be made today in residential real estate

• Part I: How we got into this mess in the first place
• Part II: How buyers can finally take a seat at the grown-up’s table
• Part III: The who-pays-whom of real estate is not as simple as you might have thought…
• Part IV: Divorcing the real estate commissions will result in benefits not just for buyers but also for their agents and for the real estate market as a whole
• Part V: Why arguments for the current method of compensating real estate agents and against divorcing the real estate commissions must fail

• 10/03/07, Greg Swann: Ask the Broker: How can the seller paying the buyer’s broker’s commission be fair to the seller?
• 09/24/07, Dan Melson: Why the Real Estate Buyers Agent’s Commission is Paid by the Seller
• 07/22/07, Russell Shaw: Top Buyer Agents Unite To Put Themselves Out of Business - Russell Shaw Tries to Save Them
• 07/17/07, Galen Ward: Does the pope condone Divorcing Commissions?
• 07/16/07, Kris Berg: Who does the buyer’s agent’s commission belong to? Maybe… the buyer’s agent?
• 07/16/07, Jim Duncan: More on separating the commissions
• 07/16/07, Jonathan Dalton: Divorcing Real Estate Commissions III: Return of the Rhetoric
• 07/16/07, Todd Tarson: Divorcing commissions
• 07/15/07, Greg Swann: Divorcing the real estate commissions is simply a matter of HUD-1 bookkeeping effected by the mortgage lender
• 07/15/07, Russell Shaw: Greg Swann Joins Redfin - Kelman Rejoicing!
• 07/15/07, Jonathan Dalton: Divorcing Real Estate Commissions, Redux
• 07/15/07, Jonathan Dalton: The First Time Always is Awkward
• 07/14/07, Jeff Kempe: The Imperative of Divorced Commissions, Part 2: The Inherent Value of Free
• 06/22/07, Jeff Kempe: The Imperative of Divorced Commissions, Part 1: Fundamentals of Narcissism.
• 05/28/07, Russell Shaw: Separating the Buyer Agent Commission From the Listing Commission is a REALLY stupid idea
• 05/27/07, Jeff Kempe: Tennessee, Oregon, and the State of Real Estate
• 05/21/07, Jim Duncan: A call for an end cooperative compensation
• 05/21/07, Greg Swann: If lenders divorce the commissions, they’ll be divorced
• 05/18/07, Greg Swann: By withholding the secrets of the mystical MLS system are we betraying the home-buyer’s interests?
• 04/09/07, Greg Swann: Who pays the buyer’s agent? Once we’ve divorced the commissions, we can stop worrying about it
• 04/02/07, Greg Swann: Redfin.com’s Real Estate Consumer’s Bill of Rights: A wolf in sheepskin clothing…
• 03/05/07, Greg Swann: True reform in the real estate industry will not result from undermining buyer representation
• 10/20/06, Greg Swann: The Divorced Commission and the MLS: Building a much better home search tool…
• 10/19/06, Greg Swann: Defining the Divorced Commission: A short-hand term for understanding alternative real estate compensation models…
• 10/17/06, Greg Swann: Smashing the idols: Understanding market value in full context…
• 10/16/06, Greg Swann: What replaces the MLS? Advertising is a given. Compensation/ cooperation can be addressed separately. But the quality and quantity of the data is irreplaceable…
• 10/15/06, Greg Swann: Why the traditional real estate commission model is broken and needs to be replaced…
• 10/07/06, Jim Duncan: The solution to many of real estate’s problems
• 10/07/06, Greg Swann: The seller really pays for the buyer’s agent? Definitely not when the buyer pays out of pocket. But what if the buyer really did pay for the buyer’s agent from the buyer’s side of the HUD-1?
• 09/29/06, Greg Swann: Butterflies might be free, but home-buyers pay for real estate advice — whether they know it or not…
• 09/06/06, Greg Swann: Securing the home-buyer’s place at the table: How two simple reforms can finally result in a full, uncompromised form of buyer representation…
• 08/15/06, Brian Larson: The End of MLS As We Know It

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By far the most entertaining marketing presentation I’ve ever suffered was in the mid-eighties. I was representing a small shoe manufacturer in Worcester, MA. It was early in the comfort revolution, and the company owner had come up with a way to put a donut in the insole for the heel to rest. He’d asked a local ad agency — his brother-in-law, actually — to come up with a bottom to top marketing plan: name, packaging, hook, advertising.

