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.
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Thank you so much for writing this! I have been reading Greg’s posts and have just been shaking my head. You have responded as I wish I would have been able. Thank you again for being the level headed real estate group blog.
Benn, you haven’t laid a glove on me. The points you raise here are either already addressed in detail in my argument or they’re straw men — disputing things I’ve never said. I don’t think you read what I have written carefully, but, in any case, the honest way to engage in this type of debate is to quote the matter you think you are disagreeing with in context and then elucidate your disagreement. It’s perfectly fine for you to say, “I don’t want to believe what Greg says because I just don’t want to.” That would make you an American. But you have not done the slightest bit of damage to the argument I have put forward. I don’t believe you can, first because I am right, and second because I addressed every possible objection in detail as I was working.
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Ha, don’t be paranoid, Greg, no one’s throwing punches around here…
In fairness, the trackback is wrong- this should link to the previous article which is where my original question about dual agency went unanswered.
As for whether you’re wrong or right on any and/or all levels is not up to me, but where I see it leading is, and this is what I’m addressing.
Debating the tiny points is fruitless, let’s just address the outcome and save us both days of explaining our points…
The bottom line in what I’m saying about your idea is it removes a seller’s ability to create incentive within their profit margin- this in no way hurts a buyer, in fact, it should come off of the sales price if the buyer can afford to pay the commission out of pocket (as well put 20% down)- either way, you’re right, the buyer pays it in the end.
My answer to your 15 page diatribe is simply this- the buyer already pays the 3% anyway, at least the seller has it built into the sales price to be negotiated down even further. You’re asking a buyer to jump a new hurdle of paying 3% out of pocket. How does that motivate a buyer? It doesn’t. It leaves them to call your sign- now you’re really financing it on top of the sales price. How is THAT buyer friendly or even wise?
Eventually (a year from this becoming practice), the seller will have to take into account that a buyer will need to tap into 3% of the sales price and escalate to offset to the point that the buyer is now paying a $103,000 final sales price or $97,000, either way, the buyer is still paying the commission- so what’s the point in ‘touching’ your argument? There isn’t one, really.
I read your current post, and I still think you’re missing my point- either way, I am an American consumer, and I do disagree with you. Unless you can take this from an objective logical approach to an ‘on the street perspective’ in 1000 words or less, we’re not going to see eye-to-eye. Objective & logical is what gets policy into trouble. You have to look at the longterm.
For the record, you did say in your current article that buyer’s agents are good, but you also said they’re dishonest- we will never agree on that last point.
Benn -
Why the focus on 3%? Who sets that? By putting the payment in the Buyer’s hands, they are able to better negotiate their fee with their representative, rather than depend primarily on what the Seller is willing to offer.
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Jim, it already is in the buyers hands, redfin does this every day exactly the way it’s structured. just remove the rebate and lower the sales price, either way, the buyer is in control.
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and- because the commission is not an incentive for the buyer to buy. The incentive is from the seller, to an agent to sell their house, from their profit margin to SELL not to provide incentive to a buyer. If a seller wants to create an incentive from their profit to buyers, it should be seperate and on the hud-1.
I find Greg’s thread to be extreme and antagonistic. In part 1 he makes the argument that NAR was created as a conspiracy against the consumer. The price for real estate representation was increased because professionals are doing the representing. It costs money for me to be educated and remain in business. That cost is passed to the consumer just like it is when I buy a pack of gum.
I pay for the advertising, the packaging, the label, the reputation; none of which add value to the gum. But I pay for it.
“Conspiracy against the consumer” is retold so many times it makes me wonder if Oliver Stone is his BFF.
I do agree with some of what Greg points out but it’s difficult to find amongst all of the claims of “conspiracy,” “parasitic fees” and “deception.”
Mentioning in part 4 that if I’m scrupulous, I’ll help my wayward client for nothing, makes me, once again, question what I agree with. If I go to another dentist who screws up my filling, I highly doubt that my current provider will be so scrupulous as to fix the mistake for free.
People who buy cars without representation aren’t spending (in my market) a minimum of $500,000. Oftentimes with the expertise buyers claim to have, they don’t even know what they don’t know. To say that they get what they wanted in the way they wanted is misleading. They may be happy with their unrepresented decision for the moment but once they understand that they could have done better with a professional, that gratification will vanish.
I’m not “pretending” to be any one’s representative. Every time I sign a Disclosure Regarding Agency Relationship, I not only explain to the client who I represent, I acknowledge it with my signature.
“They’re still learning that I know what they did not” . . . but sometimes they never figure it out. A near and dear person to me bought unrepresented and gave 23 feet of lakeshore in the city to the seller for no compensation and thought he was getting a great discount when they accepted an offer for $2000 less than list (In his mind, that compensation was because they didn’t have an agent!). I now have the splendid privilege of trying to find a buyer for this self-same property. They still have no clue what they didn’t, and don’t, know. They bought without representation again and without selling their home first. They thought the prices on the flyers in the neighborhood are what they should list for. Touring said houses (which also have not sold) changed the wife’s mind. What they didn’t know . . . scares me.
Have to run to remaining 300 plus booths at NAR convention but added a link to your blog post and comments above to wiki:
http://realestatecafe.pbwiki.c.....ommissions
Would gladly to talk in person with anyone attending NAR convention after exhibit hall closes at 6pm. Open to perspectives for and against divorcing commissions, particularly positions based on consumer benefit.
You can reach me at the convention via
http://twitter.com/realestatecafe