by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

Okay, carrying on from the idea of the Divorced Commission — a condition whereby, by some means, the buyer’s broker’s compensation has been divorced from the listing agreement — what are the implications for the Multiple Listings Service model of propagating real estate listings?

As we are seeing, divorcing the buyer’s agent’s compensation from the listings agent’s compensation has salutary consequences with respect to the agency relationships of both sellers and buyers and with the cooperation of agents. By getting rid of the doctrine of procuring cause, we eliminate the need for high secrecy among agents.

The practice the NAR calls “cooperation” is actually a metaphor for a graduated hostility. Because there are two “sides” built into the listing commission, the short-term pecuniary self-interest of the listing broker is to keep both “sides” to himself. The idea of procuring cause is a way of inducing “cooperation” by delimiting and circumscribing what we might describe as the leonine avarice of the listing broker.

But in a condition of Divorced Commissions, the listing agent never has access to more than one side of the transaction (except in a disclosed dual agency). The buyer chooses his own representation, and compensates his agent from his own side of the ledger. The issue of procuring cause has become moot.

Moreover, an unrepresented seller has no need to worry about compensating the agent of a represented buyer. In the same way, an unrepresented buyer isn’t compelled to compensate the listing agent for advice and counsel he does not receive.

These benefits carry over to the MLS as well.

Consider this excellent harangue by Jay Thompson:

Pardon my rant…ARMLS (Arizona Regional Multiple Listing Service) drives me insane! There are “rules and policies” that every ARMLS member must follow. Failure to do so can (and should) result in a fine for each infraction. Here’s the thing that just drives me batty:

Real estate agent contact info in the public remarks section. It SHOULD be a flagrant violation. Why? Because I share a consumer version of the MLS listing with buyer clients and prospects. So I send a client/prospect an MLS listing, and right there plain as day Read more

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

I think you’re twice a fool. We’re coming after our competitors on price because we already have them beat on service — and you know it. The farriers made your argument a century ago — with the same result.

Technorati Tags: arizona, arizona real estate, blogging, compensation for buyer representation, disintermediation, phoenix, phoenix real estate, real estate marketing

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

Nominate me Ikonoklastes, for I am come to raze this temple of half-baked ideas. I want to come back to the MLS later in the week, and I have a deep need to expose the motivations of brokers, as these are distinguished from the motivations of lesser licensees. But for now I want to take on the idea of market value.

Jeff Brown, whom I admire without limit, asks of me:

I’m still wondering though about the apparent premise underlying your argument that says the buyer pays everything.

That premise is this: That somehow the market value of the home is controlled by something other than supply/demand, and the other factors of which we’re all aware. Would you please clear this up for me?

There are actually two different issues on the surface there, and there is still a third issue buried in the underlying premises.

First things first: In every economic transaction, unless the seller is taking a loss — or unless the seller pays for something outside of the transaction — the buyer pays for everything. This is true of anything that can be bought, and it is why — in every business except real estate — the buyer is given the red-carpet treatment. The seller (of anything) brings the value to be sold, but the buyer brings every dollar of the money, and every dollar that is disbursed to the seller and to any other involved parties is disbursed from the buyer’s pile of dollars.

In real estate, we make believe that the money is first transferred to the seller and then instantaneously distributed to the other parties, but this is a sleight of hand we effect in order to get the sales commissions past the lender. It might once, historically, have described a sequence of events, but even then the activity was a pantomime.

The seller does not cause the sale by claiming to pay for it. The buyer causes the sale, and no uncoerced sale ever happened until the buyer caused it.

Moreover, nothing in the laws of god or man ever prevented a seller from paying sales commissions out-of-pocket, in advance, instead of Read more

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

Taking on Mark Nadel’s white paper on real estate commissions, Kevin Boer at Three Oceans Real Estate points out that there is more at stake than any one particular negotiation:

Successful agents, however, know that a solid business is built on long-term relationships with satisfied clients. If a past client indeed thought his Realtor had left $10,000 on the table, that would be the end of that relationship. No more future deals, and no more future referrals.

For agents who think long-term, however, the math goes something like this:

20 extra hours of work =

75% greater chance of doing another transaction with that same client in 5 years

+

75% greater chance of getting 1 referral a year for the next 10 years from that client.

No matter how you slice that one, that’s a lot of money the Realtor is leaving on the table by being shortsighted.

This is a reasonable argument, and a one-off transactional analysis is common in economics, where entrepreneurs succeed by taking account of The Big Picture.

To be fair to Nadel, he suggests short-term incentives to offset what he views as short-term disincentives. His suggestion comes pretty close to a net listing, though, a type of listing contract that is frowned on by regulators in Arizona.

Here’s why: I convince Mrs. Newlywidowed that her long-time family home, now an empty nest, is only worth $90,000. I offer to sell it “for free” unless I can get more than $90,000, in which case I will take $.50 on the dollar for every dollar over $90,000. I sell the home for $300,000, taking $105,000 in commission, leaving $195,000 for Mrs. Newlywidowed, where she could have netted $282,000 or more.

That notwithstanding, Kevin has a fun take on this idea.

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

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

Northern Virginia Real Estate Guide has further thoughts on tailoring real estate commissions to fit the task.

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

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

Tyler Sookochoff ask these questions in a comment to another post, but my reply is long enough that I think it warrants a post of its own.

Marketing of homes aside, do you rely solely on your local MLS to do CMAs and price homes you’re hired to sell? Or could you survive/thrive without the MLS?

Too many questions conflated as one. There are actually three justifications for the MLS: Advertising, the co-broke — and protection of the earned commissions of “procuring” agents. The latter is what is literally meant by “cooperation” — all member agents agree in advance to respect each other’s client relationships, with a dispute-resolution procedure if they don’t.

If the MLS were opened up or replaced, would sellers still want maximum exposure for their properties? Yes, certainly.

Would this entail an offer of broker cooperation/compensation? That depends on whether the buyer’s agent’s compensation continues to come through the seller/listing agent, or whether the RESPA/HUD-1 procedure can be interpreted or revised to permit buyers to finance the buyer’s agent’s compensation as part of the home loan. (This is what is happening now, it’s just being done by sleight of hand through the seller and listing agent.)

Will brokers use whatever price information they have at hand to prepare CMAs? You bet — but not exclusively. Their own on-the-ground knowledge of neighborhoods and the comp listings, plus a first-hand inspection of the subject property are at least as important as any information derived from a database.

So the question is not, will I be stuck working without an MLS (commercial brokers often do, as do land and business brokers)? The question is, what form might a future MLS take?

For what it’s worth, I’m a skeptic on MLS-replacement for now. First, it takes an incredible amount of data to make an MLS listing worthwhile — more work than FSBO sellers might be willing to do, in many cases entailing knowledge they do not have. Second, significant details vary from one locale to another.

Witness: My friend and colleague Richard Riccelli is selling a triplex right now. What’s a triplex? In Boston and New York City, it’s a Read more