Cleverly focusing in on the donut, thinking waaaaaaaaay outside the box, this is what was unveiled:

Manistee presents: ZER0&174;s!!
with
ZER0&174; Styling!
ZER0&174; Affordability!
and
ZER0&174; COMFORT!!

We never made it to the packaging.

=====

Here’s Kendra Hogue, editor for the real estate section of the Sunday Oregonian, a couple months ago:

For those of you who haven’t purchased a home before, “hiring” a Realtor to help locate a house costs you nothing.

Well.

No matter how we try to twist statutes or the code of ethics, no matter how much we argue among ourselves as to who actually pays the buyer’s agent, the fact is the debit remains on the seller’s HUD-1 and the perception is that buyers’ agents come free. And the value of ‘free’?

Zero.

No? How many Buyer Presentations have you been on in the last year? Why is it buyers are much more willing to work with the first person they meet — or with Aunt Rose’s pedicurist’s live in girlfriend’s little brother — than a seller might? Why do they often drift, as if one warm body is the equivalent of another?

No matter how much we plead that buyer’s agents are as important to buyers as listing agents are to sellers — and they are — the market price tells buyers a different story, and the argument falls largely unheard. And note importantly that the price isn’t set by the market — the customer — but artificially by the industry. Price-by-fiat is almost always disastrous [Google 'Nixon price controls'].

The consequences are both obvious and counter intuitive. The fact that buyers don’t scrutinize their hires is a boon to the inexperienced and inept. That keeps the people Kris just (brilliantly) profiled in the business a bit longer than the market would otherwise dictate. In turn, those people add to the stereotype of the venal ‘only in it for the commission’ agent, worthless except for the key into a gated community. More, even our own industry buys into the ‘listing agents are king!’ mentality, largely because right now that’s the case.

Intuitively one would think ‘free’ would mean everyone would have one; but because of the perceived zero value, that’s emphatically not the case. Ron Ares wrote a couple weeks ago about the sudden appearance in our area of buyers who want only to deal with listing agents. I’ve had three sign calls on my listings in the last week from buyers who wanted to deal only through me. I opened a listing of a friend of mine (she was out of town) to a buyer who condescendingly declared he didn’t need an agent; he had a lawyer…

So why would someone pay extra for a lawyer — without the market knowledge, not to mention the key — when he could have a representative for ‘free’?

Bigger questions: A) Is this a real problem?; and B) If so, how should it be remedied?

Answers: A) Yes. In the aggregate buyers are not being represented well, leading to an industry spillover where sellers can suffer a similar fate. Not only can buyers end up paying too much, but, as Kris points out, the biggest challenge agents have today is finessing a transaction from offer to close. How many lawyers can finesse the decommissioning of an oil tank?

And B):

Pause here. I’d give up half my income for a year to be mentored by Russell Shaw. I asked a friend who’d moved from here to Phoenix if he knew who he was and he said “Are you kidding? He’s a legend!” But even legends can be wrong:

Divorce the damned commissions.

The immediate effect would be confusion as the market tries to sort out lower listing commissions as reflected in listing prices. Lenders would have to factor in BACs to their loans, temporarily dumbfounding them even though they’ve been doing it all along. Buyers would have to be faced with the sudden recognition that, yes, if they want real representation it’s going to come out of their pocket, and they’ll have to shop accordingly. The industry would have to begin acknowledging the value of a buyer’s agent, instead of the toss-off ‘Buyers’ agents free!’

But in the long run: Buyers will interview agents, weeding out the inept. The inexperienced will have to become assistants, creating by default a mentor program that benefits all, especially the consumer. On the whole, good agents will survive, bad agents will not. Thus fewer but more competent agents, better representation for the customer, and much better for the industry as a whole.

The free market at its very best.

