Part II: How buyers can finally take a seat at the grown-up’s table
When a potential home-seller calls me to set up a listing appointment, very often the first question I will hear is, “How much do you charge?” A motivated seller is done with the house, and now all that matters is money. Sellers — usually — are practical, phlegmatic and open — if not at first then eventually — to logical persuasion.
Buyers, on the other hand, are giddy and emotional and mercurial and fun. They are on a safari to capture something big and exciting, and mere matters of finance are the farthest thing from their minds. This applies even to move-up buyers, people who are also selling their current home to buy the next one. On Friday evening, meeting about the house they are selling, they are coldly rational. On Saturday morning, shopping for the new house, they are swept away by their emotions.
Why do sellers pay the buyer’s agent’s commission, with or without sub-agency? Because it works. Buyers get to look at houses “for free.” The agent will set up searches “for free,” driving the buyers from house to house “for free.” And when it comes time to write a contract, the more the buyers pay for the home, the more the buyer’s agent will get paid. The seller is paying a percentage of the sales price, so the buyer’s agent’s pecuniary interest is aligned with that of the seller, not the buyers, his nominal clients. But — what the heck? — it’s all being done “for free.”
In the feast of residential real estate, buyers sit at the kiddie table and they don’t even know it. If a buyer even thinks to ask who is paying for all these free gifts of information, transportation and advice, the buyer’s agent will blow him off by saying, “Oh, the seller pays me.” We like to think we are smart shoppers, suspicious if not outright cynical, but no one ever thinks to ask, “The seller pays you for what?”
There’s more. Since the advent of buyer brokerage, the claim has been that listing agents and buyer’s agents each represent their respective parties as equals. Sellers are not presumed to be better than buyers — more entitled to representation. Buyers and sellers are alleged to have equal places at the table.
If “your” agent set up an automated MLS search for you — or even just emailed listings to you — you might have thought you were seeing the complete listing. Certainly the information is much richer than the listings you will find on Realtor.com or sites like Zillow.com or Trulia.com. You might have thought to yourself, “Now, at last, I’m getting the straight dope.”
Not quite. There are certain fields in an MLS listing that all MLS members are obliged to keep secret from the general public. Which fields? Rules vary from one MLS to another, but it’s common for the buyer’s broker’s compensation to be omitted — so that you won’t know how much “your” agent is getting paid. There will be a field for agents to talk to other agents that will be omitted from your listing. This is the space where a buyer’s agent’s bonus commission would be offered. And the number of days the home has been on the market will not be disclosed in your version of the listing.
Whose interests are advanced by the omission of these fields from your version of the MLS listing? The seller’s, to be sure, but also the listing agent’s — and “your” agent’s interests as they are distinguished from your own interests.
Whose interests are being betrayed by these omissions? Yours, as the buyer. MLS systems were created to market real estate for sellers, and almost nothing has changed in MLS rules to reflect the essentially specious idea of buyer brokerage. The MLS is the enduring embodiment of the idea of sub-agency, when every agent, even the one you thought of as “your” agent, represented the seller and no one represented the buyer. In reality, if you chose your agent well, he or she is giving you all the material facts you need to make an informed buying decision — but only by deliberately and willfully violating the rules of the MLS system.
You could argue that these MLS rules are just another way of infantilizing buyers, a position I would agree with. But much worse than that, these on-going rules of MLS systems are the enduring, vestigial engine of sub-agency in a real estate market where buyers are alleged to have full, fair and equal representation.
When I list a home for a seller, 90% of the work I will do for that seller will be done before the listing hits the MLS system. When I represent a buyer, the most important work I will do, if not the greatest in quantity of effort or clock-time, will be done after we have put a home under contract. In this respect, sellers have a built-in natural advantage in a real estate transaction: They have received 90% of the benefits of representation before the buyer has received any benefits to speak of. In a dual agency — one broker representing both parties — this is so much worse. The supposed equal treatment each party is to receive can never be equal. The seller is always ahead in this race.
But that natural advantage is nothing compared to the default advantage buyers give to sellers by not being prudent, rational, phlegmatic and logical. It is a delightful thing to buy a home, six weeks of euphoria, like being newly in love. But when the euphoria fades, too many buyers discover that they gave away far more than they had to in order to latch onto the home of their dreams.
Will the necessity of negotiating their buyer’s agent’s compensation make buyers more practical? Perhaps not. But if buyers have sense enough to bargain for compensation arrangements that align their agent’s interests with their own objectives, rather than with the seller’s, then the agent can steer them back toward reason when their minds become clouded by emotion.
This is important. Divorcing the commissions — the buyer pays the buyer’s agent, the seller pays the listing agent — is potentially the most significant reform that can be made today in residential real estate. But if buyers persist in acting like goofy teenagers on a carnival midway, they will continue to be — and they will deserve to be — nothing but sucker-bait for well-prepared sellers.
But even in the presence of cooly rational buyers, can the commissions actually be divorced? That’s the subject of our next installment.
In Part III: Follow the money down the rabbit’s hole…
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Jay Ovalle says:
Greg, I am sorry that you feel this way. As one who has confronted the issue as far back as 1986, I admire and can appreciate your idealism. Then, I too, was full of your unbridle enthusiasm when I joined the first company in the USA created to represent buyers exclusively. America First Home Store (later Buyer One) was, not surprisingly, greeted by the local MLS membership as “voodoo real estate.” And that was probably one of the nicest things they said about us. Those were the days of Ridgely Evers and then Barry Miller of Buyer’s Resources, who later started REBAC and in 1995 sold it (out) to the NAR for $300K… and that was the end of the agency/commission debate. The horse was totally and sincerely dead. We all went home and joined the likes of Russell who argued then and know that we are in it for the money. How American is that?
November 8, 2007 — 7:57 pm
Greg Swann says:
> The horse was totally and sincerely dead.
“An invasion of armies can be resisted, but not an idea whose time has come.” — Victor Hugo
November 8, 2007 — 8:20 pm