Divorcing Commissions – Disintermediation of the Buyer’s Agent

Over at the Bloodhound Blog, Greg continues his thread on Divorcing the Real Estate Commission. Meaning that the seller pays their agent, and the buyer pays his own agent.

Removing the incentive the seller has to elevate their product over thousands of others does level the playing field and makes all products equal (so to speak), but what it also does is remove the need for the buyer’s agent all together- you get either more stupid people knowing everything, or you get more dual agency- how fun for the seller’s agent.

Now Greg in the past has argued against Dual Agency, but under Greg’s plan, you actually get more dual agency. Buyers are cash poor, and credit stupid. Under Greg’s plan, the idea of saving 20% to put down on a home would now be increased to 23%- as if buyers ever managed to save the 20% in the first place.

Divorcing commissions sounds like a great idea, but it really becomes an opportunity for a seller’s agent to make more in commissions which a seller’s agent could (unlikely) then use as a new incentive to buyers- a rebate perhaps?

The idea of divorcing commissions is a sham. The idea of increasing standards on Real Estate Licensing is also another sham disguised as pro-consumer. It is anti-consumer because it eliminates the idea of a consumer’s ability to learn what we know; it just got harder, and less likely. Consumers would skip the idea of licensing altogether (small investors, estate planners, flippers, buyers who just want the contract classes), drive by Greg’s sign, call him, and Greg would begin the process of entering into Dual Agency- go figure.

Now, if this was not Greg’s intention, great, but it is the outcome of what he is preaching. I am still unclear in Greg’s plan as to who is actually left to protect the buyer- I am confident that I do a great job in shredding the listing agent’s argument in ‘assumed value’ of the listed home. As Greg made his argument, he based his example on the homes value being an absolute $100k- but when I represent, I would calculate the cost to close, cost to sellers, and offer based on what I really feel the homes value really is (wholesale)- in this case $92,000 (I won’t even get into “percieved value”), and we’ll meet somewhere in the middle. Now many would say- yes, but in a hot market where homes fly off the shelves you pay asking. I say (using Greg’s facts as he illustrated) we’ll wait, or we’ll move down the street. A removal of a savvy buyer’s agent would only leave the buyer to believe the seller’s agent when he says, “not a penny less than $100k.” Whatever.

I can tell you right now that I can dent any CMA you’ve based your price on, and I can for sure dent your appraisal- hand me the phonebook. Do you think the seller’s representative would go that far for you? That’s laughable. The great thing about a buyer’s agent is that I can find options to this overpriced, bullheaded seller’s house. I can bring a buyer what he doesn’t know. Would a seller’s agent do that? That’s the buyer’s risk to take.

Buyers should not buy into the charade of divorcing commissions. In this climate where we’ve seen values spike and readjust and sellers cashing out on perceived values, the cost to sell is nothing. If a buyer does not want to finance those costs then the answer is buyers should fight the asking price, and come to the table with cash- it is an investment, after all.

I for one am all for reform, but let’s reform something that’s really broken. How about we reform the idea that seller’s agents are necessary. I mean, why not? What’s good for the goose…

Now, before everyone gets their whitey tighties in a wad– I’m simply pointing out how I see it. I’ve acted on both sides of the transaction, and I for one ask buyers to secure representation. I’ve done the buyer acting alone bit before, and I assure you that I was fair to them, but my seller absolutely won all the way to the bank. They’re still learning that I know what they did not– ignorance is not bliss, it is the difference between cashing out later, and a short sale failure.

Remember this- as an agent, it is always assumed that a buyer’s agent represents the seller until the buyer accepts formal representation. Sellers lose this functionality of the buyer side commission when disintermdiating the buyer’s agent. Now, Mr. Seller, you no longer have an army selling your home- you have one lonely listing agent. That measly 3% drives the entire membership of 1000s of local Realtors to bring you a buyer- now what do you have? Under divorced commissions, you’ve got squat.