PS For the record: Donuts in the heels of shoes is a really dumb idea.

 
The divorced real estate commission file: This is an organic compendium of weblog posts and internet-based articles arguing for and against the idea of divorcing the residential real estate commission — eliminating the co-brokerage compensation from the listing agreement, with buyers contracting for and arranging compensation for their own representation. One way this might be effected: Lenders could permit buyers to expense representation on the HUD-1 form as sellers do now. The entries collected here represent the full gamut of opinions on what may be the most important issue facing Realtors today. To submit additional posts or articles for inclusion on this list, fill out the form at this link.

• 11/11/07, Greg Swann: A consumer’s guide to the divorced real estate commission: Why buyers and sellers each paying for their own representation is the most significant reform that can be made today in residential real estate

• Part I: How we got into this mess in the first place
• Part II: How buyers can finally take a seat at the grown-up’s table
• Part III: The who-pays-whom of real estate is not as simple as you might have thought…
• Part IV: Divorcing the real estate commissions will result in benefits not just for buyers but also for their agents and for the real estate market as a whole
• Part V: Why arguments for the current method of compensating real estate agents and against divorcing the real estate commissions must fail

• 10/03/07, Greg Swann: Ask the Broker: How can the seller paying the buyer’s broker’s commission be fair to the seller?
• 09/24/07, Dan Melson: Why the Real Estate Buyers Agent’s Commission is Paid by the Seller
• 07/22/07, Russell Shaw: Top Buyer Agents Unite To Put Themselves Out of Business - Russell Shaw Tries to Save Them
• 07/17/07, Galen Ward: Does the pope condone Divorcing Commissions?
• 07/16/07, Kris Berg: Who does the buyer’s agent’s commission belong to? Maybe… the buyer’s agent?
• 07/16/07, Jim Duncan: More on separating the commissions
• 07/16/07, Jonathan Dalton: Divorcing Real Estate Commissions III: Return of the Rhetoric
• 07/16/07, Todd Tarson: Divorcing commissions
• 07/15/07, Greg Swann: Divorcing the real estate commissions is simply a matter of HUD-1 bookkeeping effected by the mortgage lender
• 07/15/07, Russell Shaw: Greg Swann Joins Redfin - Kelman Rejoicing!
• 07/15/07, Jonathan Dalton: Divorcing Real Estate Commissions, Redux
• 07/15/07, Jonathan Dalton: The First Time Always is Awkward
• 07/14/07, Jeff Kempe: The Imperative of Divorced Commissions, Part 2: The Inherent Value of Free
• 06/22/07, Jeff Kempe: The Imperative of Divorced Commissions, Part 1: Fundamentals of Narcissism.
• 05/28/07, Russell Shaw: Separating the Buyer Agent Commission From the Listing Commission is a REALLY stupid idea
• 05/27/07, Jeff Kempe: Tennessee, Oregon, and the State of Real Estate
• 05/21/07, Jim Duncan: A call for an end cooperative compensation
• 05/21/07, Greg Swann: If lenders divorce the commissions, they’ll be divorced
• 05/18/07, Greg Swann: By withholding the secrets of the mystical MLS system are we betraying the home-buyer’s interests?
• 04/09/07, Greg Swann: Who pays the buyer’s agent? Once we’ve divorced the commissions, we can stop worrying about it
• 04/02/07, Greg Swann: Redfin.com’s Real Estate Consumer’s Bill of Rights: A wolf in sheepskin clothing…
• 03/05/07, Greg Swann: True reform in the real estate industry will not result from undermining buyer representation
• 10/20/06, Greg Swann: The Divorced Commission and the MLS: Building a much better home search tool…
• 10/19/06, Greg Swann: Defining the Divorced Commission: A short-hand term for understanding alternative real estate compensation models…
• 10/17/06, Greg Swann: Smashing the idols: Understanding market value in full context…
• 10/16/06, Greg Swann: What replaces the MLS? Advertising is a given. Compensation/ cooperation can be addressed separately. But the quality and quantity of the data is irreplaceable…
• 10/15/06, Greg Swann: Why the traditional real estate commission model is broken and needs to be replaced…
• 10/07/06, Jim Duncan: The solution to many of real estate’s problems
• 10/07/06, Greg Swann: The seller really pays for the buyer’s agent? Definitely not when the buyer pays out of pocket. But what if the buyer really did pay for the buyer’s agent from the buyer’s side of the HUD-1?
• 09/29/06, Greg Swann: Butterflies might be free, but home-buyers pay for real estate advice — whether they know it or not…
• 09/06/06, Greg Swann: Securing the home-buyer’s place at the table: How two simple reforms can finally result in a full, uncompromised form of buyer representation…
• 08/15/06, Brian Larson: The End of MLS As We Know It

