Fixing the Real Estate Model … Can it Be Done?

avatar.jpgOne of these days, I need to spend some time in an office meeting explaining how to comment on a blog. Even anonymously. Maybe then it wouldn’t seem like I’m in the midst of a one-man duel over the issue of commissions paid when an unrepresented buyer is involved.

Here’s the basic issue at hand, the issue which underlies everything else we are discussing … the system is fakakta. I’ve tried finding a way to walk the fence over the past several months but as arguments take place, the justifications don’t make as much sense. There ought to be a better way … I’m just not certain it’s going to happen.

In an ideal world, sellers would pay their agents and the buyers would pay theirs. The only reason the sellers currently pays both out of their proceeds (I’m not yet conceding that point) is because that’s the way it was done in the days of subagency, when there were no buyers’ agents – only buyers who thought they had an agent.

I’ve argued that the status quo needs to be maintained because, as a whole, the public doesn’t seem to see the value in separate buyers’ representation. There are any number of reasons for this, among them that it’s easy to tell when a transaction goes very wrong but not as easy to differentiate between a transaction that’s smooth or very smooth.

The reason? We don’t always let our clients in on what we’re doing behind the scenes. Why? Because in 99 percent of cases they don’t care. They just want the sale done. It’s a wonderful little cycle. We know they don’t see the value and we don’t tell them the value because we know they don’t want to know. Try to break that one …

Peoria aren’t going to pay for something if they don’t see the value. And for all the time and energy spent explaining why there’s value, it doesn’t seem the message is spreading all that quickly.

This is best proven in the notion of some firms providing rebates back to buyers. The overwhelming evidence to date is both those who see the value and those who don’t see the value aren’t enticed by the rebate. Those who see the value believe they get what they pay for. Those who don’t see the value don’t see it at any price.

And so the current system stands.

I was accused today of viewing my commission as just my half of the 6% I charge. (And note to the tremble-before-the-DOJ crowd — I can discuss the commission that I charge as much as I want. It’s not price fixing for one person to discuss their commission that they charge in the course of doing business. It’s called advertising. Yes, I’m tired of that moronic subplot.) I stand guilty as charged.

Maybe that’s the wrong view. Maybe I ought to be hustling for every last dollar that I can make. My checking account and my wife would be all the happier, especially with Sephora about to open around the corner. But I just don’t see it that way.

That’s why I write into my listings that it’s a lower rate if there’s an unrepresented buyer involved. But if they’re going to be unrepresented, they’re going to be unrepresented. It’s up to the buyer to find a home inspector, make sure the inspections are done, send over the inspection report and fulfill all of their tasks. I’ll watch to make sure things are moving along, but I’m not assisting in the transaction.

Changing the commission system also would do away with this myth of “saving” money by going through the listing agent. A seller’s as likely to pocket the difference if there were a reduced commission as to give it to the buyer. Maybe even more likely. But if both sides were being paid separately, this little game would disappear.

Sadly, this seems like a utopian ideal with no chance of success. Not unless we can get buyers en masse to see why they need to be represented, that selling one or two homes in a lifetime isn’t the same as selling one or two a week or a month. Not unless we elevate ourselves in the public mind above the level of clerk.

There are multiple obstacles in our path. Maybe some will never be overcome. But it’s a direction we ought to be looking. Because the way it works now just doesn’t make sense.

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Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.

0 Comments

  • Norm Fisher 11 years ago

    I would welcome the changes which you suggest. Lenders and mortgage insurers in Canada are just beginning to recognize a buyer brokerage fee as an expense which can be rolled into the mortgage financing. This will be helpful for us to move in that direction.

    I think it solves all kinds of problems the industry faces including making it more affordable to sell through an agent. I would also prefer to negotiate my buyer brokerage fee directly with my client instead of being told what I’ll be paid by the seller and their agent.

  • Jeremy 11 years ago

    I agree with the idea of modifying listing agreements for our sellers to reflect that an unrepresented seller will be just that – unrepresented. The question I have is, are we truly facilitating the transaction on behalf of our client, Mr. and Mrs. Seller, if we are not assisting to orchestrate the details of the transaction are we truly working in the best interests of our client? Good points nonetheless …

  • Jonathan Dalton 11 years ago

    Norm: it sounds like you’re dealing with a slightly different animal. We’re not told what you’ll be paid here – you can negotiate a different fee than the co-broke, if you can get the buyer to pay the difference.

    Jeremy: one of the folks in my office raised that exact point. That’s one of the reasons why I charge 4% if there’s an unrepresented buyer – because I will be doing a little more work in making sure the buyer meets the deadlines all the way down the line.

    Some items – staying on top of the buyers’ lender – are the same. Others – making sure they know when the BINSR is due – fall outside the realm of what I do when another agent’s in the transaction.

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