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I was running in a local park a few days ago. The road into the park is about a half mile long and barely wide enough for two cars to pass in opposite directions, thus there are “NO PARKING AT ANY TIME” signs on both sides the entire length. As I drove in two mini-vans were parked next to a field, and I waited as two other cars coming the other direction passed. Three women were in the field chatting and setting up cones, perhaps for a relay.

As I ran out ten minutes later, the vans were still there, but now there were five cars stopped in one direction while three others drove by in the other. The women were oblivious, corpulent Paris Hiltons. When I suggested they move their vans to a parking area fifty feet away, one said “Oh, get real. It’s not as if this is a major thoroughfare.” Solipsism at its summary best. Rules are fine unless they’re inconvenient.

…

696.810 Real estate licensee as buyer’s agent; obligations….
(3) A buyer’s agent owes the buyer involved in a real estate transaction the following affirmative duties: …
(c) To be loyal to the buyer by not taking action that is adverse or detrimental to the buyer’s interest in a transaction;
(d) To disclose in a timely manner to the buyer any conflict of interest, existing or contemplated;

Whenever the charge of venality is brought against the real estate profession, out comes the Code of Ethics, here codified into Oregon statute. It’s our Wizard’s Curtain; while most agents I work with — and I suspect most people here — take it very seriously, too many don’t.

The reason high BACs and agent bonuses are used so often as marketing ploys is because they work. I was told recently by one agent who incorporates both in many of his older listings that not only does he immediately get more showings, once under contract the buyer’s agent is much more eager to cooperate to get to closing.

Venal? Indeed.

But while I have no special affection for agents who filter their clients’ needs through their own desire, that’s part of the human market condition: people gravitate toward self interest. (Though I’d argue that long term self interest is in what’s ultimately best for the client.) The real problem is systemic.

First note that none of the governing bodies have cast discouragement on the practice. It’s as if the West Linn police had passed the vans and said “It’s not as if this is a major thoroughfare.” Buyers’ interests are swept away for the sake of a false decorum.

Much more to the point: Because the buyer’s agent is still being paid by the seller, he or she is still working, at least in part and certainly in this case, in the seller’s interest. You can couch it in all the rules and platitudes you want — Oregon has even found it necessary to put it into statute: The buyer’s agent is not representing the seller, even if the buyer’s agent is receiving compensation for services rendered, either in full or in part, from the seller or through the seller’s agent. — but the net effect is there, curtain notwithstanding.

The only remedy I see, the only way to consistently get buyers equal representation, is, as Greg has argued so many times, to split the listing commission from the buyer’s commission. In this case two things happen: having secured his own contract, there’s no temptation for the buyer’s agent to lean to the seller’s side;

and there will be just a little less room in the profession for the venal.

[Next: the inherent value of Free.]

 
The divorced real estate commission file: This is an organic compendium of weblog posts and internet-based articles arguing for and against the idea of divorcing the residential real estate commission — eliminating the co-brokerage compensation from the listing agreement, with buyers contracting for and arranging compensation for their own representation. One way this might be effected: Lenders could permit buyers to expense representation on the HUD-1 form as sellers do now. The entries collected here represent the full gamut of opinions on what may be the most important issue facing Realtors today. To submit additional posts or articles for inclusion on this list, fill out the form at this link.

• 11/11/07, Greg Swann: A consumer’s guide to the divorced real estate commission: Why buyers and sellers each paying for their own representation is the most significant reform that can be made today in residential real estate

• Part I: How we got into this mess in the first place
• Part II: How buyers can finally take a seat at the grown-up’s table
• Part III: The who-pays-whom of real estate is not as simple as you might have thought…
• Part IV: Divorcing the real estate commissions will result in benefits not just for buyers but also for their agents and for the real estate market as a whole
• Part V: Why arguments for the current method of compensating real estate agents and against divorcing the real estate commissions must fail

• 10/03/07, Greg Swann: Ask the Broker: How can the seller paying the buyer’s broker’s commission be fair to the seller?
• 09/24/07, Dan Melson: Why the Real Estate Buyers Agent’s Commission is Paid by the Seller
• 07/22/07, Russell Shaw: Top Buyer Agents Unite To Put Themselves Out of Business - Russell Shaw Tries to Save Them
• 07/17/07, Galen Ward: Does the pope condone Divorcing Commissions?
• 07/16/07, Kris Berg: Who does the buyer’s agent’s commission belong to? Maybe… the buyer’s agent?
• 07/16/07, Jim Duncan: More on separating the commissions
• 07/16/07, Jonathan Dalton: Divorcing Real Estate Commissions III: Return of the Rhetoric
• 07/16/07, Todd Tarson: Divorcing commissions
• 07/15/07, Greg Swann: Divorcing the real estate commissions is simply a matter of HUD-1 bookkeeping effected by the mortgage lender
• 07/15/07, Russell Shaw: Greg Swann Joins Redfin - Kelman Rejoicing!
• 07/15/07, Jonathan Dalton: Divorcing Real Estate Commissions, Redux
• 07/15/07, Jonathan Dalton: The First Time Always is Awkward
• 07/14/07, Jeff Kempe: The Imperative of Divorced Commissions, Part 2: The Inherent Value of Free
• 06/22/07, Jeff Kempe: The Imperative of Divorced Commissions, Part 1: Fundamentals of Narcissism.
• 05/28/07, Russell Shaw: Separating the Buyer Agent Commission From the Listing Commission is a REALLY stupid idea
• 05/27/07, Jeff Kempe: Tennessee, Oregon, and the State of Real Estate
• 05/21/07, Jim Duncan: A call for an end cooperative compensation
• 05/21/07, Greg Swann: If lenders divorce the commissions, they’ll be divorced
• 05/18/07, Greg Swann: By withholding the secrets of the mystical MLS system are we betraying the home-buyer’s interests?
• 04/09/07, Greg Swann: Who pays the buyer’s agent? Once we’ve divorced the commissions, we can stop worrying about it
• 04/02/07, Greg Swann: Redfin.com’s Real Estate Consumer’s Bill of Rights: A wolf in sheepskin clothing…
• 03/05/07, Greg Swann: True reform in the real estate industry will not result from undermining buyer representation
• 10/20/06, Greg Swann: The Divorced Commission and the MLS: Building a much better home search tool…
• 10/19/06, Greg Swann: Defining the Divorced Commission: A short-hand term for understanding alternative real estate compensation models…
• 10/17/06, Greg Swann: Smashing the idols: Understanding market value in full context…
• 10/16/06, Greg Swann: What replaces the MLS? Advertising is a given. Compensation/ cooperation can be addressed separately. But the quality and quantity of the data is irreplaceable…
• 10/15/06, Greg Swann: Why the traditional real estate commission model is broken and needs to be replaced…
• 10/07/06, Jim Duncan: The solution to many of real estate’s problems
• 10/07/06, Greg Swann: The seller really pays for the buyer’s agent? Definitely not when the buyer pays out of pocket. But what if the buyer really did pay for the buyer’s agent from the buyer’s side of the HUD-1?
• 09/29/06, Greg Swann: Butterflies might be free, but home-buyers pay for real estate advice — whether they know it or not…
• 09/06/06, Greg Swann: Securing the home-buyer’s place at the table: How two simple reforms can finally result in a full, uncompromised form of buyer representation…
• 08/15/06, Brian Larson: The End of MLS As We Know It

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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.

__

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 idea 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)

 
The divorced real estate commission file: This is an organic compendium of weblog posts and internet-based articles arguing for and against the idea of divorcing the residential real estate commission — eliminating the co-brokerage compensation from the listing agreement, with buyers contracting for and arranging compensation for their own representation. One way this might be effected: Lenders could permit buyers to expense representation on the HUD-1 form as sellers do now. The entries collected here represent the full gamut of opinions on what may be the most important issue facing Realtors today. To submit additional posts or articles for inclusion on this list, fill out the form at this link.

• 11/11/07, Greg Swann: A consumer’s guide to the divorced real estate commission: Why buyers and sellers each paying for their own representation is the most significant reform that can be made today in residential real estate

• Part I: How we got into this mess in the first place
• Part II: How buyers can finally take a seat at the grown-up’s table
• Part III: The who-pays-whom of real estate is not as simple as you might have thought…
• Part IV: Divorcing the real estate commissions will result in benefits not just for buyers but also for their agents and for the real estate market as a whole
• Part V: Why arguments for the current method of compensating real estate agents and against divorcing the real estate commissions must fail

• 10/03/07, Greg Swann: Ask the Broker: How can the seller paying the buyer’s broker’s commission be fair to the seller?
• 09/24/07, Dan Melson: Why the Real Estate Buyers Agent’s Commission is Paid by the Seller
• 07/22/07, Russell Shaw: Top Buyer Agents Unite To Put Themselves Out of Business - Russell Shaw Tries to Save Them
• 07/17/07, Galen Ward: Does the pope condone Divorcing Commissions?
• 07/16/07, Kris Berg: Who does the buyer’s agent’s commission belong to? Maybe… the buyer’s agent?
• 07/16/07, Jim Duncan: More on separating the commissions
• 07/16/07, Jonathan Dalton: Divorcing Real Estate Commissions III: Return of the Rhetoric
• 07/16/07, Todd Tarson: Divorcing commissions
• 07/15/07, Greg Swann: Divorcing the real estate commissions is simply a matter of HUD-1 bookkeeping effected by the mortgage lender
• 07/15/07, Russell Shaw: Greg Swann Joins Redfin - Kelman Rejoicing!
• 07/15/07, Jonathan Dalton: Divorcing Real Estate Commissions, Redux
• 07/15/07, Jonathan Dalton: The First Time Always is Awkward
• 07/14/07, Jeff Kempe: The Imperative of Divorced Commissions, Part 2: The Inherent Value of Free
• 06/22/07, Jeff Kempe: The Imperative of Divorced Commissions, Part 1: Fundamentals of Narcissism.
• 05/28/07, Russell Shaw: Separating the Buyer Agent Commission From the Listing Commission is a REALLY stupid idea
• 05/27/07, Jeff Kempe: Tennessee, Oregon, and the State of Real Estate
• 05/21/07, Jim Duncan: A call for an end cooperative compensation
• 05/21/07, Greg Swann: If lenders divorce the commissions, they’ll be divorced
• 05/18/07, Greg Swann: By withholding the secrets of the mystical MLS system are we betraying the home-buyer’s interests?
• 04/09/07, Greg Swann: Who pays the buyer’s agent? Once we’ve divorced the commissions, we can stop worrying about it
• 04/02/07, Greg Swann: Redfin.com’s Real Estate Consumer’s Bill of Rights: A wolf in sheepskin clothing…
• 03/05/07, Greg Swann: True reform in the real estate industry will not result from undermining buyer representation
• 10/20/06, Greg Swann: The Divorced Commission and the MLS: Building a much better home search tool…
• 10/19/06, Greg Swann: Defining the Divorced Commission: A short-hand term for understanding alternative real estate compensation models…
• 10/17/06, Greg Swann: Smashing the idols: Understanding market value in full context…
• 10/16/06, Greg Swann: What replaces the MLS? Advertising is a given. Compensation/ cooperation can be addressed separately. But the quality and quantity of the data is irreplaceable…
• 10/15/06, Greg Swann: Why the traditional real estate commission model is broken and needs to be replaced…
• 10/07/06, Jim Duncan: The solution to many of real estate’s problems
• 10/07/06, Greg Swann: The seller really pays for the buyer’s agent? Definitely not when the buyer pays out of pocket. But what if the buyer really did pay for the buyer’s agent from the buyer’s side of the HUD-1?
• 09/29/06, Greg Swann: Butterflies might be free, but home-buyers pay for real estate advice — whether they know it or not…
• 09/06/06, Greg Swann: Securing the home-buyer’s place at the table: How two simple reforms can finally result in a full, uncompromised form of buyer representation…
• 08/15/06, Brian Larson: The End of MLS As We Know It

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Trevor Smith’s answer to Dual Agency?

Let the buyer represent himself, and give him the commission regularly paid to the Buyer’s Agent. (Granted, this would still leave the buyer relatively unprotected, but at least if something goes bad, its his own fault and not the agents).

Your obvious question is, “Where are the customary apostrophes to indicate a contraction or possessive noun?” No, wait, that is just me. What you are really thinking I suspect is that this sounds suspiciously like a Redfin philosophy, but then, Trevor is not so coincidentally a Redfin agent from Seattle.

By the way, according to Trevor, Redfin’s Blue Collar Spokesmodel, they are gaining market share there at warp speed. In 2006, it was reported that Redfin closed over 200 transactions. Now, it seems they are putting those deals to bed at a clip of 90 a week. I feel a press release coming on!

In light of Trevor’s recent remarks, I’ll take the opportunity to open old dual agency wounds. Is dual agency truly the root of all evil? It depends on who you ask. Even here at the Kennel Club, we have two camps. Now, let’s make that three.

I fall somewhere in the middle on the subject. Steve and I have acted as dual agents in many transactions. We do not like it, and we do not seek it out, but at times it is so very appropriate that any argument suggesting we are compromising our agency duties is simply ludicrous.

BITING THE HAND THAT FEEDS ME

Greg Swann is a well-known critic of dual agency transactions.

Disclosed Dual Agency cannot possibly be effected — in reality — without repeated, overt agency violations.

I will offer one example of how this statement is not only wrong but offensive to those of us that bend over backwards to protect the rights and interests of our clients - all of them. We closed escrow recently on a transaction involving our listing and our buyer. The reasons dual agency worked in this situation relate back to Russell Shaw’s contention that we have less control over our client’s decisions than one might imagine.

The idea that the agent somehow controls what a buyer will pay and what a seller will accept only indicates a disconnect from reality.

In our particular case, I had been showing past clients homes -many of them. And by past clients, I mean that we had an established relationship; we represented them on the sale of their last home over a year ago, and they most recently had been in my car for three consecutive weekends looking at properties. They were very qualified to purchase a much more expensive home than those at which we had been looking, but they were very disciplined. They established a maximum price limit and were committed to standing by it, as evidenced by the two offers we submitted that died because of their unwillingness to go a penny beyond this number. Enter new listing. This listing was what Steve and I have come to refer to as an SOS (save our sale). It had previously been marketed by a “relative” for six months to no avail. The sellers were anxious, to say the least.

This particular home did not meet the buyer’s prescribed “needs”, yet I have learned that a buyer’s true needs are a moving target. I suggested they take a look, as it was in their price range. The bottom line is that the buyer instructed me to write a take it or leave it offer. They buyer had seen enough homes to perceive value at the offered price; the seller had been on the market long enough to perceive value in the offer submitted. The interests of both sides were served.

Certainly, negotiated items in a transaction involve more than price, but it is a fallacy to suggest that the price issues does not eclipse all others. Greg commented recently:

The buyer is wise to close near the end of the month to avoid pre-paid interest. The seller is wise to close on or near the first of the month to avoid making another loan payment. If I advise either of them of these facts, I am working to the advantage of one over the other.

This is minutia and, while there are arguments to make against dual agency, this particular argument is weak. The bottom line is the bottom line. Pay me now or pay me later. From the seller’s standpoint, I can make that last mortgage payment and get a bigger check at closing, or I can pay it out of my proceeds and receive a smaller settlement.

TINKERS AND TEA

Ardell DeLoggia had a dream about the negotiating process becoming more civil and, therefore, more productive. She proposed long ago (and I am too lazy to look up the link) that, with the parties really working toward the same end game, the process just might be more productive if the principals talked it out over a cup of tea. I challenged the idea at the time as being more than a little utopian, and yet if there was ever an opportunity for this type of approach, the dual agency transaction may provide the best environment. Success in a real estate transaction should not be measured by how much you have beat up and bullied the other party; it should be measured by the outcome. As agents, we are both advocates and functionaries. Either role can be more or less important in any given circumstance.

PERCEPTION IS REALITY

Jeff Brown correctly acknowledged that the issue of perception is perhaps the greatest barrier to successful dual agency, and perceptions of favoritism and compromised advocacy always pose a liability threat. This is why a dual agency role should only be assumed under the proper circumstances and with the maximum of care and caution.

At the risk of oversimplifying, an agent’s duties can be loosely lumped into three categories: Entry, negotiations and transaction oversight. And there are really three categories of buyers that could throw you into the dual agent role:

• Buyer as established listing agent client;
• Buyer as accidental client; and,
• Buyer as listing agent shopper.

The listing agent shopper (LAS) is perhaps the perfect candidate for the dual representation scenario. I’ll call him Redfin Direct. He either doesn’t want representation or doesn’t think he needs it. He has accepted responsibility for access and he has mentally taken on the role of negotiator, so he is going to be the least concerned with agent loyalties. His perception is that he only needs a functionary, and his primary motivations are control and money, mostly money. His perception is that by approaching the listing agent directly, he will negotiate a credit in terms of price or actual monetary concession in escrow, and he is often correct. Variable commission structures to the seller are not uncommon (the fee is less if the agent represents both sides), and absent a variable commission, the LAS is in the position to negotiate directly with the listing agent. Either way, he sees money up for grabs, and the biggest issue is who the lucky recipient of the windfall will be.

The case of the accidental client, that buyer who has wandered in unrepresented as a sign- or ad-caller is the most likely candidate for reassignment to an uninvolved agent. With an established relationship between seller and agent, and absent an established trust between buyer an agent, dual agency in this situation begs for perceptions of conflict of interest down the road, both real and imagined.

The established listing agent client is a sticky wicket. Surprisingly, we find ourselves in this situation often. The established client won’t want to be reassigned to another agent to represent him, as he is presumably working with his agent because of the past relationship and earned trust. With the agent having a clear loyalty to and familiarity with both parties, the agent would be wise to expect the “Mom always liked you best” charges. Reassigning the established client could simply exacerbate the perception of favoritism, at least in the mind of the buyer. To continue to represent both sides successfully and leave the impression that both were loved equally will likely cost the agent.

DUAL AGENCY AT A COST

The cost of successfully performing as a dual agent is huge, in terms of both time and money. Each and every time we have accepted this role, the effort has been logarithmically greater than that of the single-side transaction. To ensure that both sides leave the transaction feeling that their interests have been served requires the utmost of attention, care and finesse. Then there is the money. Even if the dual agent is able to make it through the price negotiations with their fee intact, they had better expect to have that checkbook poised at all times. When it comes time to negotiate repairs, for instance, guess who is most likely to cut the check?

DIVIDE AND CONQUER

So, I am the middle man on the issue. Depending on the circumstances, dual agency can make all the sense in the world or no sense at all. As a not-so-trivial caveat, if Steve and I were not a “team”, it would never make sense (unless of course we enjoyed the inside of a courtroom). With two bodies, we always choose to share custody in these circumstances. At the first sign of a potential dual agency situation, and only with full knowledge and consent of both parties, we agree to an amicable separation. He will represent one side, I will represent the other, and we will reconcile as one big, happy family only once all contingencies have been removed.

So, I don’t see dual agency as inherently evil, just inherently risky business. Arguments against the practice are based on a potential compromise of agency and fiduciary obligations. As Trevor suggests, what better way to avoid blurring of the agency lines than to eliminate agency for one side altogether? At least then, if something goes bad, its his own fault and not mine